Agri Hub: Financial For Non Finance

Agri Hub
Financial For Non Finance
July , 2022
Disclaimer: Information presented here is a draft for discussion only and has not been independently verified. It should not be distributed further nor relied on by any third party without the ATA's prior written consent.
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Objectives of the training: Key takeaways
overview of what data is needed in the financial decision-making process

and why. who uses the data and what they do with it
provides you with an insight into financial terminology and its various
nuances so is appropriate to understand before we look at the main
financial paper of profit and loss, cash flow and balance sheet
How we use budgets and forecasts to predict and manage the future
business opportunities.
business health check which provides you with an insight into the well-
being of your organization and gives advice and suggestions on how to
tackle and identify issues before they become unsurmountable.
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Key Issues to be addressed ………….
• Data and Decisions

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• Who Uses Accounting Information and Why?

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• The Language of Finance

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• Profit and Loss Business Drivers

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• Cash and Profit – Understand the Difference

5
• The Balance Sheet, Budgets and Forecasts, The Management Accounts Pack
6 &Health Checks and KPIs
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1 What data do we need to make a robust decision?
 Decision made without a full and proper understanding of the consequences can affect
your business performance
 Making a decision about business based on financial data is:- based on historical data,
forecasts and budgets => assume that what happened previously will be what should
happen in the future
 What data do we need to make a robust decision?
Quality and timely information includes critical success factors (CSFs) and key
performance indicators (KPIs).
KPIs:- Gross profit percentage, New customers acquired per month, Turnover growth,
Debtor and creditor days, Return on equity
CSF:- New CEO appointed, Market share percentage goal realized, IT system
integrated across the business
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1 What data do we need to make a robust decision?
 A view from inside the finance department:- Borrowing/debt versus equity,
 What else can affect the financial statements? Depreciation, Stock and work in progress
(WIP),
 How external forces affect financial decisions:-

accounts and policies
Shareholder requirements and actions
 Strategic forces:- Cost savings , Interest rates, International currency management,

Business ethics
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2 Who Uses Accounting Information and Why?
User :-
 Internal user :- The finance department, Employers and prospective employers , Other
departments in a business
 External users :- The customer, The supplier, The funder (private equity and asset-
based), The shareholder , Tax office , Regulators, Local and central government, The
competition and prospective competition, Trade unions, Prospective buyers of a
business, Accountants and auditors, Lawyers.
Why:-
 Mandatory requirements:-
 Requirements for different sizes of company
 Small companies
 Medium sized companies
 Large companies
 Requirements for auditing
 Non-mandatory information
 that isn’t necessarily in the public:- Management accounts, Budgets and forecasts,
Business plans, Aged debtors and creditors, Auditors’ management letters…..
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2
Who Uses Accounting Information and Why?
USER PURPOSE IMPORTANCE DECISION
• Having income in the form of • to invest more

Shareholders /owner • Display the profitability
Potential Investors of the business dividend • to withdraw
&/or the market value of their share
• Cost Control
Expansion
Management • to improve the profitability and
• know about what has happened financial position of the enterprise
Discontinue of Operation
Financing
• Business empires without regard to

• Display the profitability the interests of the community • Restricting monopolies
Government of the business
• To collect Tax • Amount of tax to be collected (Social
• Financial Position of the company obligation)
• To protect public interest
• To contribute more for profitability
Employees • Display the profitability
of the business • Profit sharing and bonus schemes To stick around in the Company
• The cash position of the company • Extension of credit to the company

Creditors: • The repaying capacity of the Provision of additional credit
• The solvency position of the company company
Loss of willingness to work with
• To know if they will be repaid • Terms of credit are set according

Suppliers • To assess the credit worthiness of a to the assessment of their customers'
business • To know the continuity of the financial health.
relation Diversification of the customer
• To assess whether a supplier

has the resources to ensure • Customer is dependent on a supplier
Customers • Diversification of the Suppliers
the steady supply of goods for a specialized component
in the future
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3 The Language of Finance
 Key financial statements and their language

 Balance sheet:- statement of the position at a specific point in time
 Profit and loss account:- a statement of the sales (income or turnover) less expenses
 Cash flow statement:- an analysis of cash creation and utilization

 Accounting language definitions and interpretations
 The accountancy equation :- Assets 5 Liabilities 1 Owners’ Capital
 Governance terms:- Transparency, Probity, Accountability
 Accountancy principles :- going concern basis
 Back to Basics:- Ledger, Entry, Journal,
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4 Profit and Loss Business Drivers
 Profit:- Decisions on price management: either cutting or increasing them.
 Cash :- frees up cash , Reducing debtor days and increasing creditor payment days
“Sales are vanity, profit is sanity and cash is absolutely essential”
 Customer service levels :- Blue Ocean strategy
“The better a business knows and understands its customers, and uses this
information sensibly, the more likely it is to be profitable”
 Quality :- only the best quality product or service is acceptable
“quality and accuracy are the only acceptable business drivers.”
Nuclear power station; Food industries ,beverage industries
 Value and ethics :- business models on ethical trading practices

Banks ,Pharmaceuticals…
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5 Cash and Profit – Understand the Difference
 What is cash?:- An asset and in the financial statements it is recorded in the balance
sheet as a current asset . Cash on hand, Petty cash ,cash at Bank
 What is profit?:- Profit is the difference between income and all its costs (expenses) to
a given point in time . Ie. Gross profit, Operating profit, Profit after interest and tax –
or net profit, Retained profit,
 The relationship between cash and profit:-
 Remember that profitable businesses do fail, as do companies with good cash flow
 Companies that are profitable and have a good cash flow are almost always successful
 Profit alone is not sufficient to survive
 Profit can be influenced by accounting policies, which is not something that always
affects cash.
 Which is more important – profit or cash?
 Shareholders, Funders, For acquirers, For employees
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Cash flow statements and cash flow projections :-

 Cash flow statement :- A source and application of funds (Cash) report,
 Cash flow projection :- about the future cash position of the business or department:-
 Ways to improve cash flow:- Reducing stock levels, Delaying (with their permission
preferably) payments of tax to MOR, Selling assets or even investments, Delaying
dividends
 Make more of what you have, be it profit or cash:-
Save on overheads , Check your credit rating, Free cash utilization, Grants and free
advice, Sell and lease back assets, Sell excess stock, Make money from excess
space, Joint venturing and cost sharing,
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Cash and Profit – Understand the Difference
XYZ - INDUSTRY PRIVATE LIMITED COMPANY
PROFIT AND LOSS ACCOUNT
For the year ended July 7,20XX
CURRENCY: ETHIOPIAN BIRR
Notes 2017 2016

REVENUE
Export sales 15 12,031,874.51 17,480,808.51
Local sales 15 0.00 -

12,031,874.51 17,480,808.51
COSTS OF PRODUCTION 16 7,709,359.72 10,690,111.12
GROSS PROFIT 4,322,514.79 6,790,697.39
BY PRODUCT SALES 29,062.00 188,758.10

4,351,576.79 6,979,455.49
LESS - EXPENSES
General and Administrative expenses 17 1,252,713.85 2,487,180.53
Financial charges 18 2,990,911.43 4,259,041.51
Audit fee - 15,000.00
4,243,625.28 6,761,222.04
PROFIT BEFORE TAX 107,951.51 218,233.45
PROVISION FOR PROFIT TAX 10 34,075.63 77,290.26
PROFIT AFTER TAX 73,875.87 140,943.19
TRANSFER TO LEGAL RESERVE (3,693.79) (7,047.16)

70,182.08 133,896.03
BALANCE BROUGHT FORWARD (2,811,028.15) (2,679,924.18)
TRANSFERRED TO CAPITAL 0.00 (265,000.00)
PRIOR YEAR ADJUSTMENT - -
BALANCE CARRIED FORWARD (2,740,846.07) (2,811,028.15)
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STATEMENT OF CASH FLOWS
For the year ended July 7,20XX
2017 2016
Cash flows from operating activities
Profit before tax 107,952 218,233
Adjutment for :-
Depreciation 231,841 597,910
Interest 2,982,175 4,037,181
3,321,968 4,853,325
Decrease / Increase in inventories & GIT 9,234,092 490,153
Decrease / Increase in debtors & prepayments (1,348,496) 512,660
Increase / decrease in creditors & accruals (584,201) (3,712,167)
10,623,362 2,143,971
Prior year adjustment 0 0
Taxation
Profit tax paid (77,229) (128,081)
Witholding tax paid 0 (62)
Net cash flows from operating activities 10,546,134 2,015,828
Cash flows from investing activities

Payments f or deferred charges 0 (518,966)
Purchase of fixed assets (2,832,726) (881,356)
Investment - Government Bond 0 (25,000)
Net cash flows from investing activities (2,832,726) (1,425,322)
Cash flows from financing activities

Loan received - net (2,650,435) 7,501,172
Interest paid (2,982,175) (4,037,181)
Capital contribution 0 450,000
Movement in share holders' accounts (2,476,000) 128,748
Net cash flows from financing activities (8,108,610) 4,042,739
Net increase / decrease in cash & cash equivalents (395,203) 4,633,244
Cash & cash equivalents at the beginning of the year (3,928,031) (8,561,275)
Cash & cash equivalents at the end of the year (4,323,233) (3,928,031)
Components of cash & cash equivalents

Cash and bank balances 758,932 1,065,723
Bank overdraft (5,082,165) (4,993,754)
(4,323,233) (3,928,031)
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The Balance Sheet, Budgets and Forecasts, The Management Accounts
Pack & Health Checks and KPIs
The Balance Sheet

 a snapshot of the financial standing of a business at a particular point in time.
 Assets being things a business owns or is owed
 Liabilities being things it owes
 statement of fixed assets and current assets less short-term and long-term liabilities, to
create net assets (or net worth)
 A statement showing how these net assets have been financed, for example through
profits being retained
 There are several ways you can use a balance sheet:
 For reporting purposes as part of a company’s annual accounts.
 To help assess the credit worthiness of a business at a given moment.
 To help analyze and improve the management of a business
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6 TheBalance Sheet, Budgets and Forecasts, The Management Accounts
BALANCE SHEET
As of July 7,20xx
Notes 2017 2016
NON CURRENT ASSETS

Property, plant and equipment 3.1,4 12,889,623.17 10,267,114.02
Deferred expenditures 3.2, 5 495,209.83 516,833.42
Investment - Government Bond 160,000.00 160,000.00
13,544,833.00 10,943,947.44
CURRENT ASSETS
Inventories 3.4,6 12,453,622.05 21,687,713.95
Debtors and prepayments 7 17,436,958.09 16,088,462.23
Shareholders' account 11 5,992,541.88 3,516,541.88
Cash and bank balances 8 758,931.78 1,065,723.25
36,642,053.80 42,358,441.31
CURRENT LIABILITIES
Creditors and accruals 9 136,928.44 721,129.62
Profit tax payable 10 34,075.63 77,228.55
Bank overdraft 12 5,082,164.92 4,993,753.82
Bank loan - current 13 34,148,108.57 36,871,407.62
39,401,277.56 42,663,519.61
NET CURRENT ( LIABILITIES) (2,759,223.76) (305,078.30)
NON CURRENT LIABILITIES

Bank loan - non current 13 7,225,399.00 7,152,534.79
NET TOTAL ASSETS 3,560,210.23 3,486,334.35
REPRESENTED BY
Paid up capital 14 6,265,000.00 6,265,000.00

Legal reserve 36,056.29 32,362.50
Profit and loss account (2,740,846.07) (2,811,028.15)
3,560,210.24 3,486,334.35
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Analysis of a balance sheet

 Current ratio:-
Current t ratio = Total current Asset
Total current liabilities
Does my business have enough current assets to meet the payment schedule of
current liabilities with a margin of safety?
 Quick ratio:-
Quick ratio = Current Asset –Stock should be between 0.5 and 1
Total current liabilities
The quick ratio is an acid test of whether or not a business can meet its obligations
if adverse conditions occur
 Working capital
Working capital = Total current assets - Total current liabilities
Working capital should always be a positive number.
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> Analysis of a balance sheet
 Debt/worth ratio (or gearing ratio)

Debt/worth or gearing ratio = Total Liability
Net worth
Is an indicator of a business’s solvency.
 Fixed asset turnover ratio

Fixed asset turnover ratio = Net Sales
Average fixed assets
Gives the investor an idea of how effectively a company’s management is using this
large and important asset
 Return on assets ratio

R OA = Net Profit
Average total assets
A high percentage return implies well-managed assets.
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> Analysis of a balance sheet

 The information can, however, be skewed, for two principal reasons:
1. It is all presented at a point in time
2. It is always historic in content
 a balance sheet does not consider potential purchases or sales of capital, equipment or
acquisitions of business or other assets.
 It simply records what is known at that point.
 The impact of intangible assets
 How assets are valued in a balance sheet
 Notes to financial statements
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> Budgets and Forecast

 What is a budget?>>>>>
If you don’t have a budget, it’s a little like getting into a car and having no idea
where you are aiming for or how you are going to get there.
 Budgeting basics
 Budgeting rationale and types
 New enterprise
 Spend or expenses budget
 What is a forecast?
Forecast is a much more active document.
 Differences between budgets and forecasts
 How to create a budget
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The Management Accounts Pack

 What is a management accounts
 For whom Management Account report
 Although there is no perfect management accounts pack there are some sound
good practice principles:
1. Fit the pack to the user
2. Make it timely
3. Keep it well presented and easy to follow and use
4. Keep asking how it can be improved.
And never lose sight of its inherent short-term and long-term value
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Business Health Checks and KPIs

 What is Business health check:-
Review of the critical processes involved in a business or within an identified area
of the business- to improve the efficiency and effectiveness of the business
 Why bother with a health check?
 What a business health check includes
 When to do a health check
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Business Health Checks and KPIs
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>>> Business Health Checks and KPIs

 KPIs evaluate business data against business goals and display current status by using
easy-to understand graphical indicators.
 Selecting KPIs :-
 Link them to the top-level goals for your business.
 Relate them to aspects of the business environment over which you have some
control.
 The key components of a KPI
 Past Performance,
 future performance
 understanding of benchmarks
“If you can’t take action, it is not key”
 What you need to measure and monitor
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>>> Business Health Checks and KPIs

 What you need to measure and monitor?
 Administration
 Finance
 Marketing
 Production/logistics/service delivery
 Personnel
 Product/service development
 Contingency planning
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Innovations to help our country grow
DISCLAIMER: The information presented in this document is a draft for discussion

only and has not been independently verified. It should not be distributed further by
the recipient nor relied on by any third party without the ATA's prior written consent.
Activity #1
List down the strengths and weaknesses of

your current business entity or preferred
business entity.
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2
What are financial statements?
According to The International Accounting

Standards Board (IASB) framework:
“Financial statements exhibit its users the
financial position, financial performance, and
cash inflow and outflow analysis of an entity.”
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2
What is the purpose of creating financial statements?
• A company's financial statements provide vital information about its

financial health. These statements are compiled based on day-to-day
bookkeeping that tracks funds flowing in and out of the business. It facilitates
the following:
‣Financial performance of the company with in the past accounting year
‣Financial position of the company at a specific point in time
‣The
Financial
cash position of the company at a specific point in time
statements enable us to measure current performance and compare
against established benchmarks; Also enables managers to track financial
performance to reach to the predetermined performance level
• Financial statements are generally prepared accounting staff using:-

- Accounting software E.g.. Peachtree, quick book, sage, ERP etc..
- Accounting standard E.g. IFRS,GAAP etc..
- Infrastructure Eg. Computer ,Network etc.
- Information Eg. Sales ,Cost ,Purchase ,Payroll ,Decision ,Budget etc.
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2
What are the different types of financial statements?
The most commonly used Financial Statements are ‘ Balance sheet’, ‘Profit & Loss account’
& ‘Cash flow statement’.
• Balance Sheet: A statement of the assets, liabilities, and capital of a business or other
organization at a particular point in time, detailing the balance of income and
expenditure over the preceding period.
• Profit and loss account: A financial statement that summarizes the revenues, costs and
expenses incurred during a specified period, usually a fiscal quarter or year
• Cash flow statement: A financial statement that shows how changes in balance sheet
accounts and income affect cash and cash equivalents, and breaks the analysis down to
operating, investing and financing activities
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2
What is a balance sheet and what are the components?
• Balance sheet is a summarized analysis in a ‘T’ form of all assets and liabilities of the
entity and represented in monetary terms
Dr. Cr.
Format of Balance Asset Liability
sheet Capital
Meanings of various terms:

• Asset: Asset is any owned physical object (tangible asset) or a right (intangible asset)
having economic value to the owner; Includes
- Current asset: Asset that can be quickly converted to cash or used up in operations. i.e.
Cash, marketable securities, accounts receivable, inventories, and supplies
- Long-term: Assets used for more than one accounting year. i.e. Fixed Asset ,long-term
receivable ,intangible assets ,lease right etc.
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2
What is a balance sheet and what are the components?
• Liability: Liability is an obligation of the business to deliver goods or to provide a

benefit in future ; Includes,
- Trade Payable
- Government obligation
- Bank loan
- Accruals
• Capital: Capital or owner’s equity is the balance of the two above that shows the net
wealth and interest of the investor in the company; Includes,
- Paid up Capital
- Retained Earning
- Legal reserve
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2 What
is an Income statement/P&L account and what are the
components?
• Income statement/Profit and loss statement: Financial statement that reports a
company's financial performance over a specific accounting period.
- Financial performance is assessed by giving a summary of how the business incurs its
revenues and expenses through both operating and non-operating activities
• Key terms:
- Net Income :Accompanied by increase in total assets, (but not necessarily cash) or decrease
in total liabilities.
- Net Loss : Decrease in owner’s equity
• Calculation of Net income:
- Net Income=Sales–Cost of Goods sold–Other expenses.
Note: Profitable business may also run short of cash, because the profit that it earns is
tied up in other assets i.e. Accounts Receivables, fixed assets etc. or else, it was used in
paying out its obligations like Accounts Payable etc.
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2 What is a Cash flow statement? What is the importance of maintaining
cash flow statement?
• Cash flow statement: A Cash flow statement shows how much cash is generated and
used during a given time period;
- Preparation of the statement is required by law, especially in case of financial statements of
Private Limited Company (PLC) and Share Company (S.C)
- It provides more detailed information about the movement of funds during the period.
- It shows the amount of cash generated from different sources and the areas on which it is
utilized
• Importance of Cash flow statement: It is important to measure cash outflows-

inflows to ensure:
- Sufficient profits are made to compensate owners for the investment made, efforts put in
and the risk taken for the business,
- Sufficient funds are available to meet the obligations/debts of the business as and when
required
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2
What are the components of a Cash flow statement?
• Cash flow statement is divided into three components:-

- Cash Flow from Operating Activities:
‣derived from the principal revenue producing activities of the business.
‣Implication: indicator of success or failure of a business’s operations
- Cash Flow from Investing Activities:
‣reports the aggregate change in a company's cash position resulting from investment
gains or losses and changes resulting from amounts spent on investments in capital
assets, such as plant and equipment
‣Implication: Helps in ascertaining whether the company is investing in resources that
are expected to result in increased profits in future periods or whether it is disposing
out resources already owned
- Cash Flow from Financing Activities:
‣Cash flows related to transactions with stockholders and creditors such as issuance of
share capital, purchase of treasury stock, dividend payments etc.
Note: If the cash flow from operations is continuously negative, this means that the
business revenue is not enough to recover the costs that are incurred to earn it.
Therefore, in the long run cash flow from operations must be positive
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3
What is accounting?
• Accounting is a systematic process of identifying, recording, measuring, classifying,

verifying, summarizing, interpreting and communicating financial information
• Accounting is also known as the language of Financial Decisions:- The better the
understanding of the language, the better is the management of financial aspects of
a company.
- An effective tool for measuring the financial pulse rate of the company.
- It is a continuous cycle of measurement of results and reporting of results to decision
makers.
People make decision
Business transactions occur
Accountants prepare reports

to show the results of
business operations
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3
Why is it important for managers to learn accounting?
Not to become a hostage of the accountants
You should be able to make a complete plan for your

activities including a budget
You should be able to read and discuss the results of

your enterprise
You should be able to understand the financing of your

company
You should be able to evaluate the work of your accountant

and Chief Financial Officer
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3
What is an accounting system?
• An accounting system is the system used to manage the income, expenses, and other
financial activities of a business
• Every accounting system, manual or computerized, has two aspects.

- First, it has to work under a set of well-defined concepts called accounting principles.
- Another, that there is a user-defined framework for maintenance of records and generation
of reports
• Element of Accounting system:-

- Accounting working (Manual and procedural)
- Accounting professional
- Business transaction
- Infrastructure i.e. Computer, Network and software
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4
What is Management accounting?
“Management accounting is a profession that involves

partnering in management decision making, devising planning
and performance management systems, and providing
expertise in financial reporting and control to assist
management in the formulation and implementation of an
organization's strategy.”
Institute of Management Accountants (IMA)
• In laymen terms, management accounting is :

- the process of preparing management reports
- provide accurate and timely financial and statistical information to managers to make
short-term and long-term decisions
- identifies measures, analyzes, interprets, and communicates information to enable an
organization to pursue its goals
- aimed at aiding managers inside the organization with decision making
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4
What is the importance of Management accounting
• Assists in making strategic decisions :

- Should the company invest in more equipment?
- Should it diversify into different markets?
- Should it buy another company?
• Helps in make-or-buy decisions:
- Is it cheaper to procure materials or a product from a third party or manufacture them in-house?
• Forecasts cash-flow:
- How much cost will the company incur in the future?
- Where will its revenues come from and will the revenues increase or decrease in the future?
• Helps in understanding performance variance:
- Report performance by relating what was predicted and what is actually achieved
- Analytical techniques to help the management build on positive variances and manage the negative ones
• Helps in assessing the returns:
- How should the company choose the most profitable one?
- At what level of production will company break-even?
- What are the cash flows likely to be?
Management accounting involves designing of budgets and trend charts, and
managers use this information to decide how to allocate money and resources to
generate the projected revenue growth.
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5
What are key financial metrics critical to Managers
An analytical review of the financial information should be made. The following .

ratios should be calculated and analyzed
LIQUIDITY RATIOS:

Current ratio = Current Assets
Current Liabilities

Quick ratio = Cash, Short term marketable securities
and net receivables
Current Liabilities

They are measures of the ability of the company to satisfy current obligations as they
become due.
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5
ACTIVITY RATIOS:

They are measures of how effectively a company uses its available resources.
Stock turnover = Cost of Sales

Average stock
 Days stock held = Total closing stock x 365

Cost of sales
SOLVENCY RATIOS:

Debt to equity ratio = Long term debt
Shareholders’ equity

They are measures of the long-term financial strength of the company.
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5
PROFITABILITY RATIOS:

They are measures of the management’s performance.

Gross Margin or = Net sales minus cost of goods sold
Gross Profit % Net sales

Operating Margin = Income before taxes and Interest
Net sales
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5
Break -even Sales Volume.
It is an indication of the extent to which operating expenses are covered by net

sales.
Break even Sales = Expenses x (100)

Gross Profit %

Break even Gap = Sales - Break-even sales

Break-even sales should be kept down relative to sales. Gross profit % can be
improved by reducing Break-even relative to sales.
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5
Key financial terms
• Revenue: Revenue is the income that a business has from its normal business activities, usually from the sale
of goods and services to customers
• Cost of goods sold: Cost of goods sold (COGS) is the direct costs attributable to the production of the goods
sold in a company
• Depreciation: Depreciation is an accounting method of allocating the cost of a tangible asset over its useful
life and is used to account for declines in value over time
• Amortization: Amortization is an accounting term that refers to the process of allocating the cost of an
intangible asset over a period of time.
• Net Income: Company's total earnings (or profit); net income is calculated by taking revenues and
subtracting the costs of doing business such as depreciation, interest, taxes and other expenses
• Interest expense: Interest expense is a non-operating expense shown on the income statement. It represents
interest payable on any borrowings – bonds, loans, convertible debt or lines of credit
• EBITDA: Earnings before interest, tax, depreciation and amortization (EBITDA) is a measure of a company's
operating performance. Essentially, it's a way to evaluate a company's performance without having to factor
in financing decisions, accounting decisions or tax environments.
- Calculation: Net Income + Interest Expense + Taxes + Depreciation/Amortization
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6
What are key financial metrics critical to Lenders and Investors
• Lenders/Investors assess a multitude of factors before extending loans/invest since

they want to minimize risk and maximize their returns (interest);
- Generally, they do not want to be involved in controlling the day-to-day management of the
company but want to ensure that their investment will yield significant returns
Critical ratios, which serve as a measure of financial credibility of companies:
• EBITDA:
Net Income 73,875.87
+ Interest Expense 2,982,175.37
+ Taxes 34,075.63
+ Depreciation & Amortization 94,460.93
EBITDA 3,184,587.81
• Interest coverage ratio 3,184,587.81
Measured as:- EBITDA / Interest Expense. 2,982,175.37
1.07
- Used to determine how easily a company can pay interest on outstanding debt.
- The lower the ratio, the more the company is burdened by debt expense.
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6
What are key financial metrics critical to Lenders and Investors
• Leverage ratio: Measured as:- Funded Indebtedness/EBITDA.
- Used to determine the total amount of debt relative to the cash flows of the company.
46,626,676.56
3,184,587.81
- The higher the ratio, the more highly levered the company is 14.64
• Fixed charge coverage ratio: Measured as:- EBITDA-Cash Capex/Interest + Principal.
- Indicates a firm's ability to satisfy fixed financing expenses.

3,184,587.81
5,300,869.68
- A ratio above 1.0 is desirable. 0.60
46

Agri Hub: Financial For Non Finance

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Agri Hub

Financial For Non Finance

overview of what data is needed in the financial decision-making process

• Data and Decisions

• Who Uses Accounting Information and Why?

• The Language of Finance

• Profit and Loss Business Drivers

• Cash and Profit – Understand the Difference

 A view from inside the finance department:- Borrowing/debt versus equity,

 How external forces affect financial decisions:-

 Strategic forces:- Cost savings , Interest rates, International currency management,

USER PURPOSE IMPORTANCE DECISION

• Having income in the form of • to invest more

• Business empires without regard to

• The cash position of the company • Extension of credit to the company

• To know if they will be repaid • Terms of credit are set according

• To assess whether a supplier

 Key financial statements and their language

 Cash flow statement:- an analysis of cash creation and utilization

 Profit:- Decisions on price management: either cutting or increasing them.

 Value and ethics :- business models on ethical trading practices

Cash flow statements and cash flow projections :-

CURRENCY: ETHIOPIAN BIRR

Notes 2017 2016

Local sales 15 0.00 -

COSTS OF PRODUCTION 16 7,709,359.72 10,690,111.12

GROSS PROFIT 4,322,514.79 6,790,697.39

BY PRODUCT SALES 29,062.00 188,758.10

PROFIT BEFORE TAX 107,951.51 218,233.45

PROVISION FOR PROFIT TAX 10 34,075.63 77,290.26

PROFIT AFTER TAX 73,875.87 140,943.19

TRANSFER TO LEGAL RESERVE (3,693.79) (7,047.16)

BALANCE BROUGHT FORWARD (2,811,028.15) (2,679,924.18)

TRANSFERRED TO CAPITAL 0.00 (265,000.00)

PRIOR YEAR ADJUSTMENT - -

BALANCE CARRIED FORWARD (2,740,846.07) (2,811,028.15)

XYZ - INDUSTRY PRIVATE LIMITED COMPANY

CURRENCY: ETHIOPIAN BIRR

Cash flows from investing activities

Cash flows from financing activities

Components of cash & cash equivalents

The Balance Sheet

CURRENCY: ETHIOPIAN BIRR

Notes 2017 2016

NON CURRENT ASSETS

NET CURRENT ( LIABILITIES) (2,759,223.76) (305,078.30)

NON CURRENT LIABILITIES

NET TOTAL ASSETS 3,560,210.23 3,486,334.35

Paid up capital 14 6,265,000.00 6,265,000.00

Analysis of a balance sheet

Working capital should always be a positive number.

> Analysis of a balance sheet

 Debt/worth ratio (or gearing ratio)

 Fixed asset turnover ratio

 Return on assets ratio

> Analysis of a balance sheet

> Budgets and Forecast

The Management Accounts Pack

Business Health Checks and KPIs

Business Health Checks and KPIs

>>> Business Health Checks and KPIs

 What you need to measure and monitor