2 Cash Flow Management

[May, 2023]

JICA PROJECT TEAM

1.Financial Statement
2.Cash Flow Management (CFM)
for SME manager
3.Financial Analysis
4.Management Accounting
5.Business Plan & Company Road Map
6.FM Tools to Business Improvement
7.Operating Profit Analysis
8.Management Accounting (Advanced)
9.Cost Accounting (Basic)
2
CFM
Before we
Two Types of “Cash Flow” learn CFM

*Definition in this CRT

１ .Cash Flow Statement in Financial Statement

(*CFS)

２ .Cash Flow Management for SME Manager

(*CFM) CFM
3
CFM

Reason for Bankrupt

Why some companies go bankrupt ?
 The product does not sell well.
 Cannot repay debt.
 Cannot pay wages or salaries to
employees.
Eventually,
The firm goes bankrupt due to lack of Cash.

4
CFM

Do BS & PL indicate cash flow issues?

(Unit:Thousand)
Sales 1,000,000 A Asset Liabilities
Cost of Goods Sold 300,000 B 1.Current Assets 10,000 1.Current Liabilities 5,000

Gross Margin 700,000 C=A-B Cash 4,000 Bill of payment 3,000

Accounts Receivable 3,000 Short-term Debt 2,000
Sales, General and Administrative Exp. 300,000 D
Inventory 3,000
Operating Profit 400,000 E=C-D 2.Fixed Asset 3,000 2.Fixed Liabilities 5,000
Non Operating Expenses 300,000 F Tangible fixed assets 3,000 Long-Term Debt 5,000

Ordinary profit 100,000 G=E-F Shareholders' Equity

Capital stock 3,000
Extraordinary loss 80,000 H
Total 13,000 Total 13,000
Profit before tax 20,000 I=G-H
Tax 15,000 J
Profit after tax 5,000 K=I-J

We cannot find where the company needs to improve in term of cash

flow management, although we check BS and PL carefully.
5
CFM

CFM (analysis) tells you

 Why the company have excess cash, or
why not enough cash

 You intuitively understand cash

movements of a relatively small-sized
company.
6
CFM

The Purpose of CFM therefore is...

1. To get a big picture of Cash Flow of SME
• Get an overview of the company
• Do not spend much time on the minor details
Find out where major issues are
2. To set criteria to decide new investment,
borrowing, revenue distribution, etc.

To manage the business while maintaining

an appropriate income and expenditure
structure by watching entire cash flow. 7
CFM

How to do CFM
1. Classify cash according to purpose (Fixed
Cost, Variable Cost etc.)

2. Consider the balance between Cash IN

and Cash OUT

3. Use a method called “Back Casting” to

make long-term plans
8
Back Casting
The idea of Back Casting The
future you
Set goals at some point in
the future and think about want to
what you should do now be
based on those goals

Now Forecasting

Draw the future as an extension of

" Achievements so far"
© 国際開発センター
CFM

Definition of Key Terms for CFM

The definitions of these terms are not the same as those of FS

Variable Cost (VC) : Expenses that fluctuate according

to changes in sales
Gross Profit (GP) : Sales – Variable Cost
Fixed Cost (FC) : Expenses that occur constantly,
regardless of sales
Gross Profit to Sales Ratio : GP / Sales
Labor Distribution Ratio : Labor Cost (wages & salaries) / GP

10
 CFM

Definition of Key Terms for CFM

Fixed costs Can NOT be controlled daily

• Expenses which do not vary with changes in volume

of output or activity (production or sales).
• Expenses which remain constant, even when the
company stop their activities (production or sales).
• Fixed costs include personnel costs, depreciation
costs, rents, interest payments, insurance, etc.
11
 CFM

Definition of Key Terms for CFM

Variable costs Can be controlled daily
• These are costs that vary in proportion to sales or production in
order for a company to continue its activities.
• For example, in the manufacturing industry, there are raw material
costs, purchased parts costs, outsourced processing costs, direct
labor costs (payment amount depending on the work amount),
packing and packaging costs, freight costs, power costs, fuel costs,
etc.
• In the distribution business, there are purchase costs, sales
commissions, rebates, and freight costs.
12
Please prepare a few sheets
of plane paper and a pencil
or pen

13
CFM

Basic form of CFM diagrams

14
CFM

1) Draw a
rectangle
2) Draw a
vertical line
3) Draw a
horizontal line
4) And draw like
this
Remember
this shape 15
CFM

Diagram for CFM Part 1

Variable Cost Step1 Enter Sales

Salaries,
Step2 Enter Variable Cost &
wage Gross Profit
Fixed
Sales
Cost Depreciation
Step3 Enter Fixed Cost
Gross
Enter Salaries,
Profit
Other
Depreciation, other cost

Step4 Enter Profit before Tax

Profit before tax

Ste p1 Ste p2 Ste p3 Ste p4

16
CFM

Make Diagram for CFM by yourself

in 30 seconds From nothing now
Variable Cost Step1 Enter Sales

Salaries,
Step2 Enter Variable Cost &
wage Gross Profit
Fixed
Sales
Cost Depreciation
Step3 Enter Fixed Cost
Gross
Enter Salaries,
Profit
Other
Depreciation, other cost

Step4 Enter Profit before Tax

Profit before tax

Ste p1 Ste p2 Ste p3 Ste p4

17
CFM
3 minutes You got this information from
Try Q1 the firm’s sales manager.
In this year,
Variable Cost
Sales were 2,000
( )
Variable cost was 400
Salaries, Fixed cost was 1,400
wage
Wage cost was 800
( )
Fixed Depreciation cost was 200
Sales
Cost
( ) Gross Depreciation
( )
Other cost was 400
Profit ( )
Other
( )
( )
Calculate
(1) Profit before Tax
Profit before tax (2) Gross Profit to Sales Ratio
( )
(3) Labor Distribution Ratio
Check Slide 10. 18
CFM

Answer
Variable Cost
(400)

Salaries, (1)Profit before Tax: 200

wage

Sales
Fixed (800)
(2) Gross Profit to Sales Ratio
(2000) Gross Cost Depreciation
=1600/2000 =0.8
(200)
Profit (1400)
(1600) Other
(400)
(3) Labor Distribution Ratio
=800/1600 =0.5
Profit before tax
(200)

19
CFM
5 minutes
Try Q2 You got these figures from
accountant.
Variable Cost
In this year,
( )
Profit before Tax: 200
Salaries, Gross Profit to Sales Ratio: 0.8
wage
Labor Distribution Ratio: 0.5
( )
Fixed
Sales Salaries & Wage: 800
Cost
( ) Gross Depreciation
( )
Depreciation: 200
Profit ( )
( ) Other
( )
Calculate
(1) Gross profit
Profit before tax (2) Sales
( )
(3) Variable Cost
(4) Fixed cost 20
CFM (1) Gross Profit
Labor Distribution Ratio: 0.5
Answer Gross Profit = 800÷0.5 ＝
1,600
(2) Sales
Variable Cost Gross Profit to Sales Ratio: 0.8
(400) Sales = 1,600÷0.8 = 2,000
Salaries, (3)Variable Cost
wage = Sales - Gross Profit
Fixed (800) = 2,000 – 1,600 = 400
Sales
(2000) Gross Cost Depreciation (4)Fixed Cost
(200)
Profit (1400) = Gross Profit - PBT
(1600) Other = 1,600 – 200 = 1,400
(400)

Profit before tax

Did you understand the
(200) relationship between
these numbers? 21
 CFM
Depreciation

What is Depreciation?
• Depreciation means that when we purchase a high-
priced electrical tool, machinery, interior equipment,
etc. It is not recorded as an expense all at once in the
purchase year but is divided and recorded as
“depreciation cost” one year at a time (eg. over 10 yrs).
• It is important to note that depreciation is an expense,
but there is no cash movement.
22
CFM

Depreciation Cost will increase,

but Cash will not move
(Example)
Depreciation using the straight-line method
The company bought a machine for 100.
Its useful life is 5 years. They depreciated using the straight-line
method.
Machine Value 100 ÷ Useful Life 5 = 20 to be depreciated per year
If so, this transaction affects the financial statements as follows
 Change of Balance Sheet
Beginning :Asset 100 Ending: Asset 80

 Change of P/L statement

Cost : Depreciation 20 Profit decrease by 20
23
Depreciation

Important point!

Depreciation is an expense, but

there is no cash movement.

24
CFM

Diagram for CFM

Variable Cost
Step1 Enter Sales
( )

Salaries, Step2 Enter Variable Cost &

wage Gross Profit
( )
Fixed
Sales Step3 Enter Fixed Cost
Gross Cost Depreciation
( ) ( ) Enter Salaries,
Profit ( )
Depreciation, other cost
( ) Other
( )
Step4 Enter Profit before Tax
Profit before tax
( )
25
CFM
Diagram for CFM Part 2
after Profit before Tax
Step5 Enter Tax
Variable Cost
Calculate Profit after Tax
( )
Salaries,
wage
Step6 Add Depreciation
( )
Fixed
Depreciatio Step7 Subtract Debt Repayment,
Cost
Sales
n
Investment
Gross ( )
Other
( )
Profit ( )
Depreciation
Step 8 Calculate balance carried
( )
TAX
Debt
Repayment
forward

Profit before tax

Profit Profit Investment
( ) after tax after tax balance They can use balance
carried
forward
carried forward for their
Step1 Step2 Step3 Step4 Step5 Step6 Step7 future plan

26
 Try Q3 3 minutes
You get the additional
Variable Cost information from finance
(400)
manager.
Salaries,
wage

Fixed (800) Tax: 40

Sales
Gross Cost Depreciation Debt Repayment: 200
(2000)
Profit (1400) (200)
Investment: 60
(1600) Other
(400)
Complete CFM diagram
Profit before tax
and calculate balance
(200)
carried forward.
27
Answer
 First, deduct tax from profit before Tax
(200-40=160) to get profit after Tax.
 Then add the depreciation cost.
Variable Cost
(160+200=360)
(400)
 Now you know the money they can use
Salaries, this term, which is 360.
wage  Deduct Debt Repayment (200) and
Fixed (800) Investments (60). (360-260=100)
Sales
Gross Cost Depreciation  Balance carried forward is 100
(2000) (200)
Profit (1400)
(1600) Other
(400)
De pre c iation De bt(200)
TAX(40) (200) Re payme nt
Profit before tax
Profit (160) Profit (160) Inv (60)
(200) after Tax after Tax BCF (100)
28
 By drawing a CFM diagram,
you can visually find where the
problem of the company is.

 You can save time by just

focusing on the problems you find

29
CFM

Try Q4 : Please make a diagram For CFM

You are a financial consultant for Company A. 5 minutes
You got the following financial information from the Finance Manager.
• Sales : 5,000
• Variable cost : 1,000 Variable Cost
( )

• Fixed cost : 2,600 Salaries,

wage

• Personnel costs out of fixed costs : 1,300 Fixed

( )
Depreciatio
Cost
• Depreciation cost out of fixed costs : 500
n
Sales ( )
Gross Other
( )
• Other costs out of fixed costs : 800 Profit
( )
( )
Depreciation
Debt

• Tax : 400
TAX Repayment

Profit before tax

• Repayment of debt : 500

Profit Profit Investment
( ) after tax after tax balance
carried

• Investment in this year : 300 Step1 Step2 Step3 Step4 Step5 Step6 Step7
forward

(1) Draw a CMF diagram and plug in the figures.

(2) How much is left as balance carried forward?
(3) What is Gross Profit to Sales Ratio?
(4) What is Labor Distribution Ratio? 30
 Answer
CFM

Variable Cost
(1000)
Balance carried forward : 700
Salaries,
Gross Profit to Sales Ratio : 0.8
wage
(1300) Labor Distribution Ratio : 0.325
Fixed
Cost Depreciation
Sales (500)
(2600)
(5000) Gross
Other
Profit
(800)
(4000) De pre ciation De bt(500)
TAX(400) (500) Re payme nt
Inve s tme nt
Profit before tax Profit Profit (300)

(1400) afte r tax afte r tax balance carrie d

(1000) (1000) forward

(700) 31
CFM
5 minutes
Try Q5 : Please make a diagram For CFM
You are a financial consultant for Company B.
You got the following financial information from the Financial Manager.
The Financial Manager said “Don’t worry, we are profitable”
• Sales :5,000 Variable Cost
• Variable cost : 2,000 ( )

• Fixed cost :2,600 Salaries,

wage

• Personnel costs out of fixed costs : 2,200 Fixed

( )
Depreciatio
Cost
• Depreciation cost out of fixed costs : 100 Sales ( )
n

Gross
• Other costs out of fixed costs : 300 ( )
Profit
Other
( )
Depreciation
• Tax :100 ( )
TAX
Debt
Repayment

• Repayment of debt: 500 Profit before tax

Profit Profit Investment

• Investment in this year :300 ( ) after tax after tax balance

carried
forward
Step1 Step2 Step3 Step4 Step5 Step6 Step7

(1) Draw a CFM diagram and plug in the figures.

(2) Do you think that they can repay the debt?
(3) Why did Financial Manager say, “we are profitable?”
32
CFM

Answer
 They have NOT enough cash to repay debt
Variable Cost (Cash at hand = 400, Debt repayment= 500)
(2000)

Salaries,
 They obviously need cash (At least 400)
wage

Sales Fixed (2200)

Depreciation
(5000) Cost
Gross (100)
(2600)
Profit Other
Step7
(3000) (300)
Depreciation
TAX(100) (100)
Profit before tax Profit Profit Debt(500)
after tax after tax Repayment
(400)
(300) (300)
Step1 Step2 Step3 Step4 Step5 Step6 Cash
Investment shortag
(300) e (400)
33
CFM

Case1: Gross Profit to Sales Ratio

You talked with financial manager and got information
 Compared to the last year
• Sales increased
• Gross profit decreased
• Profit before tax also decreased
Why?
Try to get a big picture!
34
CFM

Please draw diagrams For CFM

And calculate Gross Profit to Sales Ratio
 Try to think about why
VC VC variable costs are
increasing,
Salaries
FC Sales Salaries
 How can we increase
Sales Dep+
FC GP without changing
GP other Dep+
GP
other sales?
Profit before tax
Profit before tax
Key : VC
2018 2019

35
When we find a problem of variable costs
 Looking at the breakdown of Sales products
 The sales of the product are increasing, but
they may sell products with low margins.
Marketing
 Material cost is higher than market price
Change of supplier
 Material is not used efficiently
Production control
Production is not catching up and outsourcing
costs are increasing
Strategy 36
CFM

Case2: Labor Distribution Ratio

 Salaries or Wages are one of the largest fixed

costs.

 It is important for managers to control labor

costs properly.

37
CFM

Labor Distribution Ratio

 Labor Distribution Ratio varies by company and
industry.
 It is important to see historical changes
 It is generally said that If the Labor Distribution Ratio is
above 60%, wages and salaries may be higher than the
profit generated by the employees.
 The important thing is to know what % of Labor
Distribution Ratio should be achieved in order to secure
the necessary profits. 38
How to lower Labor Distribution Ratio
If you are asked by Financial manager to help them lower Labor distribution ratio,
How do you answer?

Labor Distribution Wages and Salaries

Ratio Gross Profit

1. Lower wages or salaries but increase employee turnover

risk..
2. Increase Gross Profit Increase sales and reduce variable costs..
39
CFM

Understand clearly by visualizing

VC To make here smaller

FC
Salarie s
To lower Labor
Sale s
GP
De p+
othe r
Distribution Ratio
Profit be fore tax
To make here bigger
Increase sales or decrease VC
40
CFM

Try Q6: If you can become a company owner,

which company would you choose?
 The Labor Distribution Ratio is 50% for all of
them.
A B C
Salary
Salary
40 Salary
FC 60 FC
80
100 100
other FC FC
other FC
160

other FC
5 minutes
41
CFM
Answer : A
Calculate GP and add to the diagram, to get Profit Before Tax
GP= Labor Cost ÷ Labor Distribution Ratio

A B C
Salary
Salary
GP 40 Salary
FC 60 FC
GP 80 80
100 100
120 other FC GP FC
other FC
Loss 160 160
Profit before tax
-20 other FC
+20
0 42
CFM

Try Q7 : If you can be a company owner,

which company would you choose?
 We assume the Labor Distribution Ratio is 40%
A B C
Salary
Salary
40 Salary
FC 60 FC
80
100 100
other FC FC
other FC
160

other FC
5 minutes
43
Answer: A
Calculate GP and add to the diagram, to get Profit Before Tax
GP = Labor Cost / Labor Distribution Ratio
A B C
Salary
Salary
40 Salary
FC 60 GP FC
GP 80
100 100 100
150 other FC FC
other FC GP
160
200
Profit before tax
other FC

+50 +0
+40
Profit before tax 44
CFM

Comparison of reducing Labor

Distribution Ration from 50% to 40%
Labor Distribution Ratio 50% Labor Distribution Ratio 40%
Profit Profit Change
Gross Profit
margin FC
before Tax before Tax
A 150 100 20 50 30
B 100 100 -20 0 20
C 200 160 0 40 40

45
CFM

Case3: Proper Borrowing Amount

• When the finance manager is consulting with you,
the manager said,
“I am thinking of borrowing money to buy a
machine.
Could you advise me about the proper amount
that we can get financed for by the bank?”

• What advice would you give as a financial

consultant? 46
CFM

Variable Cost
300
Debt Repayment < Depreciation
+Profit after
tax
Salaries,
Second check point
wage

Fixed
350
Then!
Cost Depreciation
150
Calculate the maximum
600
Sales
1000 Gross Other
First check point borrowing amount
220
Profit
700
200
De pre ciation
De bt based on useful life
of Asset
TAX 30 150
Re payme nt
100

Profit before tax Inve s tme nt

Useful life of Asset:10 yrs
Profit Profit
20
100 afte r tax afte r tax
70 70 balance The maximum amount of
carrie d
borrowing:2,200
forward 100
47
Ste p1 Ste p2 Ste p3 Ste p4 Ste p5 Ste p6 Ste p7
CFM

Confirmation!
 If you repay the debt,
• BS is affected by this repayment.
Asset and liabilities are decreased.
• No impact on P&L

 If you pay interest,

• Fixed cost in P&L increases
• Cash in BS decreases

48
CFM

Case4:
Retained money for future investment
 The Director of the company that you are
consulting for plans to build a factory in 10 years.
 The construction cost of the factory will be 1,000.
 He wants to retain 1,000 internally in 10 years

The Director ask you how much sales they need in

order to retain 1,000 internally in 10 years.
As the consultant, can you determine the sales
amount required by using a CFM diagram?
49
Financial data
Item Figure
balance carried forward 100
 balance carried
Investment required each year 30
forward = 100
Annual repayment of debt 170 100=1000/10 Year
Depreciation 150
We don't think
Tax rate 50% of Profit before Tax about present value
Sales,wage Cost ? or future value at
this moment.
Labor distribution ratio = 50% 50%
Other Fixed Cost 250
Sales
GrossGross
ProfitProfit RatioRatio
to Sales 70%
50
CFM

Variable Cost
( ) Try Q8
Salaries,

Fixed
wage
(?)
6 minutes
Cost Depreciatio

Sales
( )
(
n
)
Back casting
Gross Other
( )
Profit ( )

( ) TAX Depreciation Debt

( ) ( ) Repayment
( )
Profit before tax
Profit Profit Investment
( ) after tax after tax ( )
( ) ( ) balance
carried
forward 100
Step1 Step2 Step3 Step4 Step5 Step6 Step7

51
CFM

Answer
(0.3X) Variable Cost Let sales be X,
600 Gross profit is 0.7X,
(0.35X) variable cost is 0.3X
Salaries, salaries and wage is 0.35X (GP 0.7X x 50%)
Fixed
wage
0.7X= 0.35X+150+250+300
(700)
Cost Solve the equation
Depreciation
X (1100) 150 0.35X=700
Sales
(0.7X) Other X=2000
Gross 250
2000
Profit De pre c ia tio n De bt
TAX( 1 5 0 )
(150) Re pa yme n t
1400
(170)
Profit before tax In ve s tme n t
Pro fit Pro fit
(300) (30)
a fte r ta x a fte r ta x
ba la n c e
(150) (150)
c a rrie d
fo rw a rd 1 0 0
S te p1 S te p2 S te p3 S te p4 S te p5 S te p6 S te p7
52
CFM

Relationship between FS and CFM

53
 TIPs for CFM
CFM

 In order to use CFM for analysis, cost segregation to variable cost

and fixed cost is the essential requirement.
 Left side is normal P&L cost structure.
Right side is a direct cost Variable Cost
( )

accounting which is Salaries,

wage

for CFM analysis. Fixed

( )

Depreciation

 If you cannot decide Sales

Cost
( )
( )

Gross
Variable cost or Fixed Cost, ( )
Profit
Other
( )

you may ask accountant

( ) De pre ciation
De bt
TAX
Re payme nt

of the company. Profit before tax

( )
Profit Profit Inve s tme nt
afte r tax afte r tax balance
carrie d
forward
Ste p1 Ste p2 Ste p3 Ste p4 Ste p5 Ste p6 Ste p7 54
CFM
Relationship between FS and CFM

P&L CFM Analysis

+Net Sales
-Variable Cost
Marginal Profit
-Fixed Cost
Operating Profit

Note: Variable costs are costs that change in proportion to the good or service
that a business produces. Fixed costs are business expenses that are not
dependent on the level of goods or services produced by the business. 55
Asante Sana!!

56
C3-1 Cash Flow Management(CFM) 1
Q1 What can't be intuitively understood with BS and PL alone?
1. Current Asset
2. Profit before Tax
3. Sales amount
4. Cash amount

Q2 What is the purpose of using CFM diagrams?

A: To get a big picture of Cash Flow of SME
B: Not to spend much time on small details
C: To have criteria in order to decide new investment, borrowing, revenue distribution, etc.

1. A only, 2. A & B, 3. C only, 4. A, B, and C

Q3 Which is the correct combination?

A: Variable Cost(VC) a: Sales – Variable Cost
B: Gross Profit (GP) b: GP / Sales
C: Fixed Cost (FC) c: Labor Cost (salaries, etc.)/GP
D: Gross Profit to Sales Ratio d: Expenses that occur constantly, regardless of sales
E: Labor Distribution Ratio e: Expenses that fluctuate due to changes in sales

1. A & d, 2. B & e, 3. C & c, 4. D & b

Q4 Which is the correct explanation for depreciation?

1. Cost will increase, but Cash will not change
2. If you do not depreciate assets, your profit for the current period will decrease.
3. Management can always decide annually whether to depreciate due to fluctuations in earnings
4. Large amounts of depreciation lead to cash shortages

Q5 What is usually said to be the ultimate reason for a company to bankrupt?

1 Because the financial statements are in the red
2 Because companies cannot do depreciation
3 Because no cash at hand
4 Because of soaring sales 57
C3-2 Cash Flow Management 2 - Quick Review Exercises (5 minutes)
Q1 Which is the correct explanation for Labor Distribution Ratio
1.Labor Distribution Ratio dose not vary by company and industry.
2.It is not important to see historical changes
3.It is generally said that If the Labor Distribution Ratio is above 60%, the wages or salary may be higher for the profit generated by the employee.
4.The important thing is to know what Labor Distribution Ratio should not be to secure the necessary profits.

Q2 If you are asked by Financial manager how to lower Labor distribution ratio of my company. How do you answer?
1. In order to lower Labor Distribution Ratio, there is only one way.
2. To make wage and salary smaller and or make Gross profit bigger.
3. If they make the wages or salary smaller, they will not face another risk such as employee turnover or risk of not being able to hire good employee.
4. If they want to increase gross profit, you advise them that decrease sales and increase variable costs.

Q3 When you visit a company you are consulting, you are asked by a finance manager, “I am thinking of borrowing money, please tell me how to
see the proper amount this company would finance from the bank”
If you were the consultant, what could be your answer to this question.
1. They need a lot of cash, so they should borrow as much as possible
2. Borrow the full amount that the bank lends
3. First, draw a CFM diagram and calculate the amount that can be repaid each year.
4. You advise them not to borrow because it is difficult to repay.

Q4 You are also asked by a finance manager “The amount of depreciation is large and thus there is no money to spend” How do you advise them.
1. Advise them not to spend cash until depreciation is complete.
2. First, advise them to sell their assets to reduce depreciation.
3. A large amount of depreciation does not mean that there is no cash.
4. Advise them that the depreciation calculation method should be changed now.

Q5 Which of the following is correct in the explanation of variable costs?

1. There are no variable costs in COGS
2. Variable costs are costs that change in proportion to the good or service that a business produces.
3. Variable costs are business expenses that are not dependent on the level of goods or services produced by the business.
58
4. There are no variable costs in sales and General admin Exp.
C3-1 Cash Flow Management(CFM) 1
Q1 What can't be intuitively understood with BS and PL alone?
1. Current Asset
2. Profit before Tax
3. Sales amount
4. Cash amount

Q2 What is the purpose of using CFM diagrams?

A: To get a big picture of Cash Flow of SME
B: Not to spend much time on small details
C: To have criteria in order to decide new investment, borrowing, revenue distribution, etc.

1. A only, 2. A & B, 3. C only, 4. A, B, and C

Q3 Which is the correct combination?

A: Variable Cost(VC) a: Sales – Variable Cost
B: Gross Profit (GP) b: GP / Sales
C: Fixed Cost (FC) c: Labor Cost(salaries, etc.)/GP
D: Gross Profit Margin Ratio d: Expenses that occur constantly, regardless of sales
E: Labor Distribution Ratio e: Expenses that fluctuate due to changes in sales

1. A & d, 2. B & e, 3. C & c, 4. D & b

Q4 Which is the correct explanation for depreciation?

1. Cost will increase, but Cash will not change
2. If you do not depreciate assets, your profit for the current period will decrease.
3. Management can always decide annually whether to depreciate due to fluctuations in earnings
4. Large amounts of depreciation lead to cash shortages

Q5 What is usually said to be the ultimate reason for a company to bankrupt?

1 Because the financial statements are in the red
2 Because companies cannot do depreciation
3 Because no cash at hand 59
4 Because of soaring sales
C3-2 Cash Flow Management 2 - Quick Review Exercises (5 minutes)
Q1 Which is the correct explanation for Labor Distribution Ratio
1.Labor Distribution Ratio dose not vary by company and industry.
2.It is not important to see historical changes
3.It is generally said that if the Labor Distribution Ratio is above 60%, the wages or salary may be higher for the profit generated by the employee.
4.The important thing is to know what Labor Distribution Ratio should not be to secure the necessary profits.

Q2 If you are asked by Financial manager how to lower Labor distribution ratio of his company. How do you answer?
1. In order to lower Labor Distribution Ratio, there is only one way.
2. To make wage and salary smaller and or make Gross profit bigger.
3. If they make the wages or salary smaller, they will not face another risk such as employee turnover or risk of not being able to hire good employee.
4. If they want to increase gross profit, you advise them that decrease sales and increase variable costs.

Q3 When you visit a company you are consulting, you are asked by a finance manager, “I am thinking of borrowing money, please tell me how
to see the proper amount this company would finance from the bank” If you were the consultant, what could be your answer to this question.
1. They need a lot of cash, so they should borrow as much as possible
2. Borrow the full amount that the bank lends
3. First, draw a CFM diagram and calculate the amount that can be repaid each year.
4. You advise them not to borrow because it is difficult to repay.

Q4 You are also asked by a finance manager “The amount of depreciation is large and thus there is no money to spend” How do you advise
them.
1. Advise them not to spend cash until depreciation is complete.
2. First, advise them to sell their assets to reduce depreciation.
3. A large amount of depreciation does not mean that there is no cash.
4. Advise them that the depreciation calculation method should be changed now.

Q5 Which of the following is correct in the explanation of variable costs?

1. There are no variable costs in COGS
2. Variable costs are costs that change in proportion to the good or service that a business produces.
3. Variable costs are business expenses that are not dependent on the level of goods or services produced by the business. 60
4. There are no variable costs in sales and General admin Exp.