1 / 9

Financial Properties

1 - Revenue Single Product R = P x Q Multi Product R = PiQi. 2 – Cost VC vs. AFC AVC vs. AFC MC vs. Incremental Cost Sunk Cost Programmed Cost Avoidable Cost Fungible Cost Opportunity Cost Relevant Cost Joint Cost Accounting Alocation. Financial Properties. 3 – Margins

macon-park
Download Presentation

Financial Properties

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. 1 - Revenue Single Product R = P x Q Multi Product R = PiQi 2 – Cost VC vs. AFC AVC vs. AFC MC vs. Incremental Cost Sunk Cost Programmed Cost Avoidable Cost Fungible Cost Opportunity Cost Relevant Cost Joint Cost Accounting Alocation Financial Properties

  2. 3 – Margins Gross Trade Net Profit A: Gross Margin (Profit) Total GM = R – CGS Unit GM = P – Unit CGS Four Factors Q P Cost Product Mix B: Trade Margin MfgrWholesalerRetailier For a Single Channel: Pm = P x (1-%Discount) Ex: Pc = $2.00 % Discount = 0.03 $1.40 = 2.00 x 0.70 Also Pc = Cost/(1-%Discount) For N Channels Pc = Cost/(1-%Discount) Cost = Pc(1-%Discount)

  3. C: Net Profit Margins (before taxes) R -CGS_______ GPM -Other VC -FC_________ Net Profit Margin (NPM) % of NPM = NPM R 4 – Contribution Analysis BEQ = FC / (P-AVC) % CM = (P-AVC) / P BER = _FC = BEQ x P % CM Note BER = P x BEQ = P x FC / (P-AVC) Divide by PP x [FC / P – AVC]=FC P P %CM

  4. Applications Sensitivity Analysis: Vary P or AVC or FC to determine BEQ Calculate Q to achieve Profit Objective () Qp = FC + P P – AVC Suppose objective is to achieve a profit of X% on sales R – C = % R PQ-AVC(Q)-FC = %  PQ Q (P-AVC) – FC = %  PQ Example: P=$25; AVC=$10; FC=$200,000; %  = .20 Q(25-10) – 200,000 = .20 25Q Q = 20,000 5 – Cannibalization Assume: X X+ P 1.00 1.10 AVC .20.40 CM .80 .70 Qx = 1,000,000if X+ is not introduced; = 5,000,000 if X+ is introduced Qx+ = 1,000,000 if X+ is introduced Assume no incremental FC

  5. Query: Should X+ be introduced? Solution: Method A X+Gain 1,000,000x.70 = 700,000 Cannibalization Loss 500,000 x .81 = 400,000 300,000 Method B Contr: w/o X+1,000,000x.80=800,000 Contribution with X and X+: X 500,000 x .80 = 400,000 X+ 1,000,000 x .70 = 700,000 Total Contr. Of X + X+= 1,100,000 Contr of X alone = 800,000 Net Gain from Add. of X+ =300,000 6 – Financial Concepts and Ratios A –Liquidity Working Capital = Current Assets – Current Liabilities Current Assets = Cash, Accounts Receivable, Inventory, Prepaid Expenses Current Liabilities = Accounts Payable, Income Taxes Operating Leverage = FC/VC Current Ratio = Assets Liabilities Quick Ratio =Assets-Inventory Liabilities

  6. Asset Management • Inventory Turnover = Sales / Inventory • Asset Utilization = Sales / Total Assets • Profitability Ratios • Profit Margin in Sales = Profitability Before Taxes / Sales • Return on Assets = Profitability Before Taxes / Total Assets • Return on Investment = Net Income / Investment (Investment = Total Assets) Net Sales X Net Income Investment Net Sales • ROI = f (Stockturn, ratio of CGS to Net Sales)

  7. Net Present Value Illustration Calculating Net Cash Flows GI = Sales – CGS = 1,000,000 – 700,000 = 300,000 Taxable Income = GI – Depreciation = 300,000-60,000 [(700,000 – 100,000) x .10] = 240,000 Net Income = Taxable Income – Tax = 240,000 – 120,000 (240,000 x .5) = 120,000 Net Cash Flow = Net Income + Depreciation = 120,000 + 60,000 = 180,000

More Related