Financial analysis &amp; statements

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# Financial analysis & statements - PowerPoint PPT Presentation

Financial analysis &amp; statements. Financial Analysis. Methods to monitor the fiscal status of the organization over a period of time Monthly, quarterly, annually Methods Break even analysis Income statements Cash flow statement Balance sheet Budget statement. Break Even Analysis.

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Presentation Transcript
Financial Analysis
• Methods to monitor the fiscal status of the organization over a period of time
• Monthly, quarterly, annually
• Methods
• Break even analysis
• Income statements
• Cash flow statement
• Balance sheet
• Budget statement
Break Even Analysis
• How many units of a product must be sold in order to cover all costs of production of that unit
Fixed

Variable

• Costs that remain steady regardless of volume
• Maintenance
• Salaried staff
• Mortgage
• Costs that change in proportion to a change in volume
• Supplies
• T-shirts
Costs
Break Even Analysis
• Method #1
• BE=F+(V*Units sold)/Units sold
• BE=break even
• F= fixed costs
• V= variable costs

### Break Even

Method #2

Break Even Analysis
• How many units of a product must be sold in order to cover all costs of production of that unit
• Formula
• BE=F / (P – V)
• BE= Break even point
• F = Fixed costs
• P = Selling price per unit
• V = Variable costs per unit
Break Even
• BE=F / (P – V)
• F=\$2650
• V=\$7
• P=\$60
• BE=2650 / (60-7)
• BE=2650 / 53
• BE=50 people

Total revenue = 50*\$60=\$3000

Break Even Analysis
• Fixed costs = \$8000
• Variable costs = \$10/person
• Bike rental = \$50/bike
• BE=F / (P – V)
• BE=8000/(50-10)
• BE=8000/40
• BE=200 bikes
Break Even Analysis
• Profit
• \$40 profit per bike over 200
• 250 bikes: 50*\$40=\$2,000
• 350 bikes: 150*\$40=\$6,000
• Loss – 150 bikes
• Expenditures (total fixed & variable costs)
• 8000+(\$10*150)=\$9,500
• Revenues
• \$50*150 bikes=\$7,500

Fixed

Variable

\$2,000 loss

Worksheet

Loss – lower than BE

BE= 2650/(100-7)

BE=29 units

Worksheet

Loss – lower than BE

Expenditures:

\$2650 (fixed)

\$140 (variable cost per unit..20*\$7)

\$2790

Revenues:

\$2000 (20 people * \$100)

Loss: -\$790

Worksheet

Profit – higher than BE

Revenue: (40)

\$100-\$7/person over BE (29)

\$93 * (40-29)

Profit: \$1023

Revenue: (60)

\$100-\$7/person over BE (29)

\$93 * (60-29)

Profit: \$2883

Income Statement

Usually monthly, quarterly & annually

Clear Water Rafting Company

Income Statement as of July 1- 31, 2011

• Starting a new company:
• 1st year prepare monthly projections
• Years 2-3 Quarterly projections
• Years 4-5: Annually
Balance Sheet
• Financial condition of a business at a single point in time
• End of month, quarter, year
• Provides information about a company’s assets, liabilities, and owner’s equity (capital)…owes vs. owns
• Terms…
Balance Sheet
• Current assets
• Cash & assets that can be turned to cash quickly (within a year)
• Inventory
• Bank deposits
• Accounts receivable
• Amts not yet collected from customers but are due
• Fixed assets
• Used to produce goods & aren’t for sale
• Land, building, machinery, equipment
Balance Sheet
• Current liabilities
• Debts for regular business operations that will come due within a year
• Accounts payable
• What is owed to suppliers for things bought on credit
• Salaries
• Long term liabilities
• Due after a year
• Mortgages, bonds, large loans
• Equity (owners net worth)
• Portion of business owned free and clear of all debts
Balance Sheet
• Assets = liabilities + equity or
• Equity = assets – liabilities

Clear Water Rafting Company

Balance Sheet as of December 31, 2007

AKA: Net worth

Adjust equity to make it “balance” to reflect the remaining value “owed” to the owners

Budget Statement
• Expended monies
• Allocated monies
• % of allocated \$\$ that is committed
Cash Flow Statement
• Income statement provided information about revenues coming in and expenses going out, but not cash in and cash out
• What’s already in the bank
• Negative cash flows okay, but not sustainable forever
Cash Flow Statement

Matches income statement figures

Clear Water Rafting Company

Cash Flow Statement - 1st & 2nd Quarters

* Note that the numbers in parenthesis indicate a negative balance

In the bank

Cash Flow Statement

Matches income statement figures

Clear Water Rafting Company

Cash Flow Statement - 1st & 2nd Quarters

* Note that the numbers in parenthesis indicate a negative balance

In the bank

Cash Flow Statement

First month to exceed savings at start of fiscal year

Clear Water Rafting Company

Cash Flow Statement - 1st & 2nd Quarters

* Note that the numbers in parenthesis indicate a negative balance

Positive cash flow

In the bank