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Financial analysis & 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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financial analysis
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
Break Even Analysis
  • How many units of a product must be sold in order to cover all costs of production of that unit
costs
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 analysis1
Break Even Analysis
  • Method #1
    • BE=F+(V*Units sold)/Units sold
      • BE=break even
      • F= fixed costs
      • V= variable costs
break even

Break Even

Method #2

break even analysis2
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 even1
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 analysis3
Break Even Analysis
  • Bike rental business
    • 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 analysis4
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

worksheet1
Worksheet

Loss – lower than BE

BE= 2650/(100-7)

BE=29 units

worksheet2
Worksheet

Loss – lower than BE

Expenditures:

$2650 (fixed)

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

$2790

Revenues:

$2000 (20 people * $100)

Loss: -$790

worksheet3
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
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
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 sheet1
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 sheet2
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 sheet3
Balance Sheet
  • Assets = liabilities + equity or
    • Equity = assets – liabilities
slide24

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
Budget Statement
  • Expended monies
  • Allocated monies
  • Revenues received
  • % of allocated $$ that is committed
cash flow statement
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 statement1
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 statement2
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 statement3
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

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