Sunteți pe pagina 1din 40

Financial Management

CAIIB MODULE D Presentation by Prof. S.D.Bargir Joint Director,IIBF

Module D topics
Marginal Costing Capital Budgeting Cash Budget Working Capital

COSTING
Cost accounting system provides information about cost Aim : best use of resources and maximization of returns cost = amount of expenditure incurred( actual+ notional) Purposes +profit from each job/product, division, segment+pricingdecision+control+profit planning +inter firm comparison

Marginal costing
Marginal costing distinguishes between fixed cost and variable cost Marginal cost is nothing bust variable cost of additional unit Marginal cost= variable cost MC= Direct Material + Direct Labour +Direct expenses

Marginal costing problems


Sales (-) variable cost (=) contribution Contribution(/ divided by) sales (=) C.S. Ratio Contribution=Fixed cost (=)Break even point Fixed Cost (/ divided by) contribution per unit = break even units

Basic formula
SP less 10 9 VC 6 6

Sales price (-) variable cost= contribution


= = =
Contribution

4 3

8
7 6

6
6 6

=
= =

2
1 0

5
4

6
6

=
=

(1)
(2)

Marginal costing problems


SP = Rs.10, VC =Rs.6 Fixed Cost Rs.60000 Find - Break even point (in Rs. & in units) - C/S ratio - Sales to get profit of Rs.20000

Marginal costing problems


Sales Rs.100000 Fixed Cost Rs.20000 B.E.Point Rs.80000 What is profit ?

Management decisions- assessing profitability CONTRIBUTION/SALES=C.S.RATIO


Produ ct sp vc
Contribtio n

c/s

Ratio %

ranking

A B

20 30

10 20

10 10

10/2 0 10/3 0

50%

33% 2
25% 3

40

30

10

10/4 0

DECISION when limiting factors


SP VC Rs.14 8 Rs.11 7

Contribution Per unit Labour hr. pu


Contri.per hr

6
2 3

4
1 4

DECISIONS
Make or buy decisions Close department Accept or reject order Conversion cost pricing

CAPITAL BUDGETING
It involves current outlay of funds in the expectation of a stream of benefits extending far into the future
Year 0 1 2 3 4 Cash flow (100000) 30000 40000 50000 50000

Types of capital investments


New unit Expansion Diversification Replacement Research & Development

Significance of capital budgeting


Huge outlay Long term effects Irreversibility Problems in measuring future cash flows

Facets of project analysis


Market analysis Technical analysis Financial analysis Economic analysis Managerial analysis Ecological analysis

Financial analysis
Cost of project Means of finance Cost of capital Projected profitability Cash flows of the projects Project appraisal

Methods of capital investment appraisal


DISCOUNTING Net present value (NPV) NON-DISCOUNTING Pay back period

Internal rate of return Accounting rate of (IRR) return


Profitability Index or Benefit cost ratio

Present value of cash flow stream(cash outlay Rs.15000)@ 12%


Year 1 2 3 4 5 6 7 8 Cash flow 1000 2000 2000 3000 3000 4000 4000 5000
PV factor @12%

PV 893 1594 1424 1908 1701 2028 1808 2020 13376

0.893 0.799 0.712 0.636 0.567 0.507 0.452 0.404

Present value of cash flow stream(cash outlay Rs.15000 )@10%


Year 1 2 3 4 5 6 7 8 Cash flow 2000 2000 2000 3000 3000 4000 4000 5000
PV factor @10%

PV 1818 1652 1502 2049 1863 2256 2052 2330 15522

0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.466

CALCULATION NPV/IRR
Outlay 15000 15000 Difference PV @10% 15522 PV @ 12% NPV

13376 -

522 (1624) 2146

IRR continued
IRR= LR +( NPV by LR/ difference between NPV) x (HR-LR) LR= 10% NPV by LR= 522 Difference between NPV= 2146 HR less LR= 12 (-) 10 = 2 IRR= 10%+ (522/2146)X2 IRR=10%+0.49 IRR=10.49%

The timing of the cash flows is critical for determining the Project's value. below the line for cash investments or above the line for returns.

Rs.51 Lakh Year 1 Rs.102 lakh

Rs.51 Lakh Year 2

Rs.61 Lakh Year 3

Year 0

Net Present Value Year Cash Flow Dis. Factor Present @10% Value

0 1 2 3
NPV

-102 51 51 61

1 0.91 0.83 0.75

-102 46.36 42.15 45.83 32.34

@27% 0 1 2 3 NPV -102 51 51 61 1 0.78740 0.62000 0.48818

Value -102 40 32 30 0

The evaluation of any project depends on the magnitude of the cash flows, the timing and the discount rate. The discount rate is highly subjective. The higher the rate , the less a rupee in the future would be worth today. The risk of the project should determine the discount rate.

Internal Rate of Return (IRR) IRR is the rate at which the discounted cash flows in the future equal the value of the investment today. To find the IRR one must try different rates until the NPV equals zero.

PRICING DECISIONS
Full cost pricing Conversion cost pricing Marginal cost pricing Market based pricing

BUDGET

Quantitative expression management objective Budgets and standards Budgetary control Cash budget

of

PROFIT PLANNING
Budget & budgetary control Marginal costing CVP and break even point Comparative cost analysis ROCE

PRICING DECISIONS
Full cost pricing Conversion cost pricing Marginal cost pricing Market based pricing

Operating leverage Financial leverage


OL= amount of fixed cost in a cost structure. Relationship between sales and op. profit FL= effect of financing decisions on return to owners. Relationship between operating profit and earning available to equity holders (owners)

BUDGET

Quantitative expression management objective Budgets and standards Budgetary control Cash budget

of

PROFIT PLANNING
Budget & budgetary control Marginal costing CVP and break even point Comparative cost analysis ROCE

PRICING DECISIONS
Full cost pricing Conversion cost pricing Marginal cost pricing Market based pricing

Operating leverage Financial leverage


OL= amount of fixed cost in a cost structure. Relationship between sales and op. profit FL= effect of financing decisions on return to owners. Relationship between operating profit and earning available to equity holders (owners)

Working capital
Current assets less current liabilities = net working capital or net current assets Permanent working capital vs. variable working capital

Working capital cycle


cash> Raw material > Work in progress > finished goods > Sales > Debtors > Cash> Operating cycle it is a length of time between outlay on RM /wages /others AND inflow of cash from the sale of the goods

Examples from book


P-369 P-375 P-377 P-379 P-380 P-385 P-387 P-393

Examples from book


P-413 P-414 p-415 P-417

***

THANK YOU WISH YOU BEST OF LUCK sudaaba@iibf.org.in

***

S-ar putea să vă placă și