2. FINANCIAL PLANNING
It is Financial Planning is the process
of estimating the capital required
and determining it’s competition. It is
the process of framing financial
policies in relation to procurement,
investment and administration of
funds of an enterprise.
3. Objectives of Financial Planning
Determining capital requirements
Determining capital structure
Framing Financial policies with regard to Cash control, Lending
Borrowing.
Optimum Utilization of the Financial resources.
5. Fund Flow Statement
Funds flow statement enables us to study the changes in the
financial position of a business enterprise between beginning and
ending financial statement dates. It is a statement showing
sources and uses of funds for a period of time.
8. CASH FLOW STATEMENT
The Statement of Cash Flows contains information on how much cash a
company has generated and used during a given period. It contains 3 sections:
cash from operations, cash from investing and cash from financing.) is one of
the three key financial statements that report the cash generated and spent
during a specific period of time (e.g., a month, quarter, or year). The statement
of cash flows acts as a bridge between the income statement and balance
sheet by showing how money moved in and out of the business.
9. 3 SECTIONS OF CASH FLOW STATEMENT
Operating Activities: The principal revenue-generating activities of an organization and other activities
that are not investing or financing; any cash flows from current assets and current liabilities.
Investing Activities: Any cash flows from the acquisition and disposal of long-term assets and other
investments not included in cash equivalents.
Financing Activities: Any cash flows that result in changes in the size and composition of the
contributed equity capital or borrowings of the entity (i.e., bonds, stock, dividendsDividendA dividend
is a share of profits and retained earnings that a company pays out to its shareholders. When a
company generates a profit and accumulates retained earnings, those earnings can be either
reinvested in the business or paid out to shareholders as a dividend.)
10. Calculating operating cash flow
Direct Presentation: Operating cash flows are presented as a list of cash flows; cash in from sales, cash
out for capital expenditures, etc. This is a simple but rarely used method, as the indirect presentation
is more common.
Indirect Presentation: Operating cash flows are presented as a reconciliation from profit to cash flow:
13. EVA
Economic Value Added (EVA) is a measure based on the residual Income
technique, which measures the return generated over and above investors’
required rate of return (hurdle rate). The metric serves as an indicator of
the profitability of projects undertaken and its underlying premise consists of
the ideas that (1) real profitability occurs when additional wealth is created
for the shareholders, and (2) that projects create value when they generate
returns above their cost of capital.
14. The Advantages of EVA include but not
limited to:
EVA complements financial data from various other methods of
business valuation and assessment.
It shows the cost management of businesses and illustrates working
capital availability after the deduction of its actual opportunity cost.
Another advantage of EVA is that it is also used as a management
incentive that ensures a company’s continuity of operations.
15. How to Calculate EVA..?
Where NOPAT = Net Operating Profits After Tax
WACC = Weighted Average Cost of Capital
Capital invested = Equity + long-term debt at the beginning of the period
and (WACC* capital invested) is also known as finance charge.
16. Case 1
Nopat
EBIT
Less interest
EBT
Less tax
Net Income
+ Tax
+Interest
EBIT* (1- Tax Rate)= NOPAT