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Summary BMAN 311 - Financial Management Comprehensive

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  • Course
  • Financial Management
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  • North-West University (NWU)

SU 1 – 9: CH 1,3,4,5 & 9, 7 & 17, 10, 13, 18, 15&16. APPLICABLE THEORY, CALCULATIONS AND PAST PAPERS - 2014 with Memo. CALCULATIONS ARE SHOWN USING A SHARP EL- 738 BUSINESS/ FINANCIAL CALCULATOR. YOU WILL CRY... THIS IS HOW GOOD THESE NOTES ARE :)

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Document information

  • No
  • 1,3,4,5,7,9,10,13,15,16 &17
  • June 19, 2014
  • 71
  • 2013/2014
  • Summary

Subjects

  • financial management
  • business management
  • bman 311
  • bman
  • management
  • bman311
  • financial management in south africa

Written for

  • North-West University (NWU)
  • Financial Management
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By: jigga • 8 year ago

Comprehensive notes

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STUVIA.CO.ZA

FINANCIAL MANAGEMENT –
BMAN 311




CONTENT OF NOTES:

SU 1 – 9: CH 1,3,4,5 & 9, 7 & 17, 10, 13, 18, 15&16.
APPLICABLE THEORY & CALCULATIONS
GeekyS
CALCULATIONS ARE SHOWN USING A SHARP EL- 738 BUSINESS/
FINANCIAL CALCULATOR BMAN 311 NOTES AVAILABLE ON
STUVIA.CO.ZA
TEXT BOOK: MARX, J., DE SWART, C., BEAUMONT SMITH, M., &
ERASMUS, P. 2013. Financial Management: in Southern Africa. 4th
ed. South Africa: Pearson Education. 464 p.

,F FINANCIAL MANAGEMENT – BMAN 311 STUVIA.CO.ZA



STUDY UNIT 1: CHAPTER 1
INTRODUCTION TO FINANCIAL MANAGEMENT
 Financial management emphasizes on wealth
OUTCOMES: maximization rather than profit maximization. For a
 Goal of financial management business, it is not necessary that profit should be the
 Financial management and other subjects only objective; it may concentrate on various other
 Functions of a financial manager aspects like increasing sales, capturing more market
 Principles of financial management share etc, which will take care of profitability.
 In wealth maximization, major emphasizes is on cash
flows rather than profit. So, to evaluate various
Introduction alternatives for decision making, cash flows are taken
 Why do businesses exist? under consideration. For e.g. To measure the worth of
a project, criteria like: “present value of its cash inflow
• Satisfy human needs by providing a product/
– present value of cash outflows” (net present value)
service.
is taken. This approach considers cash flows rather
 What is required to start a business?
than profits into consideration and also use
• Financing – Owners’ Equity / Loans discounting technique to find out worth of a project.
 Business forms Thus, maximization of wealth approach believes that
• Sole proprietorship money has time value.
• Partnership  A manager should align his/her objective to broad
• Companies objective of organization and achieve a trade-off
between risk and return while making decision;
keeping in mind the ultimate goal of financial
Economic principle management i.e. To maximize the wealth of its
 What is the economic principle? current shareholders.
• Statement of inter-relationships among
economic factors that explains what may
cause what, or what may happen under
Basic management tasks
 Planning
certain circumstances. Also called economic
 Organising
law.
 Activating / Leading
 Importance in financial management
 Control
• Handling of funds & Decision making


Functions of a financial manager
Goal of financial management  Investment decisions
 Long-term
 Financing decisions
• Increase value of the firm
 Ensuring Profitability
 Short-term
 Ensuring Positive cash flow
• Profitability
 Ensuring Solvency
• Liquidity
• Solvency
Principles of financial management
 Cost-benefit principle
Question  The difference between  Risk-return principle
Profitability / Wealth
 Time-value-of-money principle


2

,F FINANCIAL MANAGEMENT – BMAN 311 STUVIA.CO.ZA



STUDY UNIT 2: CHAPTER 3
UNDERSTANDING FINANCIAL STATEMENTS OF A BUSINESS
The Classification of financial
OUTCOMES:
information
 Users of financial statements  Assets
 Classification of financial information  Liabilities
 Income Statement  Owners' Equity
 Balance Sheet  Revenues
 Cash flow Statement  Expenses


Users of financial statements: Financial statements:
 Owners/Shareholders  Income statement
 Management  Balance Sheet
 Creditors  Cash flow statement
 labour unions
 Investment analysts
 The State Accounting Equation: [BEL]
 Credit bureaus Assets = Owners' Equity + liabilities


INCOME STATEMENT
 Nature  Accounting period
• Provides a financial summary of • Refers to the period of time covered by an
performance during a period of time by income statement; month, quarter of a
comparing revenue and expenses. year, half a year or yearly.
 Purpose  AKA  earnings statement, statement of
• To evaluate the profitability of a firm, operations, and profit/ loss statement.

Example of an Income Statement (condensed)




3

, F FINANCIAL MANAGEMENT – BMAN 311 STUVIA.CO.ZA


Example
Complete the Income Statement
Sales 800 000 Interest expense 25 000
Gross profit 450 000 Income tax 50 000
Operating profit 140 000


Income statement Income statement

Sales (Net) 800 000 Sales (Net) 800 000
Less: Cost of goods sold Less: Cost of goods sold 350 000
Gross profit 450 000 Gross profit 450 000
Less: Operating expenses Less: Operating expenses 310 000

Operating Profit 140 000 Operating Profit 140 000
Interest Income - Interest Income -
Earnings before Interest and Tax (EBIT) Earnings before Interest and Tax (EBIT) 140 000
Less: Interest Expenses 25 000 Less: Interest Expenses 25 000

Earnings before tax (EBT) Earnings before tax (EBT) 115 000

Less: Tax 50 000 Less: Tax 50 000

EARNINGS AFTER TAX (EAT) EARNINGS AFTER TAX (EAT) 65 000



BALANCE SHEET
 Purpose of balance sheet
• To show the financial position of a business at a particular date
 Three elements of a balance sheet
• Assets – Fixed and Current assets
• Owners’ equity (Shareholders equity) – Resources invested by owners
• Liabilities – Long term liabilities and current liabilities
 AKA  Statement of financial position
Example of old fashioned Balance sheet:




4

,F FINANCIAL MANAGEMENT – BMAN 311 STUVIA.CO.ZA


Example of a modern format - Balance Sheet:
EMPLOYMENT OF CAPITAL
Non-current assets
Fixed assets :- Buildings, Land, Vehicles, Equipment 16 980 400
Current assets 7 090 100
Inventories 1 600 000
Accounts receivable 4 800 020
Cash 690 080
Employment of capital (Total Assets) 24 070 500

CAPITAL EMPLOYED
Shareholders’ Equity 20 870 500
Ordinary share capital 12 000 000
Retained income 7 870 500
Preference share capital 1 000 000


Non-current liabilities 2 400 000
Mortgage bond 2 400 000
Current liabilities 800 000
Capital employed 24 070 500


CASH FLOW STATEMENT

Cash Flow Cash inflow Cash outflow
Movement of cash in and out of Increase cash in business Decrease cash in business
business

Cash Flow Statement
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities


Operating activities Investing activities Financing activities
Income statement Assets Equity, Liabilities
• Cash receipts from sales • Cash inflow from the sale • Cash inflow from: issuing
• Cash paid to suppliers and of property, plant and shares, mortgages and
employees equipment long term and short term
• Collection of loans made to loans
other • Cash outflow from:
• Cash outflow when cash payment of loans/ equity
paid to purchase property, holders
plant or equipment



5

, FINANCIAL MANAGEMENT – BMAN 311 STUVIA.CO.ZA
F

Example of Cash Flow Statement
CASH FLOW STATEMNT FOR THE YEAR ENDED 20**
Cash flows from operating activities 226 480
Cash receipts from customers 9 199 980
Cash paid to suppliers and employees (7 403 000
Cash generated from operations *1 1 796 980
Interest received -
Interest paid *3 (26 000
Dividends Received -
Dividends paid *4 (532 000
Taxation Paid *5 (1 012 500
Cash flows from investing activities (836 820
Purchase of non-current assets (860 820
Proceeds from non-current assets 24 000
Cash flows from financing activities 1 200 000
Proceeds from the issue of share capital 1 000 000
Proceeds from long-term borrowings 200 000
Net change in cash and cash equivalents *2 589 660
Cash and cash equivalents: beginning of year 100 420
Cash and cash equivalents: end of year *2 690 080




PAYMENTS OF DIVIDENDS AND INTEREST ARE NOT REGARDED AS FINANCING ACTIVITIES

Exercises:

Accounts payable Inventories Expenses  OUTFLOWS

2010 - R 250 000 2010 R 220 000 Interest expense
2011 - R 230 000 2011 R 200 000 Tax
Influence on cash  Outflow Influence on cash  Inflow Operating expenses
of R 20 000 (Accounts payable of R 20 000 (Inventories
decrease) decrease)


Accounts receivable Fixed assets Income  INFLOWS

2010 R 200 000 2010 R 9 800 000 Interest income
2011 R 190 000 2011 R 9 950 000
Influence on cash  Inflow of Influence on cash  Outflow
R 10 000 (Accounts receivable of R 150 000 (Fix assets
decrease) increase)




6

,F FINANCIAL MANAGEMENT – BMAN 311 STUVIA.CO.ZA


OPDRAG 1 / ASSIGNMENT 1
Voltooi die Inkomstestaat / Complete the Income Statement
Verkope / Sales 1000 000
Bruto wins / Gross profit 300 000
Bedryfsuitgawes / Operating expenses 150 000
Langtermynlening @10% per jaar / Long-term debt @ 10% per annum 400 000
Belastingkoers / Tax rate 40%




OPDRAG 2 / ASSIGNMENT 2
Voltooi die balansstaat / Complete the balance sheet
Gewone aandelekapitaal / Ordinary share capital 12 000 000
Behoue inkomste / Retained income 8 870 500
Verbandlening / Mortgage bond 2 400 000
Rekeninge betaalbaar / Accounts payable 800 000
Grond en geboue / Land and buildings 8 490 200
Masjinerie en aanleg / Machinery and plant 7 252 200
Voertuie / Vehicles 1 538 000
Opgehoopte depresiasie / Accumulated depreciation 300 000
Kontant / Cash 690 080
Rekeninge ontvangbaar / Accounts receivable 4 800 020
Voorrade / Inventory 1 600 000




7

, F FINANCIAL MANAGEMENT – BMAN 311 STUVIA.CO.ZA

OPDRAG 3 / ASSIGNMENT 3
Voltooi die Inkomstestaat / Complete the Income Statement
Koste van verkope / Cost of sales 500 000
Bruto wins / Gross profit 800 000
Bedryfsuitgawes / Operating expenses 140 000
Langtermynlening @12% per jaar / Long-term debt @ 12% per annum 600 000
Belastingkoers / Tax rate 40%




OPDRAG 4 / ASSIGNMENT 4
Voltooi die balansstaat / Complete the balance sheet
Gewone aandelekapitaal / Ordinary share capital 2 500 000
Behoue inkomste / Retained income 700 000
Verbandlening / Mortgage bond 700 000
Rekeninge betaalbaar / Accounts payable 400 000
Totale kapitaal aangewend / Total capital employed 4 300 000
Grond en geboue / Land and buildings 700 000
Masjinerie en aanleg / Machinery and plant 1 400 000
Voertuie / Vehicles 600 000
Opgehoopte depresiasie / Accumulated depreciation 200 000
Kontant / Cash 300 000
Rekeninge ontvangbaar / Accounts receivable 900 000
Voorrade / Inventory 600 000




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