Finance Program
Management Department
Faculty of Economic
Petra Christian University
Surabaya 2009
MEASURING FINANCIAL PERFORMANCE
LEARNING OBJECTIVES
Describe the process for obtaining and
recording resources needed for an early-stage
venture
 Describe and prepare a basic balance sheet
 Describe and prepare a basic income
statement
 Explain the use of internal statements as they
relate e to formal financial statement

LEARNING OBJECTIVES
Briefly describe two important internal
operating schedules the cost of production
schedule and the inventories schedule
 Prepare a cash flow statement and explain how
it helps monitor a venture’s cash position
 Describe operating breakeven analysis in terms
of NOPAT breakeven revenues

OBTAINING AND RECORDING THE RESOURCES
NECESSARY TO START AND BUILD A NEW
VENTURE
DEVELOPMENT STAGE IN LIFE CYCLE
BALANCE SHEET
INCOME
STATEMENT
Assets:
Revenues:
STARTUP STAGE IN LIFE CYCLE
BALANCE SHEET
INCOME
STATEMENT
Assets:
Revenues:
Acquire initial assets (e.g., No sales (consequently
initial cash, office furniture, no money
computer, etc)
Is coming in)
Acquire production assets
(e.g., inventories and
equipment to produce
products and give credit to
customer)
Making sales
(money begins flowing
in)
Liabilities and Equity: Expenses:
Liabilities and Equity:
Obtain seed financing (e.g., (e.g., rent, utilities,
entrepreneur’s
subsistence salary for
Assets, family, and friends) entrepreneur)
Obtain startup financing
(e.g., business angels and
venture capitalists in
addition to seed financing
sources)
Expenses:
(additional expenses to
produce and market
products and to record
business transactions)
BUSINESS ASSETS, LIABILITIES, AND OWNERS’
EQUITY
Assets:
•Financial, physical, and intangible items owned
by the business
Balance sheet assets
•Lists assets in declining order of liquidity, or how
quickly the asset can be converted into cash
ASSETS
Cash and marketable securities
Receivables
LIABILITIES AND EQUITY
$30,000
0
Payables
$10,000
Accrued wages
0
Inventories
10,000
Bank loans
0
Total current assets
40,000
Other current liabilities
0
Gross equipment
Less: Accumulated depreciation
Net equipment
20,000
0
20,000
Building
0
Other long-term assets
0
Total assets
$60,000
Total current liabilities
10,000
Long –term debts
10,000
Capital leases
0
Total long-term liabilities
10,000
Owners’ equity
40,000
Total liabilities and equity
EXAMPLE OF INITIAL BALANCE SHEETS
$60,000
SALES, EXPENSES, AND PROFITS
Net sales
$120,000
- Cost of goods sold
(78,000)
Gross earnings
42,000
- Marketing expenses
(12,500)
- Administrative expenses
(18,000)
- Building rental
(6,000)
- Depreciation expenses
(1,000)
Earning before interest and taxes
4,500
-Interest
(500)
Earning before taxes (taxable income)
4,000
- Taxes (25%)
Net income (earning after tax)
(1,000)
$
3,000
STATEMENT OF CASH FLOWS
Cash flow from operating activities
Net income
$
+ Depreciation
3,000
1,000
- Increase in receivables
(50,000)
- Increase in inventories
(16,000)
+ Increase in payables
5,000
+ Increase in accrued wages
3,000
Net cash flow from operating activities
(54,000)
Cash flow from investing activities
- Increase in gross equipment
0
Cash flow from financing activities
+ Increase in other short-term liabilities
25,000
Net change excluding cash account
(29,000)
Beginning cash and marketable securities
Ending cash and marketable securities
30,000
$
1,000
OPERATING BREAKEVEN ANALYSES
Year 1
Number of units sold
Revenues
- Cost of goods sold
Year 2
5,000
$
500,000
15,000
Year 3
25,000
$1,500,000 $ 2,500,000
(325,000)
(975,000)
(1,625,000)
175,000
525,000
875,000
- Administrative expenses
(200,000)
(200,000)
(200,000)
- Marketing expenses
(180,000)
(180,000)
(180,000)
EBITDA
(205,000)
145,000
495,000
(25,000)
(25,000)
(25,000)
(230,000)
120,000
470,000
(20,000)
(20,000)
(20,000)
(250,000)
100,000
450,000
75,000
(30,000)
(135,000)
Gross profit
- Depreciation
EBIT
- Interest expenses
EBT
- Taxes
Net income
$ (175,000)
$
70,000 $
315,000
SURVIVAL BREAKEVEN “TERMS”
EBITDA = earning before interest, taxes,
depreciation, and amortization
 EBDAT = earning before depreciation,
amortization, and taxes
 EBDAT breakeven = amount of revenues
needed to cover a venture’s cash operating
expenses
 Cash flow break even = cash flow at zero for a
specific period (EBDAT = 0)

EXAMPLE OF EBDAT EXPERIENCE
Year 1
Number of units sold
Revenues
- Cost of goods sold (65% of revenues)
Year 2
5,000
$
500,000
15,000
Year 3
25,000
$1,500,000 $ 2,500,000
(325,000)
(975,000)
(1,625,000)
175,000
525,000
875,000
- Administrative expenses
(200,000)
(200,000)
(200,000)
- Marketing expenses
(180,000)
(180,000)
(180,000)
(20,000)
(20,000)
(20,000)
125,000 $
475,000
Gross profit
- Interest expenses
EBDAT
Percent of revenues
$ (225,000) $
-45%
8.3%
19%
SURVIVAL REVENUES (SR)
Amount of revenues just offsetting variable and
cash fixed costs (EBDAT breakeven)
 EBDAT = revenues ( R ) – variables costs (VC) – cash fixed costs (CFC)
 VC = variable costs revenues ratio (VCRR) x (R )
 Survival revenues (SR) = VC + CFC
CFC = SR – VC
 CFC = SR – (VCRR) x (SR)
 CFC = SR[1 – (VCRR)]
 SR = [CFC/(1 – VCRR)]

COUNTING OF SURVIVAL BREAKEVEN
SR = [CFC/(1 – VCRR)]
 CFC = adm exp + marketing exp + financing exp
 CFC = $200,000 + $180,000 + $20,000
 C FC = $400,000
 VCRR = cost of goods sold/revenues
 SR = $400,000/(1- 0.65)
 SR = $400,000/0.35
 SR = $1,142,857 = $1,143,000 (rounded)

CHECKING OF SURVIVAL BREAKEVEN
Survival revenues
- COGS (65%)
Gross profit
$1,143,000
(743,000)
400,000
- Administrative expenses
(200,000)
- Marketing expenses
(180,000)
- Interest expenses
EBDAT
(20,000)
0
NOPAT BREAKEVEN

NOPAT
net operating profit after taxes or EBIT times one
minus the firm’s tax rate
= EBIT (1 – tax rate)

NOPAT breakeven revenues (NR)
amount of revenues needed to cover a venture‘s
total operating costs
= Total operating fixed costs (TOFC)/(1 – VCRR)
OPERATING BREAKEVEN ANALYSES
Year 1
Number of units sold
Revenues
- Cost of goods sold
5,000
$
500,000
Year 2
15,000
Year 3
25,000
$1,500,000 $ 2,500,000
(325,000)
(975,000)
(1,625,000)
175,000
525,000
875,000
- Administrative expenses
(200,000)
(200,000)
(200,000)
- Marketing expenses
(180,000)
(180,000)
(180,000)
EBITDA
(205,000)
145,000
495,000
(25,000)
(25,000)
(25,000)
(230,000)
120,000
470,000
69,000
(36,000)
(141,000)
(161,000)
84,000
329,000
(32.2%)
5.6%
13.2%
Gross profit
- Depreciation
EBIT
- Taxes (at a 30% effective rate)
NOPAT
Percent of revenues
SELESAI