Managerial Finance
Program Magister Manajemen Universitas Gunadarma
Manajemen Keuangan
Budi Hermana
Refferences:
Principles of Managerial Finance, Lawrence J. Gitman, Harper Collins Publishers
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Magister Manajemen-Universitas Gunadarma-1
Managerial Finance
Chapter 1
The Role of Finance and The
Financial Manager
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Managerial Finance
The Role of Finance and The Financial Manager
Finance?
The art and Science of managing money
Concerned with the process, institution, markets, and
instrument involved in the transfer of money among and
between individuals, businesses, and governments
Financial Services
Areas&
Opportunities?
The area of finance concerned with the design and
delivery of advice and financial product to individual,
business, and governments
Managerial Finance
concerned with the duties of the financial manager
in the business firm.
Budgeting
Financial forecasting
Cash management
Credit administration
Investment Analysis
Funds procurement
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Task?
Actively manage the financial
affairs of many tipes of
business- financial and nonfinancial, private and public,
large and small, profit-seeking
and not-for-profit
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Managerial Finance
Basic Forms Of Business Organization
Sole Proprietorship
A Business owned by one person and operated
for his or her own profit
Small firm, unlimited liability
Partnerships
A Business owned by two or more persons and
operated for profit
Written contract (article of partnership), unlimited liability,
Limited partership
Corporations
An Intangible business entity created by law
(often called a “legal entity”)
Stockholders, board of directors, Chief executive officer
(CEO)
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Managerial Finance
Basic Forms Of Business Organization
Legal Form
Sole Propriatorship
Partenrship
Corporation
Strength
Weaknesses
•Owner receives all profits
(as well as losses)
•Low organizationak costs
•Income taxed as personnel
income of proprietor
•Secrecy
•Ease of dissolution
•Can raise more more funds
than sole proprietorships
•Borrowing power enhanced
by more owners
•More available brain power
and managerial skill
•Can retain good employees
•Income taxed as personnel
income of partners
•Owners have limited liability which
guarantees they cannot lose more than
invested
•Can achieve large size due to marketability
of stock (ownership)
•Ownership is readily transferable
•Long-life of firm- not dissolved by detah of
owners
•Can hire professional managers
•Can expand more easily due to access to
capital markets
•Receives certain tax advantages
•Owner has unlimited liabilitytotal wealth can be taken to
satisfy debts
•Limited fund-raising power
tends to inhibit growth
•Propietor must be jack-of-alltrades
•Difficult to give employees
long run career opportunity
•Lacks continuity when
propitor dies
•Owners have unlimited
liability and may have to
covers debts of other less
financially sound partners
•When a aparter dies,
partership is dissolved
•Difficul to liquidate or
transfer partership
•Difficult to achieve largescale operations
•Taxes generally higher since corporate
income is taxed and dividends paid to
owners ara again taxed
•More expensive to organize than other
business forms
•Subject to greater government regualation
•Employees often lack personnel interest in
firm
•Lack secrecy since stockholders must
receive financial reports
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Managerial Finance
The Managerial Finance Function
Since most business
decisions are measured
in financial terms, the
financial manager plays
a key role in the
operation of the firm
Managerial Finance is closely related to,
but quite different from, Economics and
Accounting
?
Organizational View
The size and importance of the managerial finance
depend on the size of the firm
In small firm the finance function generally performed by
the accounting department
In medium-to-large-size firm
Financia
Separate department, vice-president of finance (CFO),
l
Treasurer, Controller
Manage
r
The officer responsible for the firm’s financial activities: financial The officer responsible for the firm
planning and fund raising, managing cash, making capital accounting activities: tax management, data
expenditure decision, managing credit activities and managing processing,
and
cost
and
financial
the investment portfolio
accounting
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Managerial Finance
The Managerial Finance Function
Relationship to Economics
The Financial Manager must understand the economic framework, and be
alert to the consequences of varying levels of economic activity and changes in
economic policy
?
Must be able to use economic theories as guidelines for efficient busineness operation
Supply-demand analysis
Profit-Maximazing strategies
Price Theory
Marginal Analysis
Economic principle which states
that financial decisions should be
made and actions taken only
when the added benefit exceed
the added costs
Example
Benefits with new computer
Less: Benefits with old computer
(1) Marginal (Added) benefits
$100.000
35.000
$65.000
Cost of new computer
$80.000
Less: Proceeds from sale of old com 28.000
(2) Marginal (added) costs
$52.000
Net Benefit [(1) – (2)]
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$13.000
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Managerial Finance
The Managerial Finance Function
Relationship to Accounting
The finance and accounting function are closely related and generally overlap;
indeed, managerial finance and accounting are not often easily distinguishable. In smal
firm the controller often carries out of the finance function, and in large firms many
accountants are intimately involved in various finance activities
?
Two Basic Differences
Emphasis of cash flows
Accrual Method
Decision Making
vs
Cash Method
Recognizes revenue at the
point
of
sale
and
recognized expenses when
incurred
Recognized revenues and
expenses only with respect to
actual inflow and outflows of
cash
Accounting View
Financial View
Income statement
ABC Corporation
For the year xxxx
Income statement
ABC Corporation
For the year xxxx
Sales Revenue
Less: Costs
$100.000
80.000
Cash inflow
$
0
Less: Cash Outflow 80.000
Net Profit
$ 20.000
Net Profit
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($80.000)
The accountant devotes
the
majority of attention to the
collection and presentation of
financial data
The financial manager evaluates
the
accountant’s
statements,
develops additional data, and
makes decisions based on
subsequent analyses
This does not mean that
accountant never make decision,
or that financial manager never
gather data
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Managerial Finance
The Managerial Finance Function
Key Activities of The Financial Manager
Primary Activities
Performing Financial Analysis and Planning
2.
3.
Transforming financial data into a form that
can be used to monitor the firm’s financial
condition
Evaluating the need for increased (or
reduced) productive capacity
Determining what additional (or reduced)
financing is required
Determine both the mix and the type of assets found
on the firm’s balance sheet
The left-hand side of the balance sheet
Balance Sheet
Current
Assets
Current
Liabilities
Fixed
Assets
Long-Term
Funds
Making Financing
Decision
Making Investment Decisions
Performing
Financial Analysis
and Planning
Making Investment
Decision
1.
Making Financing Decision
Deals with The right-hand side of the balance
sheet and involves two major area:
1. Most appropriate mix of short-term and longterm financing must be established
2. Which individual short-term or long-term
sources of financing are the best at given point
in time
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Managerial Finance
The Managerial Finance Function
Goal of The Financial Manager
Maximize Profit?
Some pepople believe that the owner’s objective is always
to maximize profits
The Financial Manager are expected to make a major
contribution to the firm’s overall profit
For Corporation, profit are commonly measured in terms of
Earnings per Share (EPS)
Earning per share (EPS)
Investment
X
Y
period’s total earnings avaliable for
the firm’s common stock holders
The number of shares of common
stock outstanding
year 1
year 2
year 3
total
$1.40
0.60
$1.00
1.00
$0.40
1.40
The chance that actual outcomes
$2.80
3.00 √ may differs from those expected
Profit maximization fails for reason:
1. Timing of return
2. Cashflow avaliable to stockholder
3. Risk
Stockholder are risk-averse ?
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EPS:
The amount earned during the
period on each outstanding share
of common stock
Basic primises in managerial
finance is that trade-off exist
between return (cash flow) and
risk
Return and risk are in fact the key
determinant of share price–
which represents the wealth of the
owners in the firm
Magister Manajemen-Universitas Gunadarma-10
Managerial Finance
The Managerial Finance Function
Goal of The Financial Manager
Maximizing Shareholder Wealth
The goal of the financial manager
is to maximize the wealth of the
owners for whom the firm is being
managed
Timing of return (cash flow)
Measured by the share
price of the stock
magnitude
Risk
Financial decisions and share price
Financial
Manager
Financial Decision
Alternative or action
Return?
Risk?
Increase
Share
Price ?
Yes
Acept
Yes
Reject
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Managerial Finance
The Managerial Finance Function
Goal of The Financial Manager
The Agency Issue
The goal of the financial manager
should be to maximize the wealth
of the owners of the firm
Management can be viewed as
agents of the owners who have
hired them and given them
decision-making
authority
to
manage the firm for the owners’
benefit
In theory
In practise
Most financial managers would agree
with the goal of owner wealth
maximization
Agency problem
However, managers also concern with
their personnel wealth, job security,
lifestyle, and privilege
To prevent or minimize problem
The likelihood that managers may place
personnel goals ahead of corporate goals
Audit&control
Fidelity bond
Managerial compensation:
stock option, performance share, cash bonuses
Agency Cost
Monitoring expenditure
Bonding expenditure
Structuring expenditure
Opportunity cost
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Managerial Finance
The Managerial Finance Function
Goal of The Financial Manager
The Role of Ethics
Ethics – Standard of conduct or
moral judgement
Corporate Ethics
and Policies
example
Guidelines
Responsibility
Ethics and share price
Fairness
Transparency
Issues Update
Accountability
Good Corporate Governance
www.fcgi.or.id
http://www.kpk.go.id/modules/edito/content.php?id=27
http://www.bi.go.id/NR/rdonlyres/2246113B-DC63-4731-8558-3693A6254962/3449/pbi8406.pdf
Corporate Social Responsibility
http://www.goodyear-indonesia.com/social_responsibility.html
http://www.telkom.co.id/pojok-media/siaran-pers/telkom-memperoleh-penghargaan-corporatesocial-responsibility.html
Certified Financial Analyst
http://www.cfainstitute.org
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Managerial Finance
Chapter 2
The Operating Environment of
The Firm
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Managerial Finance
Business Taxation
Ordinary Income
Income earned through the sale
of a firm’s goods and services
Corporate Tax Rate Schedule
Tax Calculation
Range of taxable income
Base Tax
+
(rate x amount over base bracket)
$
0 to $ 50.000
50.000 to 75.000
75.000 to 100.000
100.000 to 335.000
over $335.000
$
+
+
+
+
+
(15% x Amount over $
0)
(25 x Amount over 50.000)
(34 x Amount over 75.000)
(39 x Amount over 100.000)
(34 x Amount over 335.000)
0
7.500
13.750
22.250
113.900
Example
PT X has before-tax earnings of $250.000
Total Tax due = $22.250 + [0.39 x ($250.000-100.000)]
= $22.250 + (0.39 x $150.000)
= $22.250 + $58.500 = $80.750
Indonesia ?
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Managerial Finance
Business Taxation
Ordinary Income
Average Tax Rates
A Firm’s taxes divided by its
taxable income
Average tax rate ranges from 15 to
34%, reaching 34% when taxable
income ≥ $335.000
Average tax rate for PT X
= $80.750 / $250.000 = 32.3%
Marginal Tax Income
Pretax
Income
(1)
$
50.000
75.000
100.000
200.000
335.000
500.000
1.000.000
2.500.000
Tax
Liability
(2)
$ 7.500
13.750
22.250
61.250
113.900
170.000
340.000
850.000
Average Tax rate
[(2) : (1)]
(3)
15.00%
18.33%
22.25%
30.63%
34.00%
34.00%
34.00%
34.00%
The rate at which additional
income is taxed
If PT X’s earnings go up to %300.000,
the marginal tax rate on the additional
$50.000 of income will be 39%. The
company will therefore have to pay
additional taxes of $19.500 (0.39 x
$50.000)
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Total Taxes on the $300.000
= $80.750+$19.500
= $100.250
Using Taxe rate schedule:
Total Taxes = $22.250+[0.39x($300.000 - $100.000)]
= $22.250+$78.000 =$100.250
Magister Manajemen-Universitas Gunadarma-16
Managerial Finance
Business Taxation
Ordinary Income
Interest and Dividend Income
Interest
received by
corporation is included
ordinary income
the
as
Devidend
received
on
common and preferred stock
held in other corporation,
and representing less than
20% ownership in them, on
the other hand, are subject
to a 70% exclusion for tax
puposes
Only 30% of these
intercorporate
dividends
are
included as ordinary
income
Avoid triple
taxation
Example
Charnes Industries received
$100.000 interest on bonds
it held and $100.000 in
dividends on common stock
it
owned
in
other
corporation. The firm is
subject to a 40% marginaltax rate and is eligible for
70% exclusion on its
intercorporate
dividend
receipts
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Interest
Income
Dividend
Income
(1) Before-tax amount
Less: Applicable Exclusion
$100.000
$100.000
0 (0,70x$100.000) =
70.000
Taxable amount
(2) Tax (40%)
$100.000
40.000
$ 30.000
12.000
$ 60.000
$ 88.000
After-tax amount (1)-(2)
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Magister Manajemen-Universitas Gunadarma-17
Managerial Finance
Business Taxation
Ordinary Income
Tax-Deductible Expenses
Corporation are allowed to deducti
operating
expenses.
The
taxdeductible expenses reduces their
after-tax cost.
Advertising expenses
Insurance?
Sales commision
Bad debt
CSR?
Interest expenses
Example
Company X and Y each expect in the
coming year to have earnings before
interest and taxes of $200.000. Company X
during the year will have to pay $30.000 in
interest; Company Y has no debt and
therefore will have no interest expenses.
Calculate the earnings after taxes for these
two firm, which pay 40% tax on ordinary
income
Interest
Income
Dividend
Income
Earning before interest&tax
Less: Interest expenses
$200.000
30.000
$200.000
0
Earnings before tax
Less: Taxes (40%)
$170.000
68.000
$200.000
80.000
Earnings after taxes
$ 102.000
$120.000
Difference in earning after taxes
$18.000
Dividends are not
tax-deductible expense
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Managerial Finance
Business Taxation
Capital Gains
Amount by which the price at which
an asset was sold exceeds the
asset’s initial purchase price
For corporation, capital gain are
added to ordinary corporate income
and taxed at the regular corporate
rates
Example
The Ross Company
earnings of $500.000
sold for $40.000 a
initially purchased two
$36.000.
has operating
and hast just
capital asset
years ago for
Since the asset was sold for more than its initial
purchased, there is capital gain of $4000
($40.000 sale price - $36.000 initial purchase price)
The corporation’s
$504.000
taxable
income
will
total
($500.000 ordinary income plus $4.000 capital gain)
Since this total is above$335.000, the capital gain
will be taxed at the 34%, resulting in tax of $1.360
(0,34 x $4000)
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Managerial Finance
Financial Institutions and Markets: An Overview
Financial institutions and markets are
important elements in a firm’s operating
environment
?
Firms that require funds from external
sources can obtain them in three ways
Financial Institution
That accept savings and transfers them to those
needing funds
Financial Market
Organized forum where the suppliers and
demanders of various type of funds can make
transaction
Private placement
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Financial Institutions and Markets: An Overview
Managerial Finance
Financial Institution
An intermediary that channels the savings of
individuals, businesses, and governments into loans or
investment
Major Financial Institutions
USA
Indonesia
Commercial Bank
Accepts both demand (checking) and time (savings)
deposits. Makes loans directly to borrowers or through the
financial market
Savings Bank
Not hold demand (checking) deposits. Generally lends or
invest funds through financial markets
Bank Umum
BPR
Asuransi
Savings and Loan
Similar to a saving bank. Also raise capital through the
sale of securities. Lends funds for real estate mortgage
loans and some funds are channeled into financial market
Credit Union
Deals primarily in transfer of funds between consumers.
Accept members’ deposit and lends to other members
Dana Pensiun
Reksa dana
Modal Ventura
Life Insurance Company
Receive premium payments that are placed in invesments
to accumulate funds to cover future benefit payment
Pension Fund
Anjak-Piutang
Sewa guna usaha
Money is sometimes transferred directly to borrowers, but
the majority is lent or invested via the financial markets
Mutual Fund
Pools funds of savers and makes them available to
business and government demanders. Creates a portfolio
of securities to achieve a specified investment objective
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Managerial Finance
Financial Institutions and Markets: An Overview
Financial Markets
Provide a forum in which suppliers of funds
and demanders of loans and investments
can transact business directly
Money Market
Transactions in short-term debt instruments, or
marketable securities, take place in the money
market
Capital Market
Long-term securities (bonds and stocks) are
traded in the capital market
Primary market
Financial market in which securities are
initially issued; the only market in which
the issuer is directly involved in the
transaction
Secondary Market
Financial market in which preowned
securities (those that are not new issues)
are traded
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Managerial Finance
Financial Institutions and Markets: An Overview
Financial Markets
Flow of funds for financial institutions and market
Funds
Funds
Deposits/Shares
Financial
Institutions
Loans
Funds
Securities
Suppliers of
Funds
Funds
Demanders of
Funds
Private
Placement
Securities
Funds
Securities
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Financial
Markets
Funds
Securities
Magister Manajemen-Universitas Gunadarma-23
Financial Institutions and Markets: An Overview
Managerial Finance
The Money Market
A financial relationship created between
suppliers and demanders of short-term
funds, which have maturities of one year or
less
Certain
individuals,
businesses,
governments, and financial institution have
temporary idle funds that they wish to
place in some type of liquid asset or shortterm, interest earning instrument
Money
Market
exists
Other
individuals,
businesses,
gevernments,
and
financial
institution find themselves in need
of
seasonal
or
temporary
financing
Most money market transactions are made in
marketable securities
Short-term debt instruments, such as US Treasury
Bill, Commercial Papers, and Negotiables
Certificate of Deposits issued by government,
business, and financial institution
Indonesia?
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Financial Institutions and Markets: An Overview
Managerial Finance
The Capital Market
A financial relationship created by
institutions and arrangements that allows
suppliers and demanders of long-term
funds- funds with maturiry of more than
one year- to make transactions.
The backbone of the capital market is
formed by the various securities exchange
that provide a forum for debt and and
equity transaction
Key Securities
Bond
Long-term debt instrument used by business
and governments to raise large sums of
money
Common stock
Units of ownership interest, or equity. In a
corporation
Common stockholders expect to earn a return
by receiving Dividend
Periodic distribution of earnings to the owners
of stock in a firm
Preferred stock
A special form of ownership having a fixed
periodic dividend that must be paid prior to
payment of any common stock dividends
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Managerial Finance
Financial Institutions and Markets: An Overview
The Capital Market
Major Securities Exchange
Provide the marketplace in
which firms can raise funds
through the sale of new
securities
and
in
which
purchasers
can
resell
securities
1. Organized Securities Exchanges
Tangible organozations on whose premises
outstanding securities are resold
New York Stock Exchange (NYSE)
To make transaction on the “floor”, individual
or firm must own a “seat” on the exchange
For “listing”, a firm must file an application and
meet a number requirements
Have at least 2000 stockholders with 100 ≤ shares
Min 1,1 million share of publicly held stock
Earning power of $2,5 million before taxes
Net tangible asset of $16 million
A total of $18 million in market value of publicly
traded shares, etc
Jakarta Stock Exchange (JSX)
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Persyaratan
“listing”?
Magister Manajemen-Universitas Gunadarma-26
Financial Institutions and Markets: An Overview
Managerial Finance
The Capital Market
Major Securities Exchange
2. The-Over-the-Counter Exchange (OTC)
Not an organization, but an intangible market for the
purchase and sale of securities not listed by the organized
exchange
The market price of OTC securities results from a matching
of the forces of supply and demand for securities by traders
known as dealer
National Association of Securities Dealers Automated Quotation (NASDAQ)
Sophisticated telecommunications system that provide current
bid and ask prices on thousands of actively traded
The bid price is the highest price offered
by dealer to purchase a given security
Automated
matched
The ask price is the lowest price at which
the dealer is willing to sell the security
Jakarta Automated Trading System
(JATS) ?
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Managerial Finance
Interest Rates and Required Return
Interest rates and required returns represent the
costs of obtaining various forms of financing
?
The level of funds flow between suppliers and
demanders can significantly affect economic
growth
?
Growth results from the interaction of variety of
economic factors, such as the money supply,
trade balance, and economic policy, that affect
the cost of money – the interest rate or
required return
?
The level of interest rate acts as regulating
device that controls the flow of funds
?
The lower the interest rate, the greater the
funds flow and therefore the greater the
economic growth, and vice versa
?
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Managerial Finance
Interest Rates and Required Return
Interest Rate Fundamentals
Interest rate
The compensation paid by the borrower of
funds to the lender; from the borrower’s
point of view, the cost of borrowing funds
Required Return
The level of return expected on equity
investment
D
So
Rate that creates an equilibrium
between the supply of savings and the
demand for investments funds in perfect
world, without inflation, where funds
suppliers and demanders have no
liquidity
preferences,
and
all
outcomes are certain
Ignoring risk factors, the nominal or actual
interest rate (cost of funds) results from the
real rate of interest adjusted for inflationary
expectation and liquidity preferences
General
investors
securities
preferences
of
for
shorter-term
Real Rate of Interest
S1
ko*
k1*
The required return on a risk-free
asset, tipically a three-month US
Treasury Bill (Obligasi Pemerintah)
So
S1
D
So=D
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S1=D
Funds supplied/demanded
The actual rate of interest
chargeb by the supplier of funds
and paid by demander
k1= k* + IE + IC1
k1= RF + IC1
Risk-free
rate
Risk
Premium
Magister Manajemen-Universitas Gunadarma-29
Managerial Finance
Interest Rates and Required Return
Term Structure of Interest Rates
The relationship between the interest rate
or rate of return and the time to maturity
Inverted Yield Curve
A Downward-sloping yield curve that
indicates generally cheaper long-term
borrowing
costs
than
short-term
borrowing costs
Yield to maturity
Annual rate of interest earned on a security
purchased on a given day and held to
maturity
17
16
15
Yield Curve
14
A Graph that depicts the relationship
between the yield to maturity (y-axis) and
the time to maturity (x-axis)
May 22, 1981
13
10
October 30, 1987
9
September 29, 1989
8
It reflects similar borrowing costs for
both short- and longer-term loans
7
0
5
10
15
20
25
30
Normal Yield Curve
An upward-sloping yield curve that indicates generally
cheaper short-term borrowing costs than long-termborrowing costs
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Managerial Finance
Interest Rates and Required Return
Term Structure of Interest Rates
Theory of Term Structure
1. Expectation Hypothesis
Theory suggesting that the yield curve reflects
investor expectations about future interest rates;
an increasing inflation expectation results in
upward-sloping yield curve, and vice versa
2. Liquidity Preference Theory
Theory suggesting that for any given issuer, longterm interest rates tend to be higher than sortterm rates due to the lower liquidity and higher
responsiveness
to
general
interest
rate
movements of longer term securities; causes the
yield curve to be upward-sloping
Example
Nominal
interest
Rate, RFt
Real
interest
Rate, k*
Inflation
Expectation,
IEt
Maturity, t
(1)
3 Months
5,17%
2,00%
3,17%
1 years
6,51
2,00
4,51
5 years
8,38
2,00
6,38
30 years
9,05
2,00
7,05
(2)
[(1) - (2)]
3. Market Segmentation Theory
Theory suggesting that the market for loans is
segmented based on maturity and that the
sources of supply and demand for loans, within
each segment, determine its prevailing interest
rate; the slope of yield curve is determines by the
geberal relationship between the prevailing rates
in each segment
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Managerial Finance
Interest Rates and Required Return
Term Structure of Interest Rates
Risk and Return
Risk-Return Trade-off
The expectation that for accepting greater risk,
investors must be compensated with greater
returns
Speculative Common Stocks
Qualtiy Common Stocks
Annual Return (cost to issuer)
Preferred Stocks
Medium-Grade Bonds
Investment-Grade Bonds
Investment-Grade Notes
Prime-Grade Commercial Paper
US Treasury Bills
Risk
Budi Hermana
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Managerial Finance
Chapter 3
Financial Statement
Budi Hermana
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Managerial Finance
The Stockholders’ Report
A Stockholder’s report summarizes and documents a
publicly held corporation’s financial activities over the
year. Who receives theses reports? What types of
informastion do you think they typically include? Why
are they important?
1.
2.
3.
4.
?
Regulator or Goverments
Creditor (lenders)
Owners
Management
?
1.
2.
3.
Budi Hermana
The letter to stockholders
Events,
management
philosophy, strategy, and
action
Financial statements
(a) the income statemnet, (b)
the balance sheet, (c) the
statement
of
retained
earnings,
and
(d)
the
statements of cash flows
Other feature
Firm activities, new product,
R&D, etc
An
important
vehicle
for
influencing
owners’
perceptions of the company and
its future outlook.
The stockholders’ report may
effect expected risk, return,
stock price, and the viability
of the firm
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Managerial Finance
Basic Financial Statements
Income Statement
Provide a financial summary of the
operating results during a specified
period
ABC Corporation Income Statement ($000) for the year Ended
December 31, 2000
Sales revenue
Less: Cost of goods sold
Gross profits
Less: Operating expenses
Selling expense
General and administrative expense
Depreciation expense
Total operating expense
Operating profits
Less: Interest expense
Net profits before taxes
Less: Taxes (rate = 40%)
Net profits after taxes
Less: Prefered stock dividends
Earning available for common stockholders
Earning per share (EPS)
Budi Hermana
$ 1.700
1.000
$ 700
$ 80
150
100
$
$
$
$
$
330
370
70
300
120
180
10
170
1,70
The number of
common
stock=
100.000
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Managerial Finance
Basic Financial Statements
Balance Sheet
Summary statement of the firm’s financial position at given point in time
ABC Corporation Balance Sheets ($000)
December 31
Assets
Current assets
Cash
Marketable securities
Account receivable
Inventories
Total current assets
Gross fixed assets (at cost)
Land and buildings
Machinery and equipment
Furniture and fixtures
Vehicles
Other
Total gross fixed assets (at cost)
Less: Accumulated depriciation
Net fixed assets
Total assets
Budi Hermana
2000
2001
$ 400
600
400
600
$ 2000
$
300
200
500
900
$ 1900
$ 1200
850
300
100
50
$ 2500
1300
$ 1200
$ 3200
$ 1050
800
220
80
50
$ 2200
1200
$ 1000
$ 2900
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Managerial Finance
Basic Financial Statements
Balance Sheet
Summary statement of the firm’s financial position at given point in time
ABC Corporation Balance Sheets ($000)
December 31
Liabilities and stockholders’ equity
Current liabilities
Accounts payable
Notes payable
Accruals
Total current liabilities
Long-term debt
Total liabilities
Stockholders’ equity
Preferred stock
Common stock- $1,20 par, 100000
shares outstanding in 2000&2001
Paid in capital in excess of par on
common stock
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
Budi Hermana
2000
2001
$ 700
600
100
$ 1400
$ 600
$ 2000
$
500
700
200
$ 1400
$ 400
$ 1800
$ 100
$
100
120
120
380
600
$ 1200
$ 3200
380
500
$ 1100
$ 2900
Magister Manajemen-Universitas Gunadarma-37
Basic Financial Statements
Managerial Finance
Statement of Retained Earning
Reconciles the net income earned during a
given year, and any cash dividends paid,
with the change in retained earnings
between the start and end of that year
ABC Corporation Statement of Retained Earnings ($000) for the end year
Ended December, 2001
Retained earnings balance (january 1, 2001)
Plus: Net Profit after taxes (for 2001)
Less: Cash dividend (paid during 2001)
Preferred stock
Common stock
Retanined earnings balance (Dec 31, 2001)
Budi Hermana
$500
180
($10)
( 70)
80
$600
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Basic Financial Statements
Managerial Finance
Statement of Cash Flows
Provides a summary of the firm’s operating, investment, and
financing cash flows, and reconciles them with changes in its cash
and marketable securities during the period of concern
ABC Corporation Statement of Cash Flows ($000) for the end year
Ended December, 2001
Cash Flow from Operating Activities
Net Profits after taxes
$ 180
Depreciation
100
Decrease in account receivable
100
Decrease in inventories
300
Increase in account payable
200
Decrease in accruals
(100)
Cash provided by operating
Cash Flow from investment activities
Increase in gross fixed asset
($300)
Changes in business interest
0
Cash used for investment activities
Cash Flow from financing Activities
Decrease in notes payable
($100)
Increase in long-term debts
200
Changes in stockholders’ equity
0
Dividends paid
(80)
Cash provided by financing activities
Net increase in cash and marketable securities
Budi Hermana
$780
(300)
20
$500
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