SELECTED FINANCIAL
MANAGEMENT
THEMESFOR SERVICE
PROVIDERS
Presented by:
Onyango Obiero to KMA Annual Conference on
April 2015
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INTRODUCTION
Financial management:
Addresses the fundamental question of how
to secure the greatest possible return in
exchange for accepting the smallest amount
of risk.
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Theme 1 RISKS & RETURNS
1. RETURN
2. RISKS
• A company that invests in fixed
assets and business operations
expect returns in form of profits
and/or increased cash flows
• The possibility that the actual
return may be different from the
expected return.
• A company that buys corporate
bonds expect regular returns in
the form of interest payments.
• A risky investment implies that
there is significant possibility of
actual return being different from
its expected return
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Theme 2: Sources of business finance
INTERNAL FINANCE (IF)
 Cash generated by an entity, which is
not needed to meet operating costs,
interest payments, tax liabilities,
cash dividends or fixed asset
replacement.
 Only cash can be invested.
 A company with substantial retained
profits in its balance sheet , no cash in
the bank will clearly be unable to
finance investments
 Retained earnings;• Ready source of cash
• An internal decision (to pay
shareholders)
• No dilution of control
• If cash flow is high- IF is favorable
• Opportunity costs to shareholders
EXTERNAL FINANCE (EF)
 Debt and equity finance
 Short term finance (Less than one
year)
 Medium term (1-5 years)
 Long term (more than 5 years)
Issue costs
Dilution of control
Restrictions on business operations
Larger Projects
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Theme 3:KEY FINANCIAL RATIOS
RETURN ON CAPITAL EMPLOYED
DEBTOR DAYS (Activity ratio)
•
•
Profit before interest and tax X 100
Capital employed (or fixed assets plus
W.C)
If ROCE in 2005 is 13.7% and in 2006 it dips to 10%
It means that the investments in Fixed Assets have not
paid off
GEARING RATIO (Debt/Equity ratio)
•
Long term debt X 100
Capital employed
Shows the proportion of debt finance used by a
company. A company is highly geared if capital
gearing is greater than 50%
Debtors X 365
Cost of sales
Gives the average period of credit being
taken by customers. If compared with
allowed credit allowed, it gives an
indication of the efficiency of debtor
administration
CURRENT RATIO ( Liquidity)
• Current Assets
Current liabilities
Varies according to Industry. Measures the
ability to meet short term obligations
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Theme 4 CASH FLOW PROBLEMS
Possible causes of cash flow
problems
•
•
•
•
Losses: Not a problem in the short
term, but on a regular basis will lead
to serious cash flow problems and
lead to liquidation or takeover
One off expenditure e.g.
redemption of debt
Seasonality: cash flow imbalances
Inflation: historical profit may be
insufficient to fund the replacement
of fixed Assets
POSSIBLE REMEDIES
•
•
•
•
•
•
•
A cash budget is necessary: to be
able to anticipate deficits and
surpluses.
Postpone non essential expenditure
Set up a sinking fund
Offering debtors discounts for early
payments
Sell off investments
Sale of unwanted stocks
Improved debt collection
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Theme 5 INVESTING SURPLUS CASH
Cash which is surplus to immediate needs should earn a return by
being invested on a short term basis.
Set limits you invest with particular banks
Factors to consider when choosing an appropriate investment
method for short term cash surpluses:
•
•
•
•
•
The size of the surplus
The ease with which an investment can be liquidated
The tenor: When does it mature?
Risk and yield of the investment
Any penalty that may be incurred for early liquidation.
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Theme 6 GAB’s INTERVENTION
THROUGH GAB DAKTARI FINANCE
SCHEME
• The greatest selling point for india’s growing medical tourism
industry, remains its drastically low costs compared to other
countries that offer the same standard of care.
• There is a need in Kenya and indeed the greater East African
region for a seamless integrated acquisition of medical
equipment for use in specialized areas of medicine.
• From all angles, it is clear that this sub sector is on a growth
trajectory.
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Theme 7 Salient features of GAB Daktari
o Medical Equipment financing facility with an inbuilt tailor made mortgage
facility.
o Improves Business cash flow through easy installments
o TAT: Short loan processing period (within 60 hours )
o Flexible rates (between 15.5-17.5% p.a)
Risk adjusted pricing according to risk profile of the applicant.
o Tenor: Upto 96 months repayment period
o Loan Size: Kes 1,000,000 to Kes 80,000,000, based on need.
o No additional Collateral
o Upto 95% financing from GAB.
o Moratorium on payment: upto 12 months, based on need.
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KONGOI MISING!
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