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Managerial Finance Magister Manajemen-Universitas Gunadarma-1 Budi Hermana Program Magister Manajemen Universitas Gunadarma Manajemen Keuangan Budi Hermana.

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Presentation on theme: "Managerial Finance Magister Manajemen-Universitas Gunadarma-1 Budi Hermana Program Magister Manajemen Universitas Gunadarma Manajemen Keuangan Budi Hermana."— Presentation transcript:

1 Managerial Finance Magister Manajemen-Universitas Gunadarma-1 Budi Hermana Program Magister Manajemen Universitas Gunadarma Manajemen Keuangan Budi Hermana Refferences: Principles of Managerial Finance, Lawrence J. Gitman, Harper Collins Publishers

2 Managerial Finance Magister Manajemen-Universitas Gunadarma-2 Budi Hermana Chapter 1 The Role of Finance and The Financial Manager

3 Managerial Finance Magister Manajemen-Universitas Gunadarma-3 Budi Hermana 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 Areas& Opportunities? Financial Services Managerial Finance The area of finance concerned with the design and delivery of advice and financial product to individual, business, and governments concerned with the duties of the financial manager in the business firm. Actively manage the financial affairs of many tipes of business- financial and non- financial, private and public, large and small, profit-seeking and not-for-profit Task? Budgeting Financial forecasting Cash management Credit administration Investment Analysis Funds procurement

4 Managerial Finance Magister Manajemen-Universitas Gunadarma-4 Budi Hermana Basic Forms Of Business Organization Sole Proprietorship Partnerships Corporations A Business owned by one person and operated for his or her own profit Small firm, unlimited liability A Business owned by two or more persons and operated for profit Written contract (article of partnership), unlimited liability, Limited partership An Intangible business entity created by law (often called a “legal entity”) Stockholders, board of directors, Chief executive officer (CEO)

5 Managerial Finance Magister Manajemen-Universitas Gunadarma-5 Budi Hermana Basic Forms Of Business Organization Legal Form Sole PropriatorshipPartenrshipCorporation Strength 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 Weaknesses Owner has unlimited liability- total wealth can be taken to satisfy debts Limited fund-raising power tends to inhibit growth Propietor must be jack-of-all- trades 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 large- scale 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

6 Managerial Finance Magister Manajemen-Universitas Gunadarma-6 Budi Hermana The Managerial Finance Function Managerial Finance is closely related to, but quite different from, Economics and Accounting ? Organizational View Since most business decisions are measured in financial terms, the financial manager plays a key role in the operation of the firm 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 Separate department, vice-president of finance (CFO), Treasurer, Controller The officer responsible for the firm’s financial activities: financial planning and fund raising, managing cash, making capital expenditure decision, managing credit activities and managing the investment portfolio The officer responsible for the firm accounting activities: tax management, data processing, and cost and financial accounting Financia l Manage r

7 Managerial Finance Magister Manajemen-Universitas Gunadarma-7 Budi Hermana 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 analysisProfit-Maximazing strategiesPrice 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 Benefits with new computer $ Less: Benefits with old computer (1) Marginal (Added) benefits $ Cost of new computer $ Less: Proceeds from sale of old com (2) Marginal (added) costs $ Net Benefit [(1) – (2)] $ Example

8 Managerial Finance Magister Manajemen-Universitas Gunadarma-8 Budi Hermana 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 flowsDecision Making Accrual Method 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 ViewFinancial View Income statement ABC Corporation For the year xxxx Sales Revenue $ Less: Costs Net Profit $ Income statement ABC Corporation For the year xxxx Cash inflow $ 0 Less: Cash Outflow Net Profit ($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

9 Managerial Finance Magister Manajemen-Universitas Gunadarma-9 Budi Hermana The Managerial Finance Function Key Activities of The Financial Manager Primary Activities Performing Financial Analysis and Planning Making Investment Decisions Making Financing Decision 1.Transforming financial data into a form that can be used to monitor the firm’s financial condition 2.Evaluating the need for increased (or reduced) productive capacity 3.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 Deals with The right-hand side of the balance sheet and involves two major area: 1.Most appropriate mix of short-term and long- term financing must be established 2.Which individual short-term or long-term sources of financing are the best at given point in time Balance Sheet Current Assets Fixed Assets Current Liabilities Long-Term Funds Performing Financial Analysis and Planning Making Investment Decision Making Financing Decision

10 Managerial Finance Magister Manajemen-Universitas Gunadarma-10 Budi Hermana 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) EPS: The amount earned during the period on each outstanding share of common stock period’s total earnings avaliable for the firm’s common stock holders The number of shares of common stock outstanding Investmentyear 1year 2year 3total X $1.40 $1.00$0.40$2.80 Y Earning per share (EPS) Profit maximization fails for reason: 1.Timing of return 2.Cashflow avaliable to stockholder 3.Risk The chance that actual outcomes may differs from those expected 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 Stockholder are risk-averse ? √

11 Managerial Finance Magister Manajemen-Universitas Gunadarma-11 Budi Hermana 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 Measured by the share price of the stock Timing of return (cash flow) magnitude Risk Financial Manager Financial Decision Alternative or action Return? Risk? Increase Share Price ? Yes Reject Acept Financial decisions and share price

12 Managerial Finance Magister Manajemen-Universitas Gunadarma-12 Budi Hermana 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 theoryIn practise Most financial managers would agree with the goal of owner wealth maximization However, managers also concern with their personnel wealth, job security, lifestyle, and privilege Agency problem The likelihood that managers may place personnel goals ahead of corporate goals Agency Cost Monitoring expenditure Bonding expenditure Structuring expenditure Opportunity cost To prevent or minimize problem Audit&control Fidelity bond Managerial compensation: stock option, performance share, cash bonuses

13 Managerial Finance Magister Manajemen-Universitas Gunadarma-13 Budi Hermana The Managerial Finance Function Goal of The Financial Manager The Role of Ethics Ethics – Standard of conduct or moral judgement example Corporate Ethics Guidelines and Policies Ethics and share price Issues Update Good Corporate Governance Corporate Social Responsibility Certified Financial Analyst Responsibility Fairness Transparency Accountability social-responsibility.html

14 Managerial Finance Magister Manajemen-Universitas Gunadarma-14 Budi Hermana Chapter 2 The Operating Environment of The Firm

15 Managerial Finance Magister Manajemen-Universitas Gunadarma-15 Budi Hermana Business Taxation Ordinary Income Income earned through the sale of a firm’s goods and services Corporate Tax Rate Schedule Range of taxable incomeBase Tax+ (rate x amount over base bracket) $ 0 to $ $ 0+ (15% x Amount over $ 0) to (25 x Amount over ) to (34 x Amount over ) to (39 x Amount over ) over $ (34 x Amount over ) Tax Calculation Example PT X has before-tax earnings of $ Total Tax due = $ [0.39 x ($ )] = $ (0.39 x $ ) = $ $ = $ Indonesia ?

16 Managerial Finance Magister Manajemen-Universitas Gunadarma-16 Budi Hermana 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 ≥ $ Average tax rate for PT X = $ / $ = 32.3% Marginal Tax Income The rate at which additional income is taxed Pretax Tax Average Tax rate Income Liability [(2) : (1)] (1) (2) (3) $ $ % % % % % % % % If PT X’s earnings go up to % , the marginal tax rate on the additional $ of income will be 39%. The company will therefore have to pay additional taxes of $ (0.39 x $50.000) Total Taxes on the $ = $ $ = $ Using Taxe rate schedule: Total Taxes = $ [0.39x($ $ )] = $ $ =$

17 Managerial Finance Magister Manajemen-Universitas Gunadarma-17 Budi Hermana Business Taxation Ordinary Income Interest and Dividend Income Interest received by the corporation is included as ordinary income 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 $ interest on bonds it held and $ in dividends on common stock it owned in other corporation. The firm is subject to a 40% marginal- tax rate and is eligible for 70% exclusion on its intercorporate dividend receipts Interest Income Dividend Income (1)Before-tax amount Less: Applicable Exclusion Taxable amount (2) Tax (40%) After-tax amount (1)-(2) $ $ $ $ $ $ (0,70x$ ) = Indonesia ?

18 Managerial Finance Magister Manajemen-Universitas Gunadarma-18 Budi Hermana Business Taxation Ordinary Income Tax-Deductible Expenses Corporation are allowed to deducti operating expenses. The tax- deductible expenses reduces their after-tax cost. Advertising expenses Sales commision Bad debt Interest expenses Insurance? CSR? Example Company X and Y each expect in the coming year to have earnings before interest and taxes of $ Company X during the year will have to pay $ 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 Earnings before tax Less: Taxes (40%) Earnings after taxes $ $ $ $ $ $ Difference in earning after taxes $ Dividends are not tax-deductible expense

19 Managerial Finance Magister Manajemen-Universitas Gunadarma-19 Budi Hermana 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 has operating earnings of $ and hast just sold for $ a capital asset initially purchased two years ago for $ Since the asset was sold for more than its initial purchased, there is capital gain of $4000 ($ sale price - $ initial purchase price) The corporation’s taxable income will total $ ($ ordinary income plus $4.000 capital gain) Since this total is above$ , the capital gain will be taxed at the 34%, resulting in tax of $1.360 (0,34 x $4000)

20 Managerial Finance Magister Manajemen-Universitas Gunadarma-20 Budi Hermana 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 Financial Market Private placement That accept savings and transfers them to those needing funds Organized forum where the suppliers and demanders of various type of funds can make transaction

21 Managerial Finance Magister Manajemen-Universitas Gunadarma-21 Budi Hermana Financial Institutions and Markets: An Overview Financial Institution An intermediary that channels the savings of individuals, businesses, and governments into loans or investment Major Financial Institutions USAIndonesia Commercial Bank Savings Bank Savings and Loan Credit Union Life Insurance Company Pension Fund Mutual Fund Accepts both demand (checking) and time (savings) deposits. Makes loans directly to borrowers or through the financial market Not hold demand (checking) deposits. Generally lends or invest funds through financial markets 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 Deals primarily in transfer of funds between consumers. Accept members’ deposit and lends to other members Receive premium payments that are placed in invesments to accumulate funds to cover future benefit payment Money is sometimes transferred directly to borrowers, but the majority is lent or invested via the financial markets Pools funds of savers and makes them available to business and government demanders. Creates a portfolio of securities to achieve a specified investment objective Bank Umum BPR Asuransi Dana Pensiun Reksa dana Modal Ventura Anjak-Piutang Sewa guna usaha

22 Managerial Finance Magister Manajemen-Universitas Gunadarma-22 Budi Hermana 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 Capital Market Primary market Secondary Market Transactions in short-term debt instruments, or marketable securities, take place in the money market Long-term securities (bonds and stocks) are traded in the capital market Financial market in which securities are initially issued; the only market in which the issuer is directly involved in the transaction Financial market in which preowned securities (those that are not new issues) are traded

23 Managerial Finance Magister Manajemen-Universitas Gunadarma-23 Budi Hermana Financial Institutions and Markets: An Overview Financial Markets Flow of funds for financial institutions and market Financial Institutions Financial Markets Suppliers of Funds Demanders of Funds Deposits/SharesLoans Securities Funds Securities Private Placement

24 Managerial Finance Magister Manajemen-Universitas Gunadarma-24 Budi Hermana Financial Institutions and Markets: An Overview The Money Market A financial relationship created between suppliers and demanders of short-term funds, which have maturities of one year or less 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? Certain individuals, businesses, governments, and financial institution have temporary idle funds that they wish to place in some type of liquid asset or short- term, interest earning instrument Other individuals, businesses, gevernments, and financial institution find themselves in need of seasonal or temporary financing Money Market exists

25 Managerial Finance Magister Manajemen-Universitas Gunadarma-25 Budi Hermana Financial Institutions and Markets: An Overview 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

26 Managerial Finance Magister Manajemen-Universitas Gunadarma-26 Budi Hermana Financial Institutions and Markets: An Overview The Capital Market Major Securities Exchange 1. Organized Securities Exchanges Provide the marketplace in which firms can raise funds through the sale of new securities and in which purchasers can resell securities Tangible organozations on whose premises outstanding securities are resold New York Stock Exchange (NYSE) Jakarta Stock Exchange (JSX) 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 Persyaratan “listing”?

27 Managerial Finance Magister Manajemen-Universitas Gunadarma-27 Budi Hermana Financial Institutions and Markets: An Overview 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 The ask price is the lowest price at which the dealer is willing to sell the security Automated matched Jakarta Automated Trading System (JATS) ?

28 Managerial Finance Magister Manajemen-Universitas Gunadarma-28 Budi Hermana Interest Rates and Required Return The level of funds flow between suppliers and demanders can significantly affect economic growth Interest rates and required returns represent the costs of obtaining various forms of financing ? ? 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 ?

29 Managerial Finance Magister Manajemen-Universitas Gunadarma-29 Budi Hermana Interest Rates and Required Return Interest Rate Fundamentals The compensation paid by the borrower of funds to the lender; from the borrower’s point of view, the cost of borrowing funds Interest rate Required Return The level of return expected on equity investment 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 preferences of investors for shorter-term securities 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 The actual rate of interest chargeb by the supplier of funds and paid by demander D SoSo S1S1 ko*ko* k1*k1* D SoSo S1S1 Funds supplied/demanded S o =DS 1 =D Real Rate of Interest k 1 = k* + IE + IC 1 k 1 = R F + IC 1 Risk-free rate Risk Premium The required return on a risk-free asset, tipically a three-month US Treasury Bill (Obligasi Pemerintah)

30 Managerial Finance Magister Manajemen-Universitas Gunadarma-30 Budi Hermana 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 Annual rate of interest earned on a security purchased on a given day and held to maturity Yield to maturity Yield Curve A Graph that depicts the relationship between the yield to maturity (y-axis) and the time to maturity (x-axis) May 22, 1981 October 30, 1987 September 29, 1989 Inverted Yield Curve A Downward-sloping yield curve that indicates generally cheaper long-term borrowing costs than short-term borrowing costs Normal Yield Curve An upward-sloping yield curve that indicates generally cheaper short-term borrowing costs than long-term- borrowing costs It reflects similar borrowing costs for both short- and longer-term loans

31 Managerial Finance Magister Manajemen-Universitas Gunadarma-31 Budi Hermana 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, long- term interest rates tend to be higher than sort- term 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 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 Example Nominal interest Rate, R Ft Real interest Rate, k* Inflation Expectation, IE t Maturity, t (1)(2) [(1) - (2)] 3 Months 1 years 5 years 30 years 5,17% 6,51 8,38 9,05 2,00% 2,00 3,17% 4,51 6,38 7,05

32 Managerial Finance Magister Manajemen-Universitas Gunadarma-32 Budi Hermana Interest Rates and Required Return Term Structure of Interest Rates Risk and Return The expectation that for accepting greater risk, investors must be compensated with greater returns Risk-Return Trade-off Annual Return (cost to issuer) Risk US Treasury Bills Prime-Grade Commercial Paper Investment-Grade Notes Investment-Grade Bonds Medium-Grade Bonds Preferred Stocks Qualtiy Common Stocks Speculative Common Stocks

33 Managerial Finance Magister Manajemen-Universitas Gunadarma-33 Budi Hermana Chapter 3 Financial Statement

34 Managerial Finance Magister Manajemen-Universitas Gunadarma-34 Budi Hermana 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.Regulator or Goverments 2.Creditor (lenders) 3.Owners 4.Management 1.The letter to stockholders Events, management philosophy, strategy, and action 2.Financial statements (a) the income statemnet, (b) the balance sheet, (c) the statement of retained earnings, and (d) the statements of cash flows 3.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 ?

35 Managerial Finance Magister Manajemen-Universitas Gunadarma-35 Budi Hermana Basic Financial Statements Income Statement Provide a financial summary of the operating results during a specified period 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) $ $ $ $ $ $ 170 $ 1,70 $ ABC Corporation Income Statement ($000) for the year Ended December 31, 2000 The number of common stock=

36 Managerial Finance Magister Manajemen-Universitas Gunadarma-36 Budi Hermana Basic Financial Statements Balance Sheet Summary statement of the firm’s financial position at given point in time ABC Corporation Balance Sheets ($000) 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 Assets $ 400$ $ 2000 $ 1900 $ 1200 $ $ 2500 $ $ 1200 $ 1000 $ 3200 $ 2900 December 31

37 Managerial Finance Magister Manajemen-Universitas Gunadarma-37 Budi Hermana Basic Financial Statements Balance Sheet Summary statement of the firm’s financial position at given point in time ABC Corporation Balance Sheets ($000) Current liabilities Accounts payable Notes payable Accruals Total current liabilities Long-term debt Total liabilities Stockholders’ equity Preferred stock Common stock- $1,20 par, 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 Liabilities and stockholders’ equity $ 700$ $ 1400 $ 600 $ 400 $ 2000 $ 1800 $ $ 1200 $ 1100 $ 3200 $ 2900 December 31

38 Managerial Finance Magister Manajemen-Universitas Gunadarma-38 Budi Hermana Basic Financial Statements Statement of Retained Earning ABC Corporation Statement of Retained Earnings ($000) for the end year Ended December, 2001 Retained earnings balance (january 1, 2001)$500 Plus: Net Profit after taxes (for 2001) 180 Less: Cash dividend (paid during 2001) Preferred stock($10) Common stock( 70) 80 Retanined earnings balance (Dec 31, 2001)$600 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

39 Managerial Finance Magister Manajemen-Universitas Gunadarma-39 Budi Hermana Basic Financial Statements Statement of Cash Flows 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 $780 Cash Flow from investment activities Increase in gross fixed asset ($300) Changes in business interest 0 Cash used for investment activities(300) 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 20 Net increase in cash and marketable securities$500 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


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