Académique Documents
Professionnel Documents
Culture Documents
Financial Management
Basic Definitions
Business Taxes
Capital Gains
Financial Statements
Depreciation
Depletion
Time Value of Money
Income Statement
Balance Sheet
Statement of Cash Flow
Future Value
Present Value
Financial Management
Definitions
Finance
Art and Science of Managing the Money
Sole Proprietorship
A business owned by one person and
operated for his/her own profit
Financial Management
Financial Management
Stockholders
The owners of a corporation (Public limited Co.)
Having companies shares, Common Stock or
Preferred Stocks
Stakeholders
Group Such as employees, customers, suppliers,
creditors, owners, and others who have a direct
economic link to the firm.
Risk
The chance that actual outcomes may differ from
those expected.
Financial Management
Business Taxes
Business Taxes
Taxes are a fact of life, and businesses, like
individuals must pay taxes on income
Income Tax
Corporate Tax
Wealth Tax
Sales Tax
Withholding Tax
Capital Gain Tax
Examples
Income Tax
Yearly Income
Less Income Tax @ 5% is
400,000 * 5%
After- Tax Income
Sales Tax
Financial Statements
Income Statement
Provides a financial summary of the firms operating
results during a specified period. Like end of month,
30th June, 31 December etc.
Balance Sheet
Summary Statement of the firms financial position at
a given point in time
Financial Statements
Current Assets
Short Term Assets, expected to be
converted in to cash within 1 year or less
Current Liabilities
Short Term liabilities, expected to be paid
within 1 year or less
Depreciation
Depreciation
The systematic charging of a portion of the costs of
fixed assets against annual revenues over time.
Depreciable Life
The period over which an asset is depreciated
Depreciation
Property Class
(Recovery Period)
Definition
Depreciation
3 Years
5 Years
7 Years
10 Years
33 %
20 %
14 %
10 %
45
32
25
18
15
19
18
14
12
12
12
12
10
11
Total
100%
100 %
100%
100%
Depreciation
Example
Year
Cost
% Age
40,00
0
40,00
0
40,00
0
40,00
0
20 %
Depreciatio
n
8,000
32
12,800
19
7,600
12
4,800
2
3
4
Profitability Models
1. Payback period
Principal
Future Value
Future Value/
Compounding
Example
P V = Rs. 800
i =6%
F V end of 5 years
F V 5 = 800 (1+ 0.06)5
= Rs. 1070.40
Present Value/Discounting
P V Eqn.
P V= F Vn * 1/(1+i)n or P V = F V n * P V I F i,n
Example
F V8 = Rs. 1700
i= 8 % (discounting rate, opportunity cost)
PV= 1700/(1+0.08)8
= Rs. 918.45
Annuity
Ordinary Annuity
Annuity Due
Example
P V = Rs. 1000
i =5%
F V end of 7 years
5.751) from Table
F V 5 = 1000* 5.571
= Rs. 5,751
(FV I F 5,7=
Example
F V8 = Rs. 700
Mixed Stream
A stream of unequal periodic cash
flows that reflect no particular
pattern
1
11,500
2
14,000
3
12,900
4
16,000
5
18,000
Cash Flow
Number of
Years earning
Interest
FVIF 8%,n
Future Value
11,500
5-1=4
1.360
15,640
14,000
5-2=3
1.260
17,640
12,900
5-3=2
1.166
15,041.40
16,000
5-4=1
1.080
17,280
18,000
5-5=0
1.000
18,000
Total
83,601.40
Cash Flow
PVIF 9%,n
Future Value
400
0.917
366.80
800
0.842
673.60
500
0.772
386.00
400
0.708
283.20
300
0.650
195.00
Total
1904.60
Example
Cost of Capital 10 %
Project A
1
0
42000
14000
14000
14000
4
14000
5
14000
Project B
0
28000
12000
45000
PV = 55,924 NPV =10,924
3
10000
4
10000
5
10000
(Thanks)