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    Financial Management

    Uploaded by

    Rochelle Andoloy

    Copyright:

    © All Rights Reserved
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    Financial Management

    Uploaded by

    Rochelle Andoloy
    18 views5 pages

    Original Title

    Financial Management (3)

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    Copyright:

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    Download as docx, pdf, or txt
    18 views5 pages

    Financial Management

    Uploaded by

    Rochelle Andoloy

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 5

    1. A.

    Payback method - (Initial investment / annual cashflow)

    ($700,000/ $180,000)

    = 4.3 years

    B. Accounting rate of return (ARR) - (average annual revenue”/ “initial investment) x 100

    = $180,000 - ($700,00/5)/ $700,000 x100

    = $40,000/$700,000 x 100

    = 5.7%

    *Note The expected average rate of return is compared with the rate of return set by the management.
    The investment is not desirable since the expected rate of return (5.7%) did not exceed the minimum
    rate set by the management which is 9%.

    C. Capital investment analysis is a budgeting tool that companies and governments use to
    forecast the return on a long-term investment. It often includes fixed assets such as equipment,
    machinery, or real estate. It identifies the option that can yield the highest return on invested
    capital. Capital investments are risky because they involve significant, up-front expenditures on
    assets intended for many years of service, and that will take a long time to pay for themselves.
    Cash Budget

    For period ending in November 30

    Receipts:

    Cash Sales $50,000

    Collection from credit sales $50,000

    Receipts from Bank Loan $25,000

    Other Receipts $35,000

    Total Receipts: (a) $160,000

    Payments:

    Payments for cash & credit purchases $75,000

    Payments for expenses $25,000

    Cash Drawings $20,000

    Repayments of loan _______

    Other Payments $21,000

    Total Payments: (b) $141,000

    Net Receipts: (a-b) $19,000

    Beginning Balance: $31,000

    End balance: $50,000


    A. Break Even Point in Units = Fixed Costs ÷ (Sales price per unit – Variable costs per unit)

    = $200,000 / ($100 - $40)

    = 3,333.3 units

    B. Break Even Point in Dollars = Fixed Costs ÷ Contribution Margin (Sales price per unit – Variable
    costs per unit, with resulting figure then divided by sales price per unit)

    = $200,000/0.6

    =$333,333.3

    C. Sales Price Increases by 10 percent = $110

    = $200,000 / ($110 - $40)

    = 2,857 .1 units

    D. Unit Variable Cost Increases by 10 percent = $44

    = $200,000 / ($100 - $44)

    = 3,571 units

    E. Total Fixed cost increases by $5,000 = $205,000

    = $205,000 / ($100 - $40)

    = 3,416.7 units
    4. A. DSO = A/R / (CREDIT SALES / 365)

    = 1,845,113 / (9,912,332 / 365)

    = 67.9 DAYS

    B. DSI = INVENTORY / (COGS/365)

    = 1312478 / (5947399/365)

    = 80.6 DAYS

    C. DPO = A/P / (COGS/365)

    = 1721669 / (5947399/365)

    = 105.7 DAYS

    D. OPERATING CYCLE = DSO + DSI

    = 67.9 + 80.6

    = 145.8 DAYS

    *Note: The length of operating cycle is the indicator of efficiency in management of short-term funds
    and working capital. Since this company has a longer operating cycle compared to the average, the
    larger the working capital requirement is needed. It also demands for a higher return on their sales to
    compensate for the higher opportunity cost of the funds blocked in inventories and receivables.

    E. CASH CONVERSION CYCLE = DSO + DSI – DPO

    = 67.9 + 80.6 - 105.7

    = 40.1 DAYS

    *Note: The cash conversion cycle is a cash flow calculation that measures the period it takes your
    business to convert inventory and other resources into cash. The company’s CCC is of a lower number
    compared to the average, which means that their working capital is tied up shorter, and that the
    business has greater liquidity compared to the average.
    5.

    A. EPS = NET INCOME / AVERAGE OUTSTANDING COMMON SHARES

    EPS (2020) = 615000/ 100000 EPS (2019) = 739,000 / 100000

    EPS (2020) = $6.15 EPS (2019) = $7.39

    B. P/E Ratio = Price per Share / EPS

    P/E Ratio (2020) = 134 / 6.15 P/E Ratio (2019) = 110 / 7.39

    P/E Ratio (2020) = 21.8 TIMES P/E Ratio (2019) = 14.9 TIMES

    C. ROA = NET INCOME / TOTAL ASSET X 100

    ROA (2020) = 615000 / 7207000 ROA (2020) = 739000/ 6621000

    ROA (2019) = 8.53% ROA (2020) = 11.16%

    D. ROE = NET INCOME / TOTAL EQUITY

    ROE (2020) 615000 / 3879000 X 100 ROE (2019) = 739000/ 3262000 X 100

    ROE (2020) = 15.85% ROE (2019) = 22.65%

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