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BUSINESS FINANCE

Transcript: CHAPTER 28 BUSINESS FINANCE Internal Sources of Finance External sources of Finance Retained profits Sale of Assets Reductions in working capital Working Capital Short Term: Bank overdrafts Trade Credit Debt Factoring Medium Term: Hire Purchase and leasing Bank Loan Long-Term Loans Debentures Sale of shares: equity finance Others Grants Venture capital Micro-finance Liquidity & Liquidation Why business activity needs finance? Debt or Equity? AIM Start-up capital Working capital Expansion Revenue Expenditure Capital Expenditure Selling shares Factors influencing finance choice Full Listing- Stock exchange Rights issue Public Issue Use Cost Amount needed Legal structure Size of existing borrowing Flexibility 20 Min to Review & Make it Happen! Group 1: p. 417 to 419 (till internal) Group 2: p 419 to 421 (tillmedium) Group 3: 421 to 423 (till debt or equity) Group 4: 423 to 426 (till finance and stake..) State three examples of Business situations that requiere finance Group 5: 426 to 428 Explain the difference between long term and short term finance State two factors that a manager should consider before deciding between loan and share capital to raise additional finance. An entrepreneur plans to set up a bss producing a new appliance that he has invented. Would you advise him to use crowd funding? After reviewing all the chapter, decide which source of finance you would use to start your new business and, later on, to expand it.

Business Finance

Transcript: Free Consultation Areas of Expertise Bachelor Degree in Business Management Works for Michigan First Credit Union Financial Planning isn't her primary activity. IRA Credit Review Reports Take Loan Applications Make Recommendations on loan decisions Fee Determination Business Finance Dunn-Elam 5th Hour Financial Service Represntative Michigan First Credit Union does offer free consultaiton for members Ms. Jones is a Finanacial Service Rep so she doesnt actually do things such as: Set fees Have personal clients Decide plans for people Interviewée:Ms.Krystal Jones Affliation Education/Training Financial Planner Interview Primary Activities

Business Finance

Transcript: Types of financial data found in Financial Statements Sales and operating expenses, earnings from jointly controlled entities, total revenue, profits and losses, earnings per share, changes in equity, comprehensive income, and cash flow statement Resources: Future Opportunities for Growth per 2012 Annual Report Carl-Henric Svanberg, Chairman March 2013 (Source - http://www.bp.com/content/dam/bp/pdf/investors/BP_Summary_Review_2012.pdf) Effect of Public Opinion & Perception Increased Sales / Revenue “Shut Up & Pay Up” With BP's revenue growth outpacing the industry average of 10.8%, the growth in the company's revenue seems to be helping its earnings per share. In the past financial year, BP Plc had witnessed a loss, reporting -$1.24 versus $5.25 in the prior year. With markets expecting an improvement in BP's earnings, the outlook for the company seems to be coming out of the impact of the Gulf of Mexico oil spill. Review of Statement of Cash flows Identification of how much cash was generated or used by operating, financing and investing activities Operating Profit before taxation- 19,734 Depreciation 3,369 Net charge of interest Less net interest paid 172 Share based payments 46 Net Cash provided by Operating activities 3,967 Investing Capital expenditure (5,729) Investment in joint ventures ( 51 ) Investments in associates ( 4883) Proceeds from disposals of fixed assets 16,780 Proceeds from disposal of fixed assets 1,501 Proceeds from loan repayments 22 Net cash from investing activities 7,640 Financing Activities Net issue of shares 55 Proceeds from long-term financing 63 Repayments of long term financing (288) Net decrease in short term debt (1,491) Dividends paid-BP shareholders (1,622) Non-controlling interests (31) Net cash from financing (3,314) Cash at beginning of period 19,635 Cash at the end of period 27,679 Business Finance Future Company Prospects BP's Business Model Through their business model they aim to create value across the hydrocarbon value chain. This starts with exploration and ends with the supply of energy and other products fundamental to everyday life. Company Overview Hope you have an excellent Summer break Thank You!!! The Dividends over the last 3 years in USA 2010 - .84 per ADS (American Depository Share) 2011 - 1.68 per ADS 2012 - 1.98 per ADS Learning Summary & Observations from Research Completed: BP Stocks: What types of Stocks? 1. Common Stock or Ordinary Shares on the London Stock Exchange 2. American Depository Shares 3. Scrip divendend programme allows ordinary shareholders and ADS shareholders to receive new shares instead of cash 4. Institutions own the majority of shares at 82% Individuals own 18% ADS equivalent 3,192,264 Bp at Market Close 6/07/2013 BP is traded on the FTSWE 100 index The current stock price is $43.28 Lowest stock price=$29.20 (2010 Oil Spill) Highest stock price = $43.45 (Fracking) IRS Audits BP's Financial Statements according to SEC standards plus internal auditors. SIC Code is 1311 NAICS code 211111 BP's industry is major integrated Oil and Gas their ranking is 84% BP and technology Operating safely and discovering and recovering more resources, as well as efficiently converting processes and creating lower-carbon products. BP in general: Same as industry - high risk, profitable, etc. Strategic sale of assests= financial strength re-organization = simpler co. prime focus product= Oil natural gas research investments selection = assets generating good margins http://www.bp.com/content/dam/bp/pdf/investors/BP_Summary_Review_2012.pdf http://uk.finance.yahoo.com/news/bp-plc-annual-financial-report-174500682.html http://www.huffingtonpost.com/2012/03/03/bp-moves-on-from-spill-with-settlement_n_1318671.html http://www.bloomberg.com/news/2013-06-04/bp-s-oil-spill-settlement-sours-as-claims-add-billions.html Industry in General: Final Company Presentation BP is a Gasoline Company that provides petroleum, natural gas, motor fuels and aviation fuels Public Limited Company Traded as LSE: BP FWB:BPE NYSE:BP Company first established in 1908 with oil found in a rugged part of Persia Company went public in 1954 as Birtish Petroleum. Stock Ticker Symbol:BP PLC Company Financial Information Bonds The company has 40.6 billion dollars in bonds. 6 billion matures per year. Jessica Girard, Jesus Landeros, & Danny Douglas Ratios 4. Debt ratio Net Debt for first quarter 2013 17,663 Equity 131,085 Net Debt Ratio 11.9% 5. Price earnings ratio 42.95/5.20= 8.25 per share Market Value per share/EPS High Risk Very Profitable Very positive outlook Fossil Fuel Consumption continues to grow Environment Awareness / Responsibility Increase

Business Finance

Transcript: CASE STUDY ADD YOUR LOGO HERE DPB 5043 ABOUT DPB 5043 : BUSINESS FINANCE DURUVENDRAN A/L JAYAKHANTHAN (01DAT17F2005 ) DANIAL HAKIM BIN MOHD ZAID (01DAT17F2009) THILAGAN A/L MURUGIAH (01DAT17F2011) NOR ALIA SHAHIRA BT MUSA (01DAT17F2019) INTAN NUR SHAFIQAH BT NORHISHAM (01DAT17F2036) VISSMER WELLFRED A/L JAGANATHAN (01DAT17F2055) QUESTION CASE STUDY – FINANCIAL REPORT ANALYSIS Three Executives of a well-known multi-national company decided to form a new company, named New Star Company Limited in 1974. These three executives were becoming close to their retirement age. Pifco-Zen Chen Company Limited, the company that they worked for had been in business for the last 80 years. It was their previous employer’s policy to retire the executives with a “golden hand-shake” worth approximately US$120,000 each. The three executives occupied the following position with Pifco-Zen Chen Company Limited, (1) Finance Manager – Mr. Zu Chang, (2) Sales & Marketing Manager, Mr. Lim Lam, and (3) Risk Management Manager, Mr. Shu Ching. In their previous position with Pifco-Zen Chen Company Limited, they were regarded as the most respected executives because the company made significant progress in terms of organic growth and diversification. The Chairman of the Board of Directors, Dr. Wing Wan used to call them “the three wise men”. Pifco-Zen Chen Company Limited main business activities were the manufacturing of “twisties” and acted as wholesale distributor of a special drink called “Wysalt”. The drink is full of calcium and protein and it is very popular in the South East Asia. Each year’s Annual General Meeting of Pifco-Zen Chen Company Limited’s gross income and net profit before taxation increased by 10%, while its main competitor’s performance was declining at an alarming rate. Chairman Wan always wanted to find out what is the main reason driving its company’s operational success. In a nutshell, Chairman Wan always believed that the financial result was “too good to be true” because whenever he has a chance to play golf with one of the Chairman of his competitor company, he was told that life as the head of a corporate is becoming unbearable due to competition and increased in the cost of living. Still, Mr. Wan kept quiet while congratulating his three wise men for a fantastic job each year. Even the external Auditors could not believe the significant progress, which the company used to, when the three wise men were working for Pifco-Zen Chen Company Limited. The auditors knowing too well the performance of the company before the departure of Mr. Chang, Mr. Lam, and Mr. Ching cautioned the Chairman that it would be a great loss for the company to loose three key executives in one go. In view of the continued pressure and perplexities of the situation, one afternoon, Chairman of Pifco-Zen Chen Company Limited, Dr. Wan called a special Board of Directors meeting to address his concern regarding the retirement of Mr. Chang, Mr. Lam, and Mr. Ching. One of the vocal directors. who did not get along very well with these three managers, said “it does not matter if all of the three men were to leave the company today because they are not indispensable people”. He went on to argue further that “we can replace them easily because there are other professionals looking for work”. According to the employment contract of the three wise men, they were paid a basic salary plus they also benefited with a 2% commission on the net profit of the company each year after the accounts have been finalized by the external auditors. The Internal Auditor, Miss Wen always queried this employment terms that it favours mostly these three managers at the detriment of the other hard-working employees. One day in a management meeting, Miss Wen expressed her frustration of the favourable treatment of the three managers because she felt that they are working very close and perhaps, manipulating the figures so that they can benefit a hefty remuneration every year. Chairman Wan felt every uneasy during this meeting and closed the meeting earlier than expected. After the meeting, Miss Wen wrote a memo to the Chairman of the Board of Directors to complain that the external auditors come on the premises of the company for a very short time to perform the audit. They do not carry out an efficient audit and the Pifco-Zen Chen Company Limited runs the risk of facing a corporate collapse, when those three managers had left. In the abridged version of the financial statement of Pifco-Zen Chen Company Limited, the following item appears at the end of the financial year 1975. In the financial statement there is an amount of US$ 25 million worth of over-valued stocks, which has been in the accounts for the last 5 years. No provision has been made in the Debtors Account for non-performing account worth US$9 million. Current operating expenditure to the value of US$ 7 million has been accounted as “prepaid expenditure”. The bank reconciliation has not been done properly

BUSINESS FINANCE

Transcript: BUSINESS FINANCE Pifco-Zen Chen Cos managers have involved themselves with window dressing the company's financial statements for their own gains (e.g. extra payment on the net profit of the company, that is , besides their basic salary). The managers have behaved in a very dishonest manner to give a false impression on the company's financial performance. The Chairman did not have proper controls set in the accounting system that would prevent such happenings taking place. QUESTION 1 QUESTION 1 Certainly, when all the financial adjustments have been made to correct the sate of affairs, the company ends up in a very poor financial standing. The company’s accumulated profit of US$ 46 million has been turned into a Net Loss of US$ 18 million. It means that the total manipulation of the transactions amount to US$ 64 million QUESTION 2 QUESTION 2 The major problem of this company’s management is that the Chairman had relied too much on the professional judgment and honesty of the three managers. The company risk of loosing more money and perhaps of a take-over bid, when the news filters in the market. QUESTION 3 QUESTION 3 The New Star Company Limited also runs the risk of its own demise that customers would not trust the three owners, when they will get to know the financial manipulation of Pifco-Zen Chen Company Ltd. They do not carry out an efficient audit and the Pifco-Zen Chen Company Limited runs the risk of facing a corporate collapse,when those three managers had left. NEXT QUESTION 4 QUESTION 4

BUSINESS FINANCE

Transcript: Financial Ratio Analysis. Financial ratios are mathematical comparisons of financial statement accounts or categories. These relationships between the financial statement accounts help investors, creditors, and internal company management understand how well a business is performing and areas of needing improvement. 5 CLASSIFICATIONS OF LIQUIDITY 1. CURRENT RATIO 2.ACID TEST RATIO 3.SALES TO RECEIVABLE RATIO 4.SALES TO INVENTORY RATIO 5.INVENTORY TO NET WORKING CAPITAL RATIO SALES TO RECEIVABLE RATIO CURRENT RATIO : 100 Monday, January 20, 2017 CLASSES OF FINANCIAL RATIO Headline 5 CHAPTER 14: FINANCIAL RATIOS Calculate and analyze current ratios for The Coca Cola Company (NYSE: KO) and PepsiCo. Inc. (NYSE: PEP) based on the information given below: 2014 Coca Cola Current assets 32,986 Current liabilities 32,374 PepsiCo Current assets 20,663 Current liabilities 18,092 Solution Current ratio for Coca Cola for 2014 = 32,986 = 1.02 32,374 The following table shows current ratios for both companies for all three years: WHAT ARE FINANCIAL RATIOS? ACTIVITY AND PROFITABILITY LIQUIDITY VS SOLVENCY Headline 4 ACID TEST RATIO Vol XCIII, No. 311 BUSINESS FINANCE Acid-Test Ratio = (Current assets – Inventory) / Current Liabilities Current Ratio = Current Assets _______________ Current Liabilities

Business Finance

Transcript: Business Finance Presented by: Niña Bongiad Joynalyn Gamboa Norilyne Quiroben Airish Joy Vista Simple and Compound Interest Simple and Compound Interest Simple Simple Interest When someone lends money to someone else, the borrower usually pays a fee to the lender. This fee is called 'interest'. 'Simple' interest, or 'flat rate' interest. The amount of simple interest paid each year is a fixed percentage of the amount borrowed or lent at the start. The simple interest formula is as follows: Interest = Principal × Rate × Time where: 'Interest' is the total amount of interest paid, 'Principal' is the amount lent or borrowed, 'Rate' is the percentage of the principal charged as interest each year. 'Time' is the time in years of the loan. The simple interest formula is often abbreviated in this form I = P R T Example: A student purchases a computer by obtaining a simple interest loan. The computer costs $1500, and the interest rate on the loan is 12%. If the loan is to be paid back in weekly instalments over 2 years, calculate: 1. The amount of interest paid over the 2 years, 2. the total amount to be paid back, 3. the weekly payment amount. Given: principal: 'P' = $1500, interest rate: 'R' = 12% = 0.12, repayment time: 'T' = 2 years Part 1: Find the amount of interest paid. interest: 'I' = PRT = 1500 × 0.12 × 2 = $360 Part 2: Find the total amount to be paid back. total repayments = principal + interest = $1500 + $360 = $1860 Part 3: Calculate the weekly payment amount total repayments weekly payment amount = --------------------------------------- loan period, T, in weeks $1860 = ------------------- 2 × 52 = $17.88 per week Example: Compound Compound Interest An amount of $1,500.00 is deposited in a bank paying an annual interest rate of 4.3%, compounded quarterly. What is the balance after 6 years? Using the compound interest formula, we have that P = 1500, r = 4.3/100 = 0.043, n = 4, t = 6. Present Value and Future Value Present Value and Future Value Effective Annual Rate Effective Annual Rate Loan Amortization Loan Amortization Thank You

Business Finance

Transcript: Medium Term Sources of Finance Sale and Leaseback Grants are non-repayable from either the government or EU to help those starting a business 1. Short Term and Medium Term and Long term Sources of Finance Retained Earnings Business delays paying their expenses for as long as possible Group Work 1. Trade Creditor 2. Bank Overdraft 3. Expenses Due Keeping profits in the business Has use of an asset without having to pay large sum of money Hire Purchase - delay in paying different expenses Trade Creditors Long Term Sources of Finance Disadvantage To Fund all of these things - What does the business need? Where will the business get this? - someone a business owes money to A loan must be repaid over a period of time Business Finance Chapter 19, Pg 154 Advantage Examples: > Phone bill, > Electricity bill Our Plan for Today: Business no longer owns the asset they sold and will not benefit if the value increases When a business is starting off what does it need? Total amount paid out will be more than the value of the item Disadvantage Firm does not have to pay back money they earn from shares Shareholders may be unhappy if they dont receive a dividend Grants -V- Loan Choosing Source of Finance Sale and Leaseback Retained Earnings selling shares for the business Some business hold off on paying people/firms for a number of weeks The business may have a deal with a suppiler to pay them a number of days/weeks after they have recieved their product Issue of Ordinary Shares Disadvantage Businesses must be careful not to wait too long as they may get cut off for owing money Used to purchase equipment and vehicles 2. Finish our table of all three, revising through each type of source of finance Issue of Ordinary Shares Term Loan selling a companies asset, and leasing it back over time Does not cost the business any money Each group must elect a: >Folder Manager >Reader/Writer >Time-Keeper >Checker Never will have ownership of the asses Disadvantage Deal involves 3 parties 1. The buyer (the business) 2. The seller (car company) 3. The finance company (Credit Union) - Loan paid back over a period of time between 1 - 5 years Short Term Sources Advantage Disadvantage Business know the amount to be paid each month - so they can budget! In your groups: Using the 'Plate' template worksheet, discuss all the information you know on B usiness finance(5minutes) - An agreement to pay a certain amount eah month in return for use of an asset Advantage Advantage Advantage Leasing Shareholders must be consulted before major decisions are made Disdvantage: Interest rate is higher than any other loan types. - can take out money when bank account is low 3. Begin - The Business Plan Business receives the cash they need to run the business Advantage: Interest only chargerd on the amount overdrawn Expenses Due When choosing which term to go with, the business must consider a number of different factors >Such as... - Bank pays for an asset and buyer pays back in installments Business has permission from their bank to take out / overdraw money even though there is no money in their account Bank Overdraft Term Loan Leasing Hire Purchase

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