Managerial Finance Program Magister Manajemen Universitas Gunadarma Manajemen

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

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

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

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

Managerial Finance Basic Forms Of Business Organization Legal Form Strength Weaknesses Sole Propriatorship Partenrship • 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 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 • Owner has unlimited liabilitytotal wealth can be taken to satisfy debts • Limited fund-raising power tends to inhibit growth • Propietor must be jack-of-alltrades • 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 largescale 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 Budi Hermana Corporation Magister Manajemen-Universitas Gunadarma-

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

Managerial Finance 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 analysis Profit-Maximazing strategies Price 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 Example Benefits with new computer Less: Benefits with old computer (1) Marginal (Added) benefits $100. 000 35. 000 $65. 000 Cost of new computer $80. 000 Less: Proceeds from sale of old com 28. 000 (2) Marginal (added) costs $52. 000 Net Benefit [(1) – (2)] Budi Hermana $13. 000 Magister Manajemen-Universitas Gunadarma-

Managerial Finance 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 flows Accrual Method Decision Making 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 View Financial View Income statement ABC Corporation For the year xxxx Sales Revenue Less: Costs $100. 000 80. 000 Cash inflow $ 0 Less: Cash Outflow 80. 000 Net Profit $ 20. 000 Net Profit Budi Hermana ($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 Magister Manajemen-Universitas Gunadarma-

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

Managerial Finance 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) Investment X Y Earning per share (EPS) year 1 year 2 year 3 total $1. 40 0. 60 $1. 00 $0. 40 1. 40 period’s total earnings avaliable for the firm’s common stock holders The number of shares of common stock outstanding The chance that actual outcomes $2. 80 3. 00 √ may differs from those expected Profit maximization fails for reason: 1. Timing of return 2. Cashflow avaliable to stockholder 3. Risk Stockholder are risk-averse ? Budi Hermana EPS: The amount earned during the period on each outstanding share of common stock 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 Magister Manajemen-Universitas Gunadarma-

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

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

Managerial Finance The Managerial Finance Function Goal of The Financial Manager The Role of Ethics – Standard of conduct or moral judgement Corporate Ethics and Policies example Guidelines Ethics and share price Responsibility Fairness Transparency Issues Update Good Corporate Governance Accountability www. fcgi. or. id http: //www. kpk. go. id/modules/edito/content. php? id=27 http: //www. bi. go. id/NR/rdonlyres/2246113 B-DC 63 -4731 -8558 -3693 A 6254962/3449/pbi 8406. pdf Corporate Social Responsibility http: //www. goodyear-indonesia. com/social_responsibility. html http: //www. telkom. co. id/pojok-media/siaran-pers/telkom-memperoleh-penghargaan-corporatesocial-responsibility. html Certified Financial Analyst http: //www. cfainstitute. org Budi Hermana Magister Manajemen-Universitas Gunadarma-

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

Managerial Finance Business Taxation Ordinary Income earned through the sale of a firm’s goods and services Corporate Tax Rate Schedule Tax Calculation Range of taxable income Base Tax + (rate x amount over base bracket) $ 0 to $ 50. 000 to 75. 000 to 100. 000 to 335. 000 over $335. 000 $ (15% x Amount over $ 0) (25 x Amount over 50. 000) (34 x Amount over 75. 000) (39 x Amount over 100. 000) (34 x Amount over 335. 000) 0 7. 500 13. 750 22. 250 113. 900 + + + Example PT X has before-tax earnings of $250. 000 Total Tax due = $22. 250 + [0. 39 x ($250. 000 -100. 000)] = $22. 250 + (0. 39 x $150. 000) = $22. 250 + $58. 500 = $80. 750 Indonesia ? Budi Hermana Magister Manajemen-Universitas Gunadarma-

Managerial Finance 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 ≥ $335. 000 Average tax rate for PT X = $80. 750 / $250. 000 = 32. 3% Marginal Tax Income Pretax Income (1) $ 50. 000 75. 000 100. 000 200. 000 335. 000 500. 000 1. 000 2. 500. 000 Tax Liability (2) Average Tax rate [(2) : (1)] (3) $ 7. 500 13. 750 22. 250 61. 250 113. 900 170. 000 340. 000 850. 000 15. 00% 18. 33% 22. 25% 30. 63% 34. 00% The rate at which additional income is taxed If PT X’s earnings go up to %300. 000, the marginal tax rate on the additional $50. 000 of income will be 39%. The company will therefore have to pay additional taxes of $19. 500 (0. 39 x $50. 000) Budi Hermana Total Taxes on the $300. 000 = $80. 750+$19. 500 = $100. 250 Using Taxe rate schedule: Total Taxes = $22. 250+[0. 39 x($300. 000 - $100. 000)] = $22. 250+$78. 000 =$100. 250 Magister Manajemen-Universitas Gunadarma-

Managerial Finance Business Taxation Ordinary Income Interest and Dividend Income Interest received by corporation is included ordinary income the as 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 $100. 000 interest on bonds it held and $100. 000 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 Budi Hermana Interest Income (1) Before-tax amount Less: Applicable Exclusion Taxable amount (2) Tax (40%) After-tax amount (1)-(2) Dividend Income $100. 000 0 (0, 70 x$100. 000) = 70. 000 $100. 000 40. 000 $ 30. 000 12. 000 $ 60. 000 $ 88. 000 Indonesia ? Magister Manajemen-Universitas Gunadarma-

Managerial Finance Business Taxation Ordinary Income Tax-Deductible Expenses Corporation are allowed to deducti operating expenses. The taxdeductible expenses reduces their after-tax cost. Advertising expenses Insurance? Sales commision Bad debt CSR? Interest expenses Example Company X and Y each expect in the coming year to have earnings before interest and taxes of $200. 000. Company X during the year will have to pay $30. 000 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 $200. 000 30. 000 $200. 000 0 Earnings before tax Less: Taxes (40%) $170. 000 68. 000 $200. 000 80. 000 Earnings after taxes $ 102. 000 $120. 000 Difference in earning after taxes $18. 000 Dividends are not tax-deductible expense Budi Hermana Magister Manajemen-Universitas Gunadarma-

Managerial Finance 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 corporates Example The Ross Company has operating earnings of $500. 000 and hast just sold for $40. 000 a capital asset initially purchased two years ago for $36. 000. Since the asset was sold for more than its initial purchased, there is capital gain of $4000 ($40. 000 sale price - $36. 000 initial purchase price) The corporation’s $504. 000 taxable income will total ($500. 000 ordinary income plus $4. 000 capital gain) Since this total is above$335. 000, the capital gain will be taxed at the 34%, resulting in tax of $1. 360 (0, 34 x $4000) Budi Hermana Magister Manajemen-Universitas Gunadarma-

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

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

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

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

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

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

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

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

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

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

Managerial Finance 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 Inverted Yield Curve A Downward-sloping yield curve that indicates generally cheaper long-term borrowing costs than short-term borrowing costs Yield to maturity Annual rate of interest earned on a security purchased on a given day and held to maturity Yield Curve A Graph that depicts the relationship between the yield to maturity (y-axis) and the time to maturity (x-axis) 17 16 15 14 May 22, 1981 13 10 October 30, 1987 9 September 29, 1989 8 It reflects similar borrowing costs for both short- and longer-term loans 7 0 5 10 15 20 25 30 Normal Yield Curve An upward-sloping yield curve that indicates generally cheaper short-term borrowing costs than long-termborrowing costs Budi Hermana Magister Manajemen-Universitas Gunadarma-

Managerial Finance 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 suggesting that for any given issuer, longterm interest rates tend to be higher than sortterm 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 Example Nominal interest Rate, RFt Real interest Rate, k* Inflation Expectation, IEt Maturity, t (1) 3 Months 5, 17% 2, 00% 3, 17% 1 years 6, 51 2, 00 4, 51 5 years 8, 38 2, 00 6, 38 30 years 9, 05 2, 00 7, 05 (2) [(1) - (2)] 3. Market Segmentation 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 Budi Hermana Magister Manajemen-Universitas Gunadarma-

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

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

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

Managerial Finance Basic Financial Statements Income Statement Provide a financial summary of the operating results during a specified period ABC Corporation Income Statement ($000) for the year Ended December 31, 2000 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) Budi Hermana $ 1. 700 1. 000 $ 700 $ 80 150 100 $ $ $ 330 370 70 300 120 180 10 170 1, 70 The number of common stock= 100. 000 Magister Manajemen-Universitas Gunadarma-

Managerial Finance Basic Financial Statements Balance Sheet Summary statement of the firm’s financial position at given point in time ABC Corporation Balance Sheets ($000) December 31 Assets Current assets Cash Marketable securities Account receivable Inventories Total current assets Gross fixed assets (at cost) Land buildings Machinery and equipment Furniture and fixtures Vehicles Other Total gross fixed assets (at cost) Less: Accumulated depriciation Net fixed assets Total assets Budi Hermana 2000 2001 $ 400 600 $ 2000 $ 300 200 500 900 $ 1200 850 300 100 50 $ 2500 1300 $ 1200 $ 3200 $ 1050 800 220 80 50 $ 2200 1200 $ 1000 $ 2900 Magister Manajemen-Universitas Gunadarma-

Managerial Finance Basic Financial Statements Balance Sheet Summary statement of the firm’s financial position at given point in time ABC Corporation Balance Sheets ($000) December 31 Liabilities and stockholders’ equity Current liabilities Accounts payable Notes payable Accruals Total current liabilities Long-term debt Total liabilities Stockholders’ equity Preferred stock Common stock- $1, 20 par, 100000 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 Budi Hermana 2000 2001 $ 700 600 100 $ 1400 $ 600 $ 2000 $ 500 700 200 $ 1400 $ 1800 $ 100 120 380 600 $ 1200 $ 3200 380 500 $ 1100 $ 2900 Magister Manajemen-Universitas Gunadarma-

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

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