a)

b)
c)
d)
e)
f)

CAIIB-FINANCIAL MANAGEMENT
MODULE-C RATIO ANALYSIS
RATIO ANALYSIS
STATEMENT OF SOURCES AND
APPLICATION OF FUNDS
WORKING CAPITAL
MARGINAL COSTING
CAPITAL BUDGETING
CASH BUDGET

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WORKING CAPITAL
TYPES OF WORKING CAPITAL
a) PERMANENT WORKING CAPITAL
b) VARIABLE WORKING CAPITAL
WORKING CAPITAL CYCLE / OPERATING
CYCLE
MANAGEMENT OF STOCK LEVELS
MANAGEMENT OF DEBTORS
MANAGEMENT OF BANK AND CASH
BALANCES
MANAGEMENT OF TRADE CREDIT

FINANCIAL MANAGEMENT
WORKING CAPITAL MANAGEMENT INVOLVES:
o
The level of cash needs to be on call at various dates.
o
The level of inventory do we need to maintain.
o
The bank overdraft.
o
The period of credit do we grant to our debtors.
o
Suppliers payments.
o
Proportion of Current assets should be financed by short-term funds.
o
Level of Working Capital.
METHODS OF CALCULATION:
o
Cash Budget Method
o
MPBF
o
Turnover Method
Commercial Paper one source of finance for Working Capital

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MARGINAL COSTING
Concept of costs

Fixed Cost

Variable Cost
Semi Fixed / Variable
Marginal Cost = Variable Cost
Contribution = Sales Marginal Cost
USES:

More efficient pricing decisions can be made

Make or Buy Decisions

Close a department or cost centre

Accept or Reject an order

C-V-P Analysis

B-E-P Analysis

Margin of Safety

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CAPITAL BUDGETING:
Capital budgeting involves the entire process of
planning expenditures whose returns are expected to
extend beyond one year.
Non discounting Methods
Pay Back Method
Rate of Return Method
Discounting Methods based on Time Value of Money

Net Present Value Method

IRR

PI

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CASH BUDGET:

Budgets are similar to standards in several ways:

They are of the future performance of our organization.
They help people within an organization plan the future
and They enable people to know how well they and the
rest of the organization have performed.
Budgetary Control:
o The comparison of actual results against budget;
o The identification, recording and communication of
controllable differences; and
o The taking of corrective action either to maintain budget
levels or to re-plan to meet recent developments.

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CASH BUDGET:
A Cash Budget is arrived at through a
projection of future cash receipts and
cash disbursements of the firm over
various intervals of time. It reveals the
timing and amount of expected cash
inflows and outflows over the period
studied.

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CASH FLOWS STATEMENTS
o Cash flows statement is basically a
summary of all the entries that are
normally recorded in the cash book.
o Funds flow statement means the funds
received by the company and their how it
uses.

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RATIO ANALYSIS:
The term Ratio refers to the numerical or quantitative
relationship between two items / variables, expressed
in a simple mathematical form.
Balance sheet Ratios:
o
Current Ratio or Working Capital Ratio
o
Liquid Ratio or Quick Assets Ratio or Acid Test Ratio
o
Proprietory Ratio
o
Assets Proprietoryship Ratio
o
Profit and Loss Account Ratios

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Profit and Loss Account Ratios:
Gross Profit Ratio
Operating Ratio
Expenses Ratio
Net Profit Ratio
Stock Turnover or Turnover of Inventory
Ratio

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Balance Sheet and Profit and Loss Account Ratios:
Return on Total Resources Ratio
Return on Own Funds Ratio
Fixed Assets Turnover Ratio
Debtors Turnover Ratio
Earnings per Share Ratio
Liquidity Ratios:
Current Ratio
Net Working Capital
Acid Test / Quick Ratio

FINANCIAL MANAGEMENT
Turnover Ratios:
o
Inventory Turnover Ratio
o
Debtors Turnover Ratio and
o
Creditors Turnover Ratio
Leverage / Capital Structure Ratios:
o
Debt / Equity Ratio
Coverage Ratios:
Interest Coverage Ratio
Dividend Coverage Ratio

Thank you very much

Wish you all the Best