MAS REVIEWER

PINEDA, PAULA MARIE S.

BSA 3B

Financial Management

Working Capital Management

Working capital investment and financing policies (conservative vs aggressive)

Conservative Aggressive
Funding strategy under which the firm funds both seasonal Seasonal – short term debt
and permanent requirements with long-term debt Permanent requirement – long term debt

Cash and marketable securities management Inventory Management

- effectively overseeing a company's cash - control and optimization of a company's

assets and investments in easily tradable inventory levels to meet customer demand
securities; includes activities such as tracking, while minimizing costs and maximizing
regulating, and maximizing the amount of profitability
cash available and the investments made in
Sources of short terms funds and Estimating cost of
short-term securities; ensure that operational
short-term funds
requirements are met while achieving the
highest possible returns. - required to meet immediate financial
obligations or to fund short-term projects
Receivables Management
- Sources: trade credit, bank loan, commercial
- efficient management of a company's AR, paper, factoring
which are the amounts owed to the company - Estimating the cost of short-term funds
by its customers for goods or services involves considering both explicit and implicit
provided on credit costs associated with the sources of funds

Capital Budgeting
Capital investment decision factors

- evaluating and selecting investment projects that require substantial financial resources and have long-term
implications for a company.

Net Investments – total amount of capital or funds that a Cost of capital – rate of return that a company must
company has invested in its business activities after accounting earn on its investments to maintain or increase the
for any disposals. value of the business

Cash and Annual Net Returns

Cash: liquid funds available for immediate use or investment Annual Net Returns: A.k.a. annual net income or
annual net profit, represent the financial gain or profit
generated by an investment over a specific period,
typically 12 mos.
Non discounted capital budgeting techniques

Payback period - measures the time required to recover the Payback Reciprocal - inverse of the payback period;
initial investment in a project calculated by dividing 1 by the payback period;
indicates the annualized rate of return or the average
Accounting Rate of Return (ARR) - calculates the average
annual cash inflow as a percentage of the initial
annual profit or return generated by an investment as a
investment
percentage of the average investment or book value

Bail out payback - extended version of the payback

period analysis; takes into account the potential
proceeds that could be generated by selling the asset
or project at the end of its life

Discounted Capital Budgeting Techniques

Net present value (NPV) - calculates the present value of expected cash inflows and subtracts the present value of cash outflows,
including the initial investment and any future costs

Internal Rate of Return – represents the rate of return that makes the project's NPV zero

Fisher Rate/NPV point of indifference - compares two mutually exclusive investment projects. It identifies the discount rate at which
the NPV of two projects becomes equal, making them financially equivalent

Sensitivity Analysis (effects of changes in project cash flow, tax rates and other assumptions)

- used to assess how changes in key variables, such as project cash flows, tax rates, and assumptions, impact the
outcome of an investment or project; evaluates the sensitivity of the project's financial metrics to fluctuations in
these variables.

Risk and rates of Returns

Types of risk (business, operating, financing)

Business Risk Operating Risk Financing Risk

specific industry or sector in which a arises from a company's internal company's capital structure and its ability
company operates operations and its ability to generate to meet financial obligations
consistent earnings

Measures of risk

 Standard Deviation: measures variability of investment returns around the average or expected return. Higher standard
deviation, greater the risk.

 Beta: systematic risk of an investment relative to the overall market. Greater than 1 indicates, higher volatility and vice versa

 Value at Risk (VaR): estimates the maximum potential loss that could be incurred on an investment over a specified time
horizon at a given confidence level.

Degree of operating, financial and total leverage

Operating leverage Financial Total leverage

measures the sensitivity of a company's measures the degree to which a company operating leverage plus financial leverage
operating income to changes in sales relies on debt to finance its operations to assess the overall impact on the
revenue company's profitability and risk

Capital Structure and Long-Term Financial Decision

Basic concepts and tools of capital structure management

Debt Financing: raising capital by borrowing funds from Equity Financing: raising capital by selling ownership shares or
external sources such as banks, financial institutions, or issuing issuing new equity instruments. This can include common
bonds. shares or preferred shares.

Tools of Capital Structure Management: leverage analysis, debt capacity analysis, capital structure ratios

Sources of intermediate and long-term financing

- bank loans, bonds, equity financing

Cost of capital (cost of long term debt, cost of preferred shares, cost of equity, weighted average cost of capital, marginal cost of
capital)

 Cost of Long-Term Debt: interest rate or coupon rate paid  Weighted Average Cost of Capital (WACC): average cost of
on the company's outstanding debt. all capital sources (debt, preferred shares, and equity)
weighted by their respective proportions in the company's
 Cost of Preferred Shares: the dividend rate paid to
capital structure.
preferred shareholders.
 Marginal Cost of Capital: cost of raising additional capital
 Cost of Equity: return expected by the company's common
for new investments
shareholders.

Management Consultancy practice by CPAs

Professional attributes

 Technical Expertise: strong principles, financial analysis,  Analytical Skills: assess complex financial data, identify
and reporting. patterns and trends, and make informed
recommendations based on datadriven insights.
 Ethical Standards: a strict code of professional ethics
 Problem-Solving Abilities: identify problems, analyze
possible causes, and develop effective solutions to
problem.

Stages and management of consultancy engagements

1. Financial Management: financial planning, budgeting, cost analysis, and cash flow management

2. Risk Management: Identifying and mitigating financial and operational risks by conducting risk assessments, developing internal
controls, and implementing risk management strategies.

3. Performance Improvement: Evaluating business processes, identifying areas of inefficiency, and recommending improvements to
enhance productivity, reduce exp., and increase profitability.
Project Feasibility Studies
Nature and purpose, *Analysis of project, preparation of Projected Financial statements and analysis of financial
projections

- comprehensive assessments that involve analyzing the various aspects of a proposed project, preparing projected
financial statements, and conducting an analysis of the financial projections

Analysis of project Preparation of Projected FS Analysis of financial projections

Factors: technical, economic, financial, Preparation of financial reports detailed analysis is conducted to evaluate
operational feasibility the financial feasibility and profitability of
the project

Economic Concepts essential to obtaining and understanding of entity’s business and industry
Macroeconomics (*GDP, *Inflation, Fiscal and Monetary policies, FX Rates)

GDP Inflation Fiscal Policy Monetary Policies FX Rates

total value of goods general increase in use of government actions taken by a value of one currency
and services produced prices of goods and spending and taxation central bank to regulate relative to another
within a country's services over time to influence the overall the money supply,
borders in a specific economy interest rates, and
period credit availability in an
economy

Micro economics (*Supply and Demand, market equilibrium, price elasticity, market structure, *production and cost functions)

 Supply and Demand: examines how the quantity of goods or services supplied by producers and the quantity demanded by
consumers interact to determine prices and quantities in a market

 Market equilibrium: quantity demanded equals the quantity supplied, resulting in a stable price and quantity in the market.

 Price Elasticity: measures the responsiveness of the quantity demanded to changes in price

 Market Structure: characteristics and organization of a market

 Production and Cost functions: analyze the relationship between inputs (such as labor and capital) and outputs in the
production process