Finances in the Building Company 22.4.2019

Revenues in a building company In monetary units expressed outputs of a company Classification of revenues According to the kinds: Revenues from the sale of goods Revenues from the sale of own production Financial revenues For needs of enumerating of economic result: Operational Financial Extra 22.4.2019 Financing

Costs in a building company In monetary units expressed consumption of property and work in order to achieve outputs Classification of costs According to the kinds Consumption of material Wage costs Consumption of services Depreciation and amortization Financial costs According to the purpose, for that they were consumed Production Administrative Costs for research and development Calculation classification Direct costs Overhead costs 22.4.2019 Financing

Property structure in a company Basic classification of property in a company Long-term property Long-term intangible property (lifetime longer then 1 year, PP min. 60 000 CZK) Long-term tangible property (lifetime longer then 1 year, PP min. 40 000 CZK) Long-term financial property (lifetime longer then 1 year) Short-term property Supplies (stocks) Bought (material, goods) Own production (unfinished production, intermediate products of own production, products) Accounts receivable (receivables) From a business contact Tax receivables (advance tax payments are higher then real tax – tax overpaid) In face of institutions of social and health insurance Financial property Money Bank accounts Short-term financial property 22.4.2019 Financing

Ways of property assessing in a company Property can be assessed by: Purchase prices Including buying price and costs connected with purchasing (transport, manipulation with property) Own costs Aggregate of own costs connected with production Used in the case of assessing of property of own production Replacement price Price, for that the property could be purchased (price estimate realized by expert in the case, when the property was purchased without charge) Nominal value In the case of ready money or valuables (post stamps) 22.4.2019 Financing

Depreciation of long-term property It concerns about cost expressing annual decreasing of long-term property value owing to its attrition According to the purpose of depreciation assignment it is possible to define: Accounting depreciation It expresses real decreasing of a property value in connection with its real lifetime (for purpose of the income tax calculation it’s necessary this depreciation to transform into tax depreciation) Tax depreciation It expresses maximal amount of depreciation that it’s possible to include into costs used for the income tax calculation (described by law n. 586/1992 Sb., about income taxes) Calculation depreciation It serves for projection of costs connected with the property attrition into the unit price of a product 22.4.2019 Financing

Calculation of depreciation Methods of a depreciation assignment Linear (equal) depreciation Depreciation is equally distributed on the whole property lifetime Digressive (accelerated) depreciation Amount of annual depreciation is decreasing in time Progressive depreciation Amount of annual depreciation is increasing in time 22.4.2019 Financing

Tax depreciation Identification of depreciation group of the long-term property after the purchase of the property. Depreciation groups and property included into these groups are defined in the Income tax law, annex 1 Choice of linear or digressive way of depreciation that will be next used for the whole time of the property lifetime Depreciation group Time of depreciation 1 3 years 2 5 years 3 10 years 4 20 years 5 30 years 6 50 years 22.4.2019 Financing

Linear (equal) depreciation In the case of linear depreciation there are defined maximal annual depreciation rates for each depreciation group: Depreciation is calculated as a multiplication of input price of a property and annual depreciation rate for certain depreciation group Depreciation group First year of depreciation Next years of depreciation 1 20 40 2 11 22,25 3 5,5 10,5 4 2,15 5,15 5 1,4 3,4 6 1,02 2,02 22.4.2019 Financing

Digressive (accelerated) depreciation Calculation of the depreciation for the first year Calculation of depreciation for next years of depreciation Where IP … input price DP… depreciated price k … number of whole years of depreciation (the number of years of a property lifetime) n … number of years, for that the property has been depreciated 22.4.2019 Financing

Input price assignment Input price of a long-term property for purpose of the depreciation calculation can be in the form of: Purchase price Own costs, if the property is produced on the company’s own Replacement price in other occasions founded according to the special legislation (expert price) 22.4.2019 Financing

Sources of the property coverage Equity (own capital) Equity has the long-term character. These can be in the form of: The registered capital Capital invested by the businessman into the company In the case of capital commercial companies (Limited Company and Corporation) the minimal amount of the basic capital there is assigned with the Business Code. The capital funds the capital funds serves to cover the property that was obtained without charge. The funds created from net (after-tax) profit Formed compulsorily according to the Business Code (reserve fund) The economic result (the profit or the lost) of the past years and the current period 22.4.2019 Financing

Sources of the property coverage Extraneous sources (liabilities) Long-term extraneous sources Back long-term commercial papers e.g. released bear accounts, bonds, obligations, etc. Long-term bank credits credits, those time of maturity is longer than 1 year Dotations Irrecoverable provided sources (provided for certain activity and it is not possible to use it for another purpose) Short-term extraneous sources: Short-term liabilities: present the debenture relation among the firm and another subject. trade liabilities: it means the liabilities towards the suppliers liabilities towards the state budget (required, but still unpaid taxes) liabilities towards the employees (still unpaid wages or another remuneration) liabilities towards the institutions of the social and health insurance Short-term bank credits operational credits, the time of their maturity is shorter than 1 year 22.4.2019 Financing

General principles of company’s property financing Basic principle of financing: Long-term property should be financed by own sources and long-term extraneous sources These sources should partly finance also short-term property Net working capital: Short-term property financed by long-term sources Net Working capital (WC) = short-term property – short-term sources WC > 0 … from the aspect of working capital the financial stability of a company is ensured WC = 0 … effective, but from the aspect of working capital risk, position of a company WC < 0 … long-term property financed by short-term sources, threat of a financial stability (Remark: Financial stability expresses abilities of a company to comply its debts with own payables from a long-time aspect) 22.4.2019 Financing

Financial management and decision making It deals with the move of money and company’s capital It follows the whole technical and economic strategy of a company Objectives of financial management Long-term objectives Maximization of a market value of a company Assurance of an optimal balance between risk and profit Short-term objectives Continuous assurance of a company’s payment ability Payment ability expresses ability of a company to cover own liabilities in required time and amount Payment ability should be managed so that in the company will not be held excessive amount of money 22.4.2019 Financing

Financial management and decision making Basic areas of a financial management: Assurance of financial sources at the company’s foundation Choice of optimal capital structure Financing and management of short-term property and choice of optimal way of short-term financing Investing of finances into the fixed (long-term) property and valuation of investment variants Dividing of a company’s profit Financial planning of creation and use of internal and external financial sources from the short-term and long-term aspect Financial management in the case of association, reorganization, sanitation or downfall of a company 22.4.2019 Financing