FINANCIAL ANALYSIS & STATEMENTS

Financial Analysis Methods to monitor the fiscal status of the organization over a period of time Monthly, quarterly, annually Methods ◦ Break even analysis ◦ Income statements ◦ Cash flow statement ◦ Balance sheet ◦ Budget statement

Break Even Analysis How many units of a product must be sold in order to cover all costs of production of that unit

Costs FixedVariable Costs that remain steady regardless of volume ◦ Maintenance ◦ Salaried staff ◦ Mortgage Costs that change in proportion to a change in volume ◦ Supplies ◦ T-shirts

Break Even Analysis Method #1 ◦ BE=F+(V*Units sold)/Units sold  BE=break even  F= fixed costs  V= variable costs

Break Even - Example P.H.I.T. Climbing Tournament Fixed: First place$1000 Second place$500 Third place$250 Equipment & supplies$400 Marketing$500 Total Fixed$2650 Variable: T-shirts per person$7

Break Even – Climbing Tourney Eg Fixed costs$2650 Variable costs ($7/person)$70 Total costs$2720 Cost per participant$272

Break Even – Climbing Tourney Eg Fixed costs2650 Variable costs ($7/person) Total costs Cost per participant$272.00$139.50$95.33$73.25$60.00

Break Even – Climbing Tourney Eg Fixed costs2650 Variable costs ($7/person) Total costs Cost per participant$272.00$139.50$95.33$73.25$60.00

Break Even Method #2

Break Even Analysis How many units of a product must be sold in order to cover all costs of production of that unit Formula ◦ BE=F / (P – V) ◦ BE= Break even point ◦ F = Fixed costs ◦ P = Selling price per unit ◦ V = Variable costs per unit

Break Even BE=F / (P – V) F=$2650 V=$7 P=$60 BE=2650 / (60-7) BE=2650 / 53 BE=50 people Variable$7*50$350 Fixed$53*50$2650 Total$3000 Total revenue = 50*$60=$3000

Break Even Analysis Bike rental business ◦ Fixed costs = $8000 ◦ Variable costs = $10/person ◦ Bike rental = $50/bike BE=F / (P – V) BE=8000/(50-10) BE=8000/40 BE=200 bikes

Break Even Analysis Profit ◦ $40 profit per bike over 200 ◦ 250 bikes: 50*$40=$2,000 ◦ 350 bikes: 150*$40=$6,000 Loss – 150 bikes ◦ Expenditures (total fixed & variable costs)  8000+($10*150)=$9,500 ◦ Revenues  $50*150 bikes=$7,500 Fixed Variable $2,000 loss

Worksheet Profit /loss P= F=2650 V=7 break even= Round up

Worksheet Profit /loss P= F=2650 V=7 break even= Round up BE= 2650/(100-7) BE=29 units Loss – lower than BE

Worksheet Profit /loss P= F=2650 V=7 -$790 break even=29 Round up Expenditures: $2650 (fixed) $140 (variable cost per unit..20*$7) $2790 Revenues: $2000 (20 people * $100) Loss: -$790 Loss – lower than BE

Worksheet Profit /loss P= F=2650 V=7 -$790 $1023 $2883 break even=29 Round up Revenue: (40) $100-$7/person over BE (29) $93 * (40-29) Profit: $1023 Revenue: (60) $100-$7/person over BE (29) $93 * (60-29) Profit: $2883 Profit – higher than BE

Income Statement Revenues Trips$12,320 Concessions$2,486 Store receipts$3,345 Total revenues $18,151 Expenditures Staff$9,562 Supplies$527 Utilities$452 Mortgage$2,342 Marketing$732 Maintenance$622 Total expenditures $14,237 Net revenue/(loss) $3,914 Clear Water Rafting Company Income Statement as of July 1- 31, 2011 Usually monthly, quarterly & annually Starting a new company: 1 st year prepare monthly projections Years 2-3 Quarterly projections Years 4-5: Annually

Balance Sheet Financial condition of a business at a single point in time ◦ End of month, quarter, year Provides information about a company’s assets, liabilities, and owner’s equity (capital)…owes vs. owns Terms…

Balance Sheet Current assets ◦ Cash & assets that can be turned to cash quickly (within a year) ◦ Inventory ◦ Bank deposits ◦ Accounts receivable  Amts not yet collected from customers but are due Fixed assets ◦ Used to produce goods & aren’t for sale ◦ Land, building, machinery, equipment

Balance Sheet Current liabilities ◦ Debts for regular business operations that will come due within a year Accounts payable ◦ What is owed to suppliers for things bought on credit ◦ Salaries Long term liabilities ◦ Due after a year ◦ Mortgages, bonds, large loans Equity (owners net worth) ◦ Portion of business owned free and clear of all debts

Balance Sheet Assets = liabilities + equity or ◦ Equity = assets – liabilities

AssetsLiabilities Current AssetsCurrent Liabilities Cash & investments$3,546,975 Accounts payable$25,729 Accounts Receivable$1,243,785 Long term debt Total Current Assets$4,790,760Mortgage$376,971 Fixed Assets Total Liabilities$402,700 Store fixtures$243,876 Office equipment$7,659 Equity$5,175,923 Rafting inventory$543,987 Total fixed assets $787,863 Total assets$5,578,623Total liabilities & equities $5,578,623 Clear Water Rafting Company Balance Sheet as of December 31, 2007 Adjust equity to make it “balance” to reflect the remaining value “owed” to the owners AKA: Net worth

Budget Statement Expended monies Allocated monies Revenues received % of allocated $$ that is committed

Budget Statement Clear Water Rafting Company Budget Statement - 1st & 2nd Quarters - End July 31 ActualBudgetCommitted%Balance Revenues Trips$42,113$72,500$058.1%$30,387 Concessions$8,671$14,000$061.9%$5,329 Store receipts$11,148$20,000$055.7%$8,852 Total revenues$61,932$106,500$058.2%$44,568 Expenditures Staff$35,963$52,100$1, %$14,637 Supplies$2,147$3,100$069.3%$953 Utilities$1,610$2,430$066.3%$820 Mortgage$8,051$16,000$050.3%$7,949 Marketing$2,684$4,300$ %$1,116 Maintenance$3,221$4,300$074.9%$1,079 Total expenditures$53,676$82,230$2, %$26,554

Budget Statement Clear Water Rafting Company Budget Statement - 1st & 2nd Quarters - End July 31 ActualBudgetCommitted%Balance Revenues Trips$74,534$72,500$0102.8%-$2,034 Concessions$8,671$14,000$061.9%$5,329 Store receipts$11,148$20,000$055.7%$8,852 Total revenues$94,353$106,500$088.6%$12,147 Expenditures Staff$35, $1, %$14,637 Supplies$2,147$3,100$069.3%$953 Utilities$3,245$2,430$0133.5%-$815 Mortgage$8,051$16,000$050.3%$7,949 Marketing$4,478$4,300$ %-$678 Maintenance$3,221$4,300$074.9%$1,079 Total expenditures$57,105$82,230$2, %$23,125

Cash Flow Statement Income statement provided information about revenues coming in and expenses going out, but not cash in and cash out ◦ What’s already in the bank Negative cash flows okay, but not sustainable forever

Cash Flow Statement FebruaryMarchAprilMayJuneJulyTotal A. revenues $ 1,276 $ 4,985 $ 8,076 $ 12,486 $ 16,958 $ 18,151 $ 61,932 B. Expenses $ 4,978 $ 6,890 $ 7,013 $ 9,213 $ 11,345 $ 14,237 $ 53,676 C. Monthly cash flow (A- B) $ (3,702) $ (1,905) $ 1,063- D. Cumulative cash flow $ (3,702) $ (5,607) $ (4,544)- E. Cash position at beginning of month $ 12,000 $ 8,298 $ 6,393- F. Cash position at end of month (E+C) $ 8,298 $ 6,393 $ 7,456- Clear Water Rafting Company Cash Flow Statement - 1st & 2nd Quarters * Note that the numbers in parenthesis indicate a negative balance Matches income statement figures In the bank

Cash Flow Statement FebruaryMarchAprilMayJuneJulyTotal A. revenues $ 1,276 $ 4,985 $ 8,076 $ 12,486 $ 16,958 $ 18,151 $ 61,932 B. Expenses $ 4,978 $ 6,890 $ 7,013 $ 9,213 $ 11,345 $ 14,237 $ 53,676 C. Monthly cash flow (A- B) $ (3,702) $ (1,905) $ 1,063 $ 3,273 $ 5,613 $ 3,914- D. Cumulative cash flow $ (3,702) $ (5,607) $ (4,544) $ (1,271) $ 4,342 $ 8,256- E. Cash position at beginning of month $ 12,000 $ 8,298 $ 6,393 $ 7,456 $ 10,729 $ 16,342- F. Cash position at end of month (E+C) $ 8,298 $ 6,393 $ 7,456 $ 10,729 $ 16,342 $ 20,256- Clear Water Rafting Company Cash Flow Statement - 1st & 2nd Quarters * Note that the numbers in parenthesis indicate a negative balance Matches income statement figures In the bank

Cash Flow Statement FebruaryMarchAprilMayJuneJulyTotal A. revenues $ 1,276 $ 4,985 $ 8,076 $ 12,486 $ 16,958 $ 18,151 $ 61,932 B. Expenses $ 4,978 $ 6,890 $ 7,013 $ 9,213 $ 11,345 $ 14,237 $ 53,676 C. Monthly cash flow (A- B) $ (3,702) $ (1,905) $ 1,063 $ 3,273 $ 5,613 $ 3,914- D. Cumulative cash flow $ (3,702) $ (5,607) $ (4,544) $ (1,271) $ 4,342 $ 8,256- E. Cash position at beginning of month $ 12,000 $ 8,298 $ 6,393 $ 7,456 $ 10,729 $ 16,342- F. Cash position at end of month (E+C) $ 8,298 $ 6,393 $ 7,456 $ 10,729 $ 16,342 $ 20,256- Clear Water Rafting Company Cash Flow Statement - 1st & 2nd Quarters * Note that the numbers in parenthesis indicate a negative balance Positive cash flow In the bank First month to exceed savings at start of fiscal year