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

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

Break Even - Example Pool Tournament Fixed: First place1000 Second place500 Third place250 Equipment & supplies400 Marketing500 Total Fixed$2650 Variable: T-shirts per person$7

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

Break Even – Pool 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 – Pool 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 – 5K Example Fixed costs ($1470) Variable costs ($14/person) Total costs Cost per participant

Break Even – 5K Example Fixed costs ($1470)$1, Variable costs ($14/person)$1,400.00$2,100.00$2,800.00$3,500.00$4, Total costs$2,870.00$3,570.00$4,270.00$4,970.00$5, Cost per participant$28.70$23.80$21.35$19.88$18.90

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=$2,650 V=$7 P=$60 BE=2,650 / (60-7) BE=2,650 / 53 BE=50 people Variable$7*50$350 Fixed$53*50$2,650 Total$3,000 Total revenue = 50*$60=$3,000

Break Even Analysis Bike rental business ◦ Fixed costs = $8,000 ◦ Variable costs = $10/person ◦ Bike rental = $50/bike BE=F / (P – V) BE=8,000/(50-10) BE=8,000/40 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 BE=F / (P – V)

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

PROBLEMS 1. Do all break even calculations first 2. Calculate all profits 3. Calculate all losses

REPORTS 1. Income Statement 2. Cash Flow Statement 3. Balance Sheet 4. Budget Statement

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, 2012 Usually monthly, quarterly & annually Starting a new company: 1 st year prepare monthly projections Years 2-3 Quarterly projections Years 4-5: Annually

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

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

Problems

Cash Flow Statements

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

QUESTIONS