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

2. FINANCIAL MANAGEMENT
WORKING CAPITAL
TYPES OF WORKING CAPITAL
PERMANENT WORKING CAPITAL
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

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

4. FINANCIAL MANAGEMENT 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

5. FINANCIAL MANAGEMENT
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

6. FINANCIAL MANAGEMENT
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:
The comparison of actual results against budget;
The identification, recording and communication of controllable differences; and
The taking of corrective action either to maintain budget levels or to re-plan to meet recent developments.

7. FINANCIAL MANAGEMENT
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.

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

9. FINANCIAL MANAGEMENT
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:
Current Ratio or Working Capital Ratio
Liquid Ratio or Quick Assets Ratio or Acid Test Ratio
Proprietory Ratio
Assets – Proprietoryship Ratio
Profit and Loss Account Ratios

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

11. FINANCIAL MANAGEMENT
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

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

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