Finni figuurit

Question 1

Miten päästään Net sales -> EBITDA -> EBIT -> Net profit?

Answer 1

Net sales: 1000
Variable costs: -600
Fixed costs: -200
EBITDA: 200
Depreciations: -50
EBIT: 150
Interest cost: -16
Tax (25%) : -33 -> ((150-16)*25%)
Net profit: 101 -> (150-16-33)

Question 2

Break-even point?

Answer 2

Break even point = describes how much sales the project needs to have in order to make up for the fixed cost, all other factors unchanged.

= Fixed costs including depreciation / Gross profit margin (%)

Gross profit margin % = (sales - variable costs) / sales

Question 3

ROCE?

Answer 3

ROCE = Return On Capital Employed = EBIT/Capital Employed

o ROCE helps to understand what is the return for every euro invested in the business.
o The higher the ROCE the better.

Capital employed = Debt + Equity

Question 4

WACC??

Answer 4

Cost of capital is generally measured using WACC = Weighted Average Cost of Capital.

Question 5

EVA?

Answer 5

EVA = Economic Value Added -> How much value the project is expected to create yearly! If negative: business is destroying value. It is the value generated from funds invested in a business, above the cost of capital (expected return by investors).

EVA
= (ROCE – WACC) * Capital Employed
= accounting profit earned by the firm (EBIT) less the cost of capital

Question 6

Operative working capital?

Answer 6

Operative working capital = the amount of cash/capital needed to run day-to-day operations of a business.

Question 7

What determines the amount of working capital a business needs?

Answer 7

It depends on the cash conversion cycle.
-> Cash conversion cycle = cycle of converting cash into raw materials -> raw materials into finished goods  finished goods into receivables and -> receivables back into cash.

CRFRC

Question 8

Lue:

Answer 8

Days inventory outstanding (DIO) = Days inventory in storage before sale

+ Days sales outstanding (DSO) = Days before money is collected from customers

– Days payable outstanding (DPO) = Days before we need to pay to our suppliers

= Cash conversion cycle (CCC) = Daysto convert cash input to cash received

Question 9

What determines the amount of operative working capital a business needs?

Answer 9

The needed amount depends on how many days it takes to convert the cash it puts in making products into cash received from customers. This process is called CASH CONVERSION CYCLE.

Question 10

What are the steps of Cash conversion cycle?

Answer 10

1. Cash into raw materials
2. Raw materials into finished goods
3. Finished goods into receivables
4. Receivables back into cash

Question 11

Working capital ratio (%)?

Answer 11

Working capital ratio (%) = Operative working capital / Sales

Question 12

Total operative working capital?

Answer 12

Total operative working capital = Inventory (DIO) + Account receivables (DSO) – Accounts payables (DPO)

Tells how much money is needed to finance daily operations

Question 13

How to improve cash conversion cycle (CCC)?

Answer 13

1. REDUCE the amount of capital TIED UP IN INVENTORY
2. REUCE the amount of capital IN ACCOUNT RECEIVABLES
3. INCREASE the amount of capital REALEASED BY ACCOUNT PAYABLES

Question 14

Factoring?

Answer 14

Factoring = is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party.

Factoring on rahoitusmuoto, jossa yritys saa rahoitusta myyntisaamisiaan vastaan. Factoring on tavaroiden ja palveluiden myynnistä syntyneiden laskusaatavien rahaksi muuttamista rahoitusyhtiön myöntämän luoton avulla

Question 15

FACTORING AND SUPPLY CHAIN FINANCING -> Why do companies use these?

Answer 15

Either to receive cash in advance from receivables or extend the payment terms of their payables.

Question 16

What are the cons of factoring?

Answer 16

i. requires legal agreements between the Group and the factoring company
ii. can be time consuming to arrange

Question 17

What is the accounting treatment for factoring?

Answer 17

Sale/reduction in accounts receivables balance is reported in the cashflow statement as an improvement in operative cash flow.

And the charges will be booked to operative costs (matching benefits with costs).

Question 18

Supply chain financing?

Answer 18

Supply chain finance, also known as supplier finance or reverse factoring,
is a form of financial transaction wherein a third party facilitates an exchange by financing the supplier on the customer’s behalf. Suppliers can receive early payment on their invoices.

Supply chain finance reduces the risk of supply chain disruption and enables both buyers and suppliers to optimize their working capital.

Question 19

What is the accounting treatment for supply chain financing?

Answer 19

Since the extension of payment terms is reported in the cash flow statement as improvement in operative cash flow, the charges on the supply chain financing will be booked to operative costs (matching benefits with costs).

Question 20

How to reduce the amount of capital tied up in inventory?

Answer 20

1. Identify old finished goods inventory and plan how to sell it
2. Identify off-grade finished goods and plan how to sell or use it as raw material
3. Limit the number of stock units related to materials and consumables
4. Reduce the number of suppliers

Question 21

How to reduce the amount of capital in account receivables?

Answer 21

1. Reduce payment discounts
2. Timely invoicing
3. Factoring
4. Ensure accounts collection: increase efficiency of dunning: process of methodically communicating with customers to ensure the collection of accounts receivable