FINANCIAL ANALYSIS & STATEMENTS

Financial AnalysisMethods 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 AnalysisHow many units of a product

must be sold in order to cover all costs of production of that unit

Costs

Fixed Variable

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 AnalysisMethod #1

◦BE=F+(V*Units sold)/Units sold

BE=break even F= fixed costs V= variable costs

Break Even - ExampleP.H.I.T. Climbing Tournament

Fixed:First place $1000Second place $500Third place $250Equipment & supplies $400Marketing $500

Total Fixed $2650Variable:

T-shirts per person $7

Break Even – Climbing Tourney Eg

10 20 30 40 50

Fixed costs $2650

Variable costs ($7/person) $70

Total costs $2720

Cost per participant $272

Break Even – Climbing Tourney Eg

10 20 30 40 50

Fixed costs 2650 2650 2650 2650 2650

Variable costs ($7/person) 70 140 210 280 350

Total costs 2720 2790 2860 2930 3000

Cost per participant $272.00 $139.50 $95.33 $73.25 $60.00

Break Even – Climbing Tourney Eg

10 20 30 40 50

Fixed costs 2650 2650 2650 2650 2650

Variable costs ($7/person) 70 140 210 280 350

Total costs 2720 2790 2860 2930 3000

Cost per participant $272.00 $139.50 $95.33 $73.25 $60.00

Break EvenMethod #2

Break Even AnalysisHow 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=$2650V=$7P=$60

BE=2650 / (60-7)BE=2650 / 53BE=50 people

Variable

$7*50 $350

Fixed $53*50 $2650

Total $3000

Total revenue = 50*$60=$3000

Break Even AnalysisBike rental business

◦Fixed costs = $8000◦Variable costs = $10/person◦Bike rental = $50/bike

BE=F / (P – V)BE=8000/(50-10)BE=8000/40BE=200 bikes

Break Even AnalysisProfit

◦$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

WorksheetProfit /loss

P= 100 20 40 60F= 2650V= 7

break even=Round up

WorksheetProfit /loss

P= 100 20 40 60F= 2650V= 7

break even=Round up

BE= 2650/(100-7)BE=29 units

Loss – lower than BE

WorksheetProfit /loss

P= 100 20 40 60F= 2650V= 7 -$790

break even= 29Round up

Expenditures:$2650 (fixed) $140 (variable cost per unit..20*$7)$2790

Revenues: $2000 (20 people * $100)

Loss: -$790

Loss – lower than BE

WorksheetProfit /loss

P= 100 20 40 60F= 2650

V= 7 -$790 $1023 $2883

break even= 29Round 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

RevenuesTrips $12,320Concessions $2,486Store receipts $3,345Total revenues $18,151

ExpendituresStaff $9,562Supplies $527Utilities $452Mortgage $2,342Marketing $732Maintenance $622Total expenditures $14,237Net revenue/(loss) $3,914

Clear Water Rafting CompanyIncome Statement as of July 1- 31, 2011

Usually monthly, quarterly & annually

Starting a new company:•1st year prepare monthly projections•Years 2-3 Quarterly projections•Years 4-5: Annually

Balance SheetFinancial 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 SheetCurrent 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 SheetCurrent 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 SheetAssets = liabilities + equity or

◦Equity = assets – liabilities

Assets LiabilitiesCurrent Assets Current Liabilities

Cash & investments $3,546,975

Accounts payable $25,729

Accounts Receivable $1,243,785

Long term debt

Total Current Assets $4,790,760 Mortgage $376,971

Fixed Assets Total Liabilities $402,700

Store fixtures $243,876

Office equipment $7,659Equity $5,175,923

Rafting inventory $543,987

Total fixed assets$787,863

Total assets $5,578,623 Total liabilities & equities

$5,578,623

Clear Water Rafting CompanyBalance 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 StatementExpended moniesAllocated moniesRevenues received% of allocated $$ that is

committed

Budget StatementClear Water Rafting Company

Budget Statement - 1st & 2nd Quarters - End July 31

Actual Budget Committed % Balance

Revenues

Trips $42,113 $72,500 $0 58.1% $30,387

Concessions $8,671 $14,000 $0 61.9% $5,329

Store receipts $11,148 $20,000 $0 55.7% $8,852

Total revenues $61,932 $106,500 $0 58.2% $44,568

Expenditures

Staff $35,963 $52,100 $1,500 71.9% $14,637

Supplies $2,147 $3,100 $0 69.3% $953

Utilities $1,610 $2,430 $0 66.3% $820

Mortgage $8,051 $16,000 $0 50.3% $7,949

Marketing $2,684 $4,300 $500 74.0% $1,116

Maintenance $3,221 $4,300 $0 74.9% $1,079

Total expenditures $53,676 $82,230 $2,000 65.3% $26,554

Budget StatementClear Water Rafting Company

Budget Statement - 1st & 2nd Quarters - End July 31

Actual BudgetCommitte

d % BalanceRevenues

Trips$74,53

4 $72,500 $0 102.8% -$2,034Concessions $8,671 $14,000 $0 61.9% $5,329

Store receipts$11,14

8 $20,000 $0 55.7% $8,852

Total revenues$94,35

3$106,50

0 $0 88.6% $12,147

Expenditures

Staff$35,96

3 52100 $1,500 71.9% $14,637Supplies $2,147 $3,100 $0 69.3% $953Utilities $3,245 $2,430 $0 133.5% -$815Mortgage $8,051 $16,000 $0 50.3% $7,949Marketing $4,478 $4,300 $500 115.8% -$678Maintenance $3,221 $4,300 $0 74.9% $1,079

Total expenditures

$57,105 $82,230 $2,000 69.4% $23,125

Cash Flow StatementIncome 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

February March April May June July Total

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 CompanyCash 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

February March April May June July Total

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 CompanyCash 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

February March April May June July Total

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 CompanyCash 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