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PROGRAM

MODULE
TUTORIAL
SESSION
TOPIC 1

Outline
BBA, BIM, BHRM, BAC, BEC, BMKT, BTRM, BHM
BBPW3103
FINANCIAL MANAGEMENT I
T1
Introduction
Subtopics:
1. Finance
2. Roles of a Financial Manager
3. Objectives of Financial Management
4. Agency Problems

TOPIC 2

Analysis of Financial Statements


Subtopics:
1. Annual Report and Users of Financial Statements
2. Financial Ratio Analysis
3. Conducting a Complete Ratio Analysis
4. Weaknesses of Financial Ratios

TOPIC 3

Time Value of Money


Subtopics:
1. Concept of Compounding and Future Value
2. Concept of Discounting and Present Value
3. Future and Present Values of a Series Cash Flows
4. Compounding and Discounting More than Once a Year

LEARNING
OUTCOMES

Topic 1:

Identify the areas of finance and its importance to businesses

Explain the four main roles of financial manager in a company

Discuss the main objective of financial management

Examine the relationship in agency problem


Topic 2:

Explain the importance of financial statements to different groups of users

Calculate the ratios for liquidity, asset management, leverage, profitability


and market value

Evaluate a companys performance based on financial ratios and the DuPont


analysis

Explain the weaknesses of financial ratio analysis


Topic 3:

Apply the concept of compounding and discounting in determining future


value and present value of money

Differentiate between ordinary annuity and annuity due

Calculate the future and present value of money for non-annual


compounding periods

Notes

INSTRUCTIONAL
ACTIVITIES

Topic 1:

Identify the areas of finance and its importance to businesses.

Discuss the four main roles of a financial manager.

Compare and contrast the goals of profit maximisation and shareholder


wealth maximisation.

Explain the agency problem faced by owners of a business.

Topic 2:

Explain the purpose of financial statement analysis.

Distinguish among liquidity, asset management, leverage, profitability, and


market value ratios.

Demonstrate by using relevant examples (companies) on how to calculate the


financial ratios.

Explain the relationships among the several categories of ratios in


determining the health of a business.

Discuss the weaknesses/limitations of ratios analysis.


Topic 3:

Explain what is meant by time value of money.

Explain the mechanics of compounding and discounting.

Demonstrate by using relevant examples on how to calculate the future value


of a lump sum and present value of a future lump sum (both methods,
manual solution using formula and using financial tables).

Demonstrate by using financial tables on how to solve compounding and


discounting of more than once a year questions

Explain what is meant by annuity.


DIAGNOSTIC
EXERCISE
(5-10 minutes to
ensure basic
understanding
of topic)

Topic 1:
1. Why is knowledge of finance important even to learners in other business
disciplines?
2. What is meant by agency problem? How can this problem be either prevented
or minimised?
3. Why is the maximisation of wealth viewed as superior to that of profit
maximisation as a business objective?
Topic 2:
1. What is the purpose of financial statement analysis?
2. Provide an example of how financial statements can be used internally by the
managers of a company?
3. Identify information that may be useful to investors and shareholders.
4. Based on the five categories of financial ratios, perform ratio analysis of a
company listed on Bursa Malaysia. Explain the significance of the ratios
calculated. Are there any limitations when performing the ratio analysis?

Or other
exercises
prepared
by face to
face
tutors

Topic 3:
1. What is the relationship between the time value of money and inflation?
2. Compare simple interest to compound interest.
3. What is an annuity? Give examples of annuities.
4. Suppose you were considering depositing RM50,000 in one of three banks, all
of which pay 4% interest; BA Bank compounds annually, AP Bank compounds
semi annually and TR Bank compounds daily. Which bank would you choose?
Why?

WORKED EXAMPLES FOR TOPIC 1

Questions & Answers


What are the main roles of a financial manager?
Solution:
i. Make decisions for short-term and long-term
investment and financing
ii. Financial planning and forecast
iii. Control and coordination
iv. Dealings in financial market

Suggest ways for business owners to solve principal-agent


problem.

Solution:
To minimise agency problem, companys owners i.e. the
shareholders will have to bear the costs of agency and control
the actions of the managers. Among steps that can be taken
includes providing compensation or incentives based on the
companys achievement. The shareholders may introduce
incentive plans for managers that link their remuneration to
the performance of the business. A common form of
incentive plan is to give managers share options. In this way,
the interests of managers and shareholders will become
more closely aligned.

Extra Notes

WORKED EXAMPLES FOR TOPIC 2


Questions & Answers
1

RCR Balance Sheet


31 December 2011
(Ringgits in Thousands)
Cash
Receivables
Inventory
Total current assets
Net fixed assets

RM 200
245
625
RM1,070
1,200

Total assets

RM2,270

Accounts payable
Notes payable
Other current liabilities
Total current liabilities
Long-term debt
Ordinary share
Total liabilities and equity

RM 205
425
115
RM 745
420
1,105
RM2,270

RCR Income Statement


for Year Ended 31 December 2011
(Ringgits in Thousands)
Sales
Cost of sales
Gross profit
Selling expenses
General and administrative expenses
Earnings before interest and taxes (EBIT)
Interest expense
Earnings before taxes (EBT)
Taxes (40%)
Net income (NI)
Required:
i. Calculate the current ratio
ii. Calculate the debt ratio
iii. Calculate the return on total assets and return on equity
Method/Solution:

Current ratio =

Current assets
1,070
=
= 1.44 .
Current liabilities 745

Debt ratio = Total liabilities = 1,165 = 0.51 = 51%.


Total assets
2,270

RM2,400
1,834
RM 566
175
216
RM 175
35
RM 140
56
RM 84

ROA =

Net income
84
=
= 0.0370 = 3.70%.
Total assets 2,270

ROE =

Net income
84
=
= 0.0760 = 7.60%.
Shareholde rs' equity 1,105

WORKED EXAMPLES FOR TOPIC 3

Questions & Answers


Extra Notes
Assuming you deposit RM22,500 into a savings account that
offers an interest rate of 12% per annum, how much will it be
worth in 2 years if interest is compounded:
i. annually
ii. semiannually
Method/ Solution:
i. annually
Manual solution using formula: FVn = PV(1 + i)n
FVn = PV(1 + i)n
F2 = 22,500 (1 + 0.12)2
= 28,224
Using financial table:
FVn = PV(FVIFi,n)
FVn = PV((FVIF12%,2)
FV2 = 22,500 (1.245)
= 28,012.50

Refer to Attachment A of BBPW3103


Module: Financial Schedule for Future Value
Interest Factor

ii. semiannually
Manual solution using formula: FVn = PV(1 + i/2)nx2
FVn = PV(1 + i/2)nx2
F2 = 22,500 (1 + 0.12/2)2x2
= 28,395

Using financial table:


FV = PV(FVIFi,n)
FV = PV((FVIF12%/2,2x2)
FV = 22,500 (1.262)
= 28,395

Refer to Attachment A of BBPW3103


Module: Financial Schedule for Future Value
Interest

Exercises for Topic 1

Identify the primary activities of a financial manager.

Explain why maximising value of a firm is an appropriate goal


for a business?

Describe the nature of the principle-agent relationship


between the owners and managers of a corporation.

Exercises for Topic 2

Teguh Sdn. Bhd. has sales of RM10,000,000, net income of


RM450,000, total assets of RM4,000,000 and shareholders
equity of RM2,000,000.
You are required to calculate the followings:
i. Profit Margin
ii. Return on assets
iii. Return on equity

Answer: i. 4.5%
ii. 11.3%
iii. 22.5%
2

Last year 2011, Saphire Sdn. Bhd. had sales of RM300,000 and a
net income of RM20,000, and its year-end assets were
RM200,000. The companys total debt to total assets ratio was
40%. Based on the Du Pont equation, calculate the company's
return on equity (ROE).
Answer: 28.13%

Exercises for Topic 3

RM1,000 is invested at 10% compounded semi-annually for


three years. Calculate its future value.
Answer: RM1,340

Amran has RM10,000 in a savings account that offers 10%


interest rate compounded annually. He plans to withdraw the
money within 5 years. Determine the amount he can withdraw
every year from the account if he makes the withdrawal:
i. at the beginning of every year
ii. at the end of every year.
Answer: i. RM2,398.02
ii. RM RM2,637.83

David deposits RM3,000 at the end of every six months into a


savings account for 5 years. The bank pays 14% interest
compounded semi-annually. How much money will David have
at the end of year 5?
Answer: RM41,448