ACCOUNTING AS A DECESSION MAKING TOOL FOR

QUANTITY SURVEYORS

AIM

TO GIVE AN BREIF IDEA HOW TO USE ACCOUNTING AS A DECESSION MAKING TOOL FOR

OUR CAREER

OBJECTIVES

• The Account Factors• Take Decision Using Financial Statement

Factors • Take Decision Using Management Account

Factors

INTRODUCTION

CONSTRUCTION PROCESS

THE ACCOUNT FACTORS AFFECT THE QS JOB

Financial Statement Factors

• Income Statement• Balance Sheet• Ratio Analyze

Management Account Factors

COMPANY A Income statement For the year ended December 31st 2011 2011(Rs) Net sales 64,824,364 Cost of goods sold (48,099,046) Gross profit 16,725,318 Distribution and selling expenses (6,862,113) Administration expenses (1,405,298) Operating profit 8,457,907 Finance cost (1,050,355) Other operating expenses (1,064,233) (2,114,588) Other operating income 159,545 Profit before taxation 6,502,864 Taxation (1,834,507) Profit after taxation 4,668,357 Earnings per share (Basic and dilute) 102.94

COMPANY B Income Statement As at December 31st 2011

2011(Rs) Net sales 29,859,226 Cost of goods sold (23,230,445) Gross profit 6,628,781 Less operating expenses Distribution and marketing expenses (3,716,489) Administrative expenses (504,722) Other operating expenses (208,902) Other operating income 213,133 Operating profit 2,411,801 Finance costs (1,049,141) Profit before taxation 1,362,660 Taxation (471,687) Profit for the year 890,973 Earnings per share (Basic and dilute) 1.22

INCOME STATEMENT

COMPANY A Income statement For the year ended December 31st 2011 2011(Rs) Net sales 64,824,364 Cost of goods sold (48,099,046) Gross profit 16,725,318 Distribution and selling expenses (6,862,113) Administration expenses (1,405,298) Operating profit 8,457,907 Finance cost (1,050,355) Other operating expenses (1,064,233) (2,114,588) Other operating income 159,545 Profit before taxation 6,502,864 Taxation (1,834,507) Profit after taxation 4,668,357 Earnings per share (Basic and dilute) 102.94

COMPANY B Income Statement As at December 31st 2011

2011(Rs) Net sales 29,859,226 Cost of goods sold (23,230,445) Gross profit 6,628,781 Less operating expenses Distribution and marketing expenses (3,716,489) Administrative expenses (504,722) Other operating expenses (208,902) Other operating income 213,133 Operating profit 2,411,801 Finance costs (1,049,141) Profit before taxation 1,362,660 Taxation (471,687) Profit for the year 890,973 Earnings per share (Basic and dilute) 1.22

INCOME STATEMENT

COMPANY A Income statement For the year ended December 31st 2011 2011(Rs) Net sales 64,824,364 Cost of goods sold (48,099,046) Gross profit 16,725,318 Distribution and selling expenses (6,862,113) Administration expenses (1,405,298) Operating profit 8,457,907 Finance cost (1,050,355) Other operating expenses (1,064,233) (2,114,588) Other operating income 159,545 Profit before taxation 6,502,864 Taxation (1,834,507) Profit after taxation 4,668,357 Earnings per share (Basic and dilute) 102.94

COMPANY B Income Statement As at December 31st 2011

2011(Rs) Net sales 29,859,226 Cost of goods sold (23,230,445) Gross profit 6,628,781 Less operating expenses Distribution and marketing expenses (3,716,489) Administrative expenses (504,722) Other operating expenses (208,902) Other operating income 213,133 Operating profit 2,411,801 Finance costs (1,049,141) Profit before taxation 1,362,660 Taxation (471,687) Profit for the year 890,973 Earnings per share (Basic and dilute) 1.22

INCOME STATEMENT

COMPANY A Income statement For the year ended December 31st 2011 2011(Rs) Net sales 64,824,364 Cost of goods sold (48,099,046) Gross profit 16,725,318 Distribution and selling expenses (6,862,113) Administration expenses (1,405,298) Operating profit 8,457,907 Finance cost (1,050,355) Other operating expenses (1,064,233) (2,114,588) Other operating income 159,545 Profit before taxation 6,502,864 Taxation (1,834,507) Profit after taxation 4,668,357 Earnings per share (Basic and dilute) 102.94

COMPANY B Income Statement As at December 31st 2011

2011(Rs) Net sales 29,859,226 Cost of goods sold (23,230,445) Gross profit 6,628,781 Less operating expenses Distribution and marketing expenses (3,716,489) Administrative expenses (504,722) Other operating expenses (208,902) Other operating income 213,133 Operating profit 2,411,801 Finance costs (1,049,141) Profit before taxation 1,362,660 Taxation (471,687) Profit for the year 890,973 Earnings per share (Basic and dilute) 1.22

INCOME STATEMENT

Assets: 2011(Rs) Tangible fixed assets Property, plant and equipment 16,230,528 Capital work in progress 5,370,561 Total tangible assets 21,601,089 Intangible assets 11,954 Long term loan and advances 161,982 Long term security deposits 9,817 Total intangible assets 183,753 Current assets Stores and spares 1,278,416 Stock in trade 7,064,170 Trade debts 276,858 Current portion of long term loans and advances 30,914 Advances, deposits, prepayments and other receivables 4,042,634 Cash and bank balances 702,025 Total current assets 13,395,017 Total assets 35,179,859

Assets 2011(Rs) Non-Current Assets Property,plant and equipment 9,615,426 Biological Assets 496,809 Intangible Assets 133,598 Long term advances, deposits and payments 24,212 Total non-current assets 10,270,045 Current Assets Stores,spares and loose tools 571,812 Stock in trade 2,637,816 Trade debts 87,121 Advances, deposits and prepayments 266,093 Other receivables 1,160,126 Taxes recoverable 1,443 Derivative financial instrument --- Short term investments 1,294,000 Cash and bank balance 350,728 Total current assets 6,369,139 Total Assets 16,639,184

BALANCE SHEET

RATIO ANALYSISCurrent ratio

Company/Years 2007 2008 2009 2010 2011 Average

A 2.51 1.42 1.71 1.84 2.66 2.03 B 3.12 4.96 6.11 2.87 2.09 3.83 C 7.18 7.01 1.62 1.56 4.65 4.40

Quick Ratio Company/Years 2007 2008 2009 2010 2011 Average A 1.97 1.37 0.81 1.22 2.20 1.51 B 3.12 4.96 6.11 2.87 2.09 3.83 C 6.06 5.76 1.37 1.30 4.22 3.74

RATIO ANALYSIS

• Ratio analysis is a form of financial statement analysis that is used to obtain a quick indication of a firm’s financial performance in several key areas.

• Liquidity ratio• Activity ratio• Financial leverarge ratio• Profitability ratio• Per share ratio

LIQUIDITY RATIO

• There are two types of liquidty ratio.

Current ratio Quick ratio

ACTIVITY RATIO

• Activity ratios measures company sales per another asset account.• The most asset accounts used are

accounts receivable, inventory, and total assets.• Activity ratios measure the

efficiency of the company ing it’s resources.

MOST POPULAR ACTIVITY RATIOS

• Inventory turnover ratio• Inventory holding period • Debtors turnover ratios• debtors collection period • Fixed asset turnover• Asset turnover ratio

INVENTORY TURNOVER RATIO

• A higher inventory turnover ratio indicates more effective cash management and reduces the incidence of inventory absolescene.

INVENTORY HOLDING PERIOD • The inventory holding period shows the number of

days on average that a business holds inventory.

FIXED ASSET TURNOVER

• Fixed asset turnover is the ratio of sales to the value of fixed assets.

ASSET TURNOVER RATIO • This ratio often can be used as an indicator

of the efficiency with which a company is deploying its assets in generating revenue.

FINANCIAL LEVERAGE RATIOS

• Debt equity ratio

• The coverage ratio

DEBT EQUITY RATIO

• Used to measure a company’s financial leverage calculated by deviding a company’s total liabilities by its stockholders equity.

COVERAGE RATIO• A measure of a Company’s ability

to meet it’s obligations.

PROFITABILITY RATIOS

• Gross profit ratio• Net profit ratio• Return on asset• Return on equity

GROSS PROFIT RATIO

• This ratio looks at how well a company controls the cost of its inventory and the manufacturing of its products and subsequently passes on the costs to its costumers.

RETURN ON ASSETS• This is an important profitability ratio because it

measures the efficiency with which the company is managing its investments in assets and using them to generate profit.

RETURN ON EQUITY

• This is the most important ratio of all the financial ratios to investors in the company.

PER SHARE RATIOS

• Earnings per share

• Devidend per share

PER SHARE RATIO

• This is the portion of a Company’s profits that is allocated to each outstanding share of common stock serving as an indicator of the company’s profitability.

DEVIDEND PER SHARE

• It represents the company’s net income allotted to each share of it’s common stock.

1.BUDGETING

2.CAPITAL BUDGETING

3.CASH FLOW STATEMENT

BUDGETING

• A statement • Include amount of money that is

available to spend.

BUDGET CAN ESTABLISH BY,

• Assessment of projected income and expenses.• Comparison with similar projects.• Assessment of the funds available.• Pre-design analysis of requirements.

CONTENT OF CLIENT’S BUDGET

TOTAL PROJECT COST ESTIMATE

• Soft Cost

• Construction Cost

• Equipments

IMPORTANCE OF BUDGETING

• Identify wasteful expenditures

• Adapt quickly as our financial situation changes

• Mortivate the employees

CAPITAL BUDGETING

The process in which a business determines and evaluates potential expenses or investments.

EXAMPLES FOR CAPITAL BUDGETING

•Buy new office equipment

• Add to or renovate existing facilities

• Expand plant or process

CAPITAL BUDGETING PROCESS

• Develop and formulate long-term strategic goals

• Seek out new investment projects

• Estimate and future cash flows

• Facilitate the transfer of information • Monitoring and Control of

Expenditure

• Creation of Decision

CASH FLOW STATEMENT

• The cash flow sets out when costs will be incurred and how much they will amount to during the life of the project.

HOW CONSTRUCTION COMPANY CAN IMPROVE CASH FLOW

• Project future cash flow • Approach payroll correctly•  Process change orders quickly• Avoid over-billings and under-billings

Break-even analysis entails the calculation and examination of the margin of safety for an entity based on the revenues collected and associated costs.

BRAKE EVEN ANALYSIS ?

The economic order quantity (EOQ) is a model that is used to calculate the optimal quantity that can be purchased or produced to minimize the cost of both the carrying inventory and the processing of purchase orders or production set-ups.

E O Q ?

The stock ledger is where the corporation keeps an accurate record of all stock transactions and is usually part of a corporate records book or kit.

Stock Ledger ?

Types of Stock ledgers

- FIFO

- LIFO

- Weighted Average

FIFO

FIFO is an acronym which most commonly stands for "first in, first out" and means that the goods first added to inventory are assumed to be the first goods removed from inventory for sale. The first in, first out (FIFO) method of inventory valuation is a cost flow assumption that the first goods purchased are also the first goods sold. In most companies, this assumption closely matches the actual flow of goods, and so is considered the most theoretically correct inventory valuation method.

LIFO

LIFO

"LIFO" stands for last-in, first-out, meaning that the most recently produced items are recorded as sold first.

CONCLUSION

Q AND A