Finance for Non-Financiers 3: Advanced Finances

Por José Saul Velásquez Restrepo

In Finance for Non-Financiers: Advanced Finances, Jos Saul Velsquez Restrepo provides information about high-level finance management. From discussing basic, special, and professional finances, Restrepo focuses on advanced finances in this book. He begins with an introduction of managemental costs, where he educates readers how to find the best approach and the most suitable procedure in calculating the exact cost of a service. From here, the author probes into strategic finances, cash flow, inflation, absorptions and mergers, splits, and more macro-finance subjects. With all the information presented, this book becomes ideal for those who wish to improve their grasp on theories of advanced finances. The contents of this book are based on situations that may arise in the business world and finances; this approach makes it easier for readers to apply theories in real life.

• Idioma: Español
• Editorial: Palibrio
• Fecha de lanzamiento: 16 ago 2011
• ISBN: 9781617642777

José Saul Velásquez Restrepo

José Saul Velásquez Restrepo is a graduate of Business Administrations in EAFIT; specialist in  finance in EAFIT and worked as an executive in companies of the most varied sectors and in all administrative fronts. He was complemented by over thirty years as a professor at the Universities of Rosario, Central and La Salle in Bogotá; University of Antioquia, University of Medellin and EAFIT in Medellin, as well as many extension courses in the country’s major cities, consultants and consultancies. This book is written in a simple and practical manner, easily understood by people with no financial training. This book is perfect for both the financier and non-financier individuals.

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Copyright © 2011 by José Saul Velásquez Restrepo.

Número de Control de la Biblioteca del Congreso de EE. UU.: 2010939694

ISBN: Hardcover 978-1-6176-4276-0

ISBN: Softcover 978-1-6176-4278-4

ISBN: Ebook 978-1-6176-4277-7

All rights reserved. No part of this book may be reproduced or transmitted

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without permission in writing from the copyright owner.

The information, ideas, and suggestions in this book are not intended to render

professional advice. Before following any suggestions contained in this book, you

should consult your personal accountant or other financial advisor. Neither the

author nor the publisher shall be liable or responsible for any loss or damage allegedly

arising as a consequence of your use or application of any information or suggestions

in this book.

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CONTENTS

Chapter 1   Managemental Costs

Chapter 2   Strategic Finances

Chapter 3   Cash Flow

Chapter 4   Inflation and Finances

Chapter 5   Absorptions and Mergers

Chapter 6   Splits

Chapter 7   Fiduciary

Chapter 8   Securization

Chapter 9   Factoring

Chapter 10   Leasing

Chapter 11   Crisis and Alternatives

Chapter 12   Valuation of Companies

Chapter 13   Investment Bank

Chapter 14   Investment Funds

Chapter 15   Planning Bases

Chapter 16   Analysis of the Result Statement

Chapter 17   Administration and Analysis of the Indebtedness

INTRODUCTION

I wrote these issues with the aim to make it easier which apparently is too difficult and above all, with the desire to contribute to the formation of a theory totally applicable in real life. This is a description available to everyone, though this could hardly be called a lack of depth in any of the items, which makes the text highly recommended for non-financial executives.

The approach is very practical; based on a great deal of evidence to avoid any situation that may arise in the business world and apply personal finances. The papers are presented according to the recommended order of learning and practical exercises are made in Excel.

It is an effort that I have enthusiastically encouraged by many friends, who have helped me to mature and clarify concepts. There are so many that fail to list them and so I refrain from doing so to avoid being unfair by omitting any name oblivion unintentional. In all, my sincere thanks, on behalf of those who can draw some profit from this book.

josavere

CHAPTER 1

MANAGEMENTAL COSTS

1. SPECIAL FOR MANAGERS AND EXECUTIVES OF TRADE, SALES AND PRODUCTION

No system of costs allows calculating the exact cost of one product or a service. One is to find the best approach, using the suitable procedure but for the particular case.

The costs have three basic functions:

1.   Constitute the one of base to increase productivity.

2.   Serve like tool of fixation of prices.

3.   For fiscal effects.

Variable cost is almost perfectly quantifiable; change based on the produced units.

The cost fixed, appear based on the time; in general are quantify with high degree of precision.

To have an infrastructure (company) implies a cost fixed of the period and other resultants of the manage strategy with responsibility in the long term: investigation and development, positioning, qualification of the human resource and environment preservation.

The systems of costs dedicate efforts to the distribution of fixed part of the indirect costs of manufacture, using an arbitrary and always debatable base, example: the cost by square meter depends on the part of the premises where this locating; actually for allocation, all have he himself value, etc.

In the long run, never they are obtained so yearned for precision, but much possibility of controversy. The absolute certainty of the periodic expenses (fixed) can define a quota of contribution by dollars sold. (%Pf)

For it we have two parameters:

1.   

Equation1.wmf

2.   

Equation2.wmf

Note: a factor of safety must settle down to cover the risk. For example: to assume that the budget of sales will be fulfilled in a 90%.

In these conditions considers the following equation:

P = V + %PF + %PU

Equation3.wmf

The profit margin (%PU) depends on the line (milk cows, stars, dogs and dilemmas).

The management of trade, as utility center is responsible for operational benefit previously approved by presidency, which will serve as base for evaluation of the management.

For the handling of the utility we will prepare a matrix in Excel (with macros) that allows making simulations before making official the decisions; also elaborate analyzes of point of reviewed balance.

One program easy to understand and to apply has a very high price: planning and administration by centers of responsibility. It implies a discipline of permanent application; a consisting exercise the sustentation for obtaining objectives subordinated to the general plan of the company, the generation of value.

a.   Centers of responsibility: characterized to have a mission that to fulfill and a director or person in charge of its execution. Three types of responsibility centers exist:

b.   Centers of costs: respond because the cost of producing or of serving fits within the requirements of the company.

c.   Centers of profit: respond for amounts of sales and margins of profit; work by the profit and sales goals combining. It can be strategic units of businesses.

d.   Centers of investment: its authorize investments in the measurement that the technical studies demonstrate that they contribute to obtain the general plan; combine income and outcome of cash and the cost of capital of the organization.

The countable system has the inescapable responsibility to register the respective games, periodically to accumulate and to present/display (monthly) the relation between the budget and its execution, which will serve as base to take remedial actions. All debit registered must has a person in charge.

The result statement( monthly) must appear indicating the variations with explanatory note that allows to encase the corrections necessary not to separate to us from the objectives of the general plan, making specific them in terms of the indicators that show the control board, which are of three types:

1.   Strategic: high level, centers of investment.

2.   Performance: centers of profit and centers of costs.

3.   Pursuit: centers of services (human development, computer science, quality, costs, accounting, etc.)

At the end of the monthly exercise, calculates the real position (%PR) with base in the net sales and it is compared with the initial number (%PF).

Example:

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The over cost that go to reduce the profit like variation negative in the result statement.

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For the following period the possible efforts for besides fulfilling the quota must be programmed corresponding to the exercise, to recover the lost accumulated.

The forecasts by negative variations in raw material, manual labor and the quota of costs and fixed expenses, affect the result of the company and don´t be transferred to the price; they represent inefficiencies that are due to correct.

2. ADVANTAGES

•   It forces to reflect in exceed of fixed type and the convenience to occupy the plant to avoid the over cost of idle capacity.

•   It is very dynamic and it allows the periodic knowledge of the effects of not fulfilling the budget, contributing to the awareness that it requires to him to enter in the planning discipline.

•   It forces to measure with high degree of precision the costs and variable expenses and to maintain them under strict control to avoid wastes that affect the result.

•   The method is very simple and easy to understand and to calculate.

3. DISADVANTAGES

Difficulty practical to separate costs in fixed in and variable expenses. An exercise must be done careful using the aid of expert executive’s affluent of the business.

When we spoke of productive processes, the total cost of the product is disturbed in three elements:

a.   Cost of materials: in general terms, all the companies of a same country were equaled as far as their value of acquisition. The differences are marked in aspects like:

•   Amounts to buy

•   Country of origin

•   Logistic of transport

•   Tariffs

•   Others

For effects to make comparisons is important to verify the price for the particular case and competing companies which allows us to establish if we have advantage or disadvantage in this element of the cost; must be expressed like percentage of the total cost.

b.   Manual labor: a similar analysis allows us to establish the value of the heading in the different countries and the labor legislations in the countries where the competition operates. For the particular case we must analyze the factors that affect the value hour in agreement with the conventions or pacts that regulate the labor relations.

c.   General costs of manufacture: in highest proportion is fixed costs and its application in agreement with the volume of production represents the fixed