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Account as a decession making tool for qs

it will useful for the quantity surveying students

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Account as a decession making tool for qs

  1. 1. ACCOUNTING AS A DECESSION MAKING TOOL FOR QUANTITY SURVEYORS
  2. 2. AIM TO GIVE AN BREIF IDEA HOW TO USE ACCOUNTING AS A DECESSION MAKING TOOL FOR OUR CAREER
  3. 3. OBJECTIVES • The Account Factors • Take Decision Using Financial Statement Factors • Take Decision Using Management Account Factors
  4. 4. INTRODUCTION
  5. 5. CONSTRUCTION PROCESS
  6. 6. THE ACCOUNT FACTORS AFFECT THE QS JOB Financial Statement Factors • Income Statement • Balance Sheet • Ratio Analyze Management Account Factors
  7. 7. 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
  8. 8. 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
  9. 9. 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
  10. 10. 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
  11. 11. Assets: 2011(Rs) Tangiblefixed 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 Longterm loan and advances 161,982 Longterm securitydeposits 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 longterm 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-CurrentAssets Property,plantandequipment 9,615,426 BiologicalAssets 496,809 IntangibleAssets 133,598 Longtermadvances,depositsandpayments 24,212 Totalnon-currentassets 10,270,045 CurrentAssets Stores,sparesandloosetools 571,812 Stockintrade 2,637,816 Tradedebts 87,121 Advances,depositsandprepayments 266,093 Otherreceivables 1,160,126 Taxesrecoverable 1,443 Derivativefinancialinstrument --- Shortterminvestments 1,294,000 Cashandbankbalance 350,728 Totalcurrentassets 6,369,139 TotalAssets 16,639,184 BALANCE SHEET
  12. 12. RATIO ANALYSIS Current 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
  13. 13. 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.
  14. 14. • Liquidity ratio • Activity ratio • Financial leverarge ratio • Profitability ratio • Per share ratio
  15. 15. LIQUIDITY RATIO • There are two types of liquidty ratio. Current ratio Quick ratio
  16. 16. ACTIVITY RATIO
  17. 17. • 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.
  18. 18. MOST POPULAR ACTIVITY RATIOS • Inventory turnover ratio • Inventory holding period • Debtors turnover ratios • debtors collection period • Fixed asset turnover • Asset turnover ratio
  19. 19. 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.
  20. 20. 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.
  21. 21. FINANCIAL LEVERAGE RATIOS • Debt equity ratio • The coverage ratio
  22. 22. 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.
  23. 23. PROFITABILITY RATIOS • Gross profit ratio • Net profit ratio • Return on asset • Return on equity
  24. 24. 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.
  25. 25. RETURN ON EQUITY • This is the most important ratio of all the financial ratios to investors in the company.
  26. 26. PER SHARE RATIOS • Earnings per share • Devidend per share
  27. 27. 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.
  28. 28. 1.BUDGETING 2.CAPITAL BUDGETING 3.CASH FLOW STATEMENT
  29. 29. BUDGETING • A statement • Include amount of money that is available to spend.
  30. 30. BUDGET CAN ESTABLISH BY, • Assessment of projected income and expenses. • Comparison with similar projects. • Assessment of the funds available. • Pre-design analysis of requirements.
  31. 31. CONTENT OF CLIENT’S BUDGET
  32. 32. TOTAL PROJECT COST ESTIMATE • Soft Cost • Construction Cost • Equipments
  33. 33. IMPORTANCE OF BUDGETING • Identify wasteful expenditures • Adapt quickly as our financial situation changes • Mortivate the employees
  34. 34. CAPITAL BUDGETING The process in which a business determines and evaluates potential expenses or investments.
  35. 35. EXAMPLES FOR CAPITAL BUDGETING •Buy new office equipment • Add to or renovate existing facilities • Expand plant or process
  36. 36. CAPITAL BUDGETING PROCESS • Develop and formulate long-term strategic goals • Seek out new investment projects • Estimate and future cash flows
  37. 37. • Facilitate the transfer of information • Monitoring and Control of Expenditure • Creation of Decision
  38. 38. 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.
  39. 39. HOW CONSTRUCTION COMPANY CAN IMPROVE CASH FLOW • Project future cash flow • Approach payroll correctly • Process change orders quickly • Avoid over-billings and under- billings
  40. 40. Break-even analysis entails the calculation and examination of the margin of safety for an entity based on the revenues collected and associated costs.
  41. 41. 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.
  42. 42. 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 ?
  43. 43. Types of Stock ledgers - FIFO - LIFO - Weighted Average
  44. 44. 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.
  45. 45. LIFO LIFO "LIFO" stands for last-in, first-out, meaning that the most recently produced items are recorded as sold first.
  46. 46. CONCLUSION
  47. 47. Q AND A

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