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1 Financial in Operations Management.pptx

  1. Operation & Managemen of the Cooperative
  2. Importance of Financial Management, Human Resource (Personnel Management), Marketing, Production or Technical aspects Allocation and distribution of net surplus Overview of Ethical Standards in Cooperatives Performance and Measurement (balance scorecard) 1 2 3 4
  3. Management Financial It means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise
  4. • Involves setting financial goals and analyzing data to accomplish the objectives of the organization. • It is the strategic planning of how a business should earn and spend money (10-15% of your Ave total Assets) • It includes decisions about raising capital, borrowing money and budgeting. Financial Management
  5. 2. Determination of capital composition: Once the estimation have been made, the capital structure have to be decided. This involves short- term and long- term debt equity analysis. This will depend upon the proportion of equity capital a cooperative is possessing and additional funds which have to be raised from outside parties. (100 – 150 % liquidity) Functions of Financial Management 1. Estimation of capital requirements: A finance manager has to make estimation with regards to capital requirements of the cooperative. This will depend upon expected costs and profits and future program and policies of a concern. Estimations have to be made in an adequate manner which increases earning capacity of enterprise.
  6. Objectives of Financial Management • To develop a dynamic savings mobilization and capital build-up schemes to sustain its developmental activities and long-term investments, thereby ensuring optimum economic benefits to the members, their families and the communities . • To ensure regular and adequate supply of funds to the concern. • To ensure adequate returns to the members which will depend upon the earning capacity of the cooperative. • To ensure optimum funds utilization. Once the funds are procured, they should be utilized in maximum possible way at least cost. • To ensure safety on investment, i.e, funds should be invested in safe ventures so that adequate rate of return can be achieved. • To plan a sound capital structure-There should be sound and fair composition of capital so that a balance is maintained between debt and equity capital.
  7. 1. Investment decisions includes investment in fixed assets (called as capital budgeting). Investment in current assets are also a part of investment decisions called as working capital decisions. 2. Financial decisions - They relate to the raising of finance from various resources which will depend upon decision on type of source, period of financing, cost of financing and the returns thereby. There should be sound and fair composition of capital so that a balance is maintained between debt and equity capital. 3. Dividend decision - The finance manager has to take decision with regards to the net profit distribution. Net profits are generally divided into two: a) Interest on Share Capital- b) Patronage Refund- Scope/Elements
  8. 3. Choice of sources of funds: For additional funds to be procured, a cooperative has many choices like: • Issue of shares • Loans to be taken from banks and financial institutions 4. Investment of funds: The manager has to decide to allocate funds into profitable ventures so that there is safety on investment and regular returns is possible. Funds should be invested in secured ventures so that adequate rate of return can be achieved. Leverage: is an investment strategy of using borrowed money—specifically, the use of various financial instruments or borrowed capital—to increase the potential return of an investment.
  9. 5. Management of cash: The Manager has to make decisions with regards to cash management. Cash is required for many purposes like payment of wages and salaries, payment of electricity and water bills, payment to creditors, meeting current liabilities, maintenance of enough stock, purchase of raw materials, etc. Utilized in maximum possible way at the very least cost. 6. Financial controls: The manager has not only to plan, procure and utilize the funds but he also has to exercise control over finances. This can be done through many techniques like ratio analysis, financial forecasting, cost and profit control, etc. Manage your finances so you don’t overspend and remain prepared for all expenditures, as well as profit distributions.
  10. Capital Budgeting Working Capital Management Cost of Capital Capital Structure Decisions Leverages ISC Policy Retained Earnings
  11. Objectives of Financial Management 1. Basic Objectives  Profit Maximization  Wealth Maximization 2. Operational Objectives  To ensure regular, adequate and timely supply of requisite finances  Most effective Utilization of finances  Safety of investments  Growth of the enterprise 3. Social Objectives  adequate returns Timely payment of interest  Payment of reasonable interest of share capital  Timely payment of wages  Fast settlement with suppliers  Maintaining relations with financiers 4. Research Objectives  Researching into new and better sources of finances  To develop a dynamic savings mobilization and capital build-up schemes to sustain its developmental activities and long- term investments,
  12. Section 1. Source of Funds. The Cooperative may derive its funds from any or all of the following sources: a. Member’s share capital contribution; b. Loans and borrowings including deposits; c. Revolving capital build-up which consist of the deferred payment of patronage refund or interest on share capital; d. Subsidies, grants, legacies, aids, donation, awards and winnings and such other assistance from any local or foreign institution, public or private; e. Retentions from the proceeds of services acquired /goods procured by members; and c. Other sources of funds as may be authorized by law. By Laws: Article VII Capital Structure Section
  13. By Laws. Article VII Capital Structure Section 2. Continuous Capital Build-Up. Every member shall have invested in any or all of the following: a. At least _____________Pesos (P_________) per month; b. At least _____ percent (__%) of his/her annual interest on capital and patronage refund; and c. At least _________ percent (__%) of each good procured /service acquired from the cooperative.
  14. • Capital Expenditures • Procurement of goods for sale • Operating Expenses • Distribution of Interest on Share Capital and Patronage Refund • Community Outreach • Withdrawal of share capital • Payment of borrowings • Remittances to government agencies- SSS, Phihealth, Pag-ibig and BIR • Buy back its own stock – treasury stocks • Other uses Uses of Funds
  15. • As the word suggests is the optimum utilization of cash to ensure maximum liquidity and maximum profitability. It refers to the proper collection, disbursement, and investment of cash. For a small cooperative, proper utilization of cash ensures solvency. • Cash is the lifeblood of a business and a business needs to generate enough cash from its activities so that it can meet its expenses and have enough left over to repay investors and grow the cooperative. While a cooperative can fake its earnings, its cash flow provides an idea about its real health.
  16. • Capital structure balance is normally upheld by establishing a tailored equilibrium between debt and equity. Both of these funding methods come hand-in-hand with their own unique sets of advantages and disadvantages, which is why the vast majority of treasurers devote a lot of their time and energy towards utilizing a combination of the two to ensure their respective organizations are effectively funded to meet any unique long-term objectives. Unfortunately, there’s no magical formula am organization can achieve to establish supreme financial harmony. There are rough guidelines surrounding a firm’s ideal debt-to-equity ratio, sure – but at the end of the day, each firm must carefully weigh the pros and cons of debt and equity in order to strike the perfect balance that works for their business. Debt and Equity is a leverage ratio that calculates the weight of total debt and financial liabilities against total members equity, or, shows how much of a cooperative is owned by creditors compared with how much members equity is held by the cooperative.
  17. Reference: • cda-ReD-fr-029-performance-audit-report-rev.1-final_updated.xlsx (

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