Deutsche Brauerei fund flow analysis

Description
The presentation describes about Deutsche Brauerei discusses Fund Flow Statement, Financial Forecasting, Break Even Analysis.

DEUTSCHE BRAUEREI
Fund Flow Statement ? Financial Forecasting ? Break Even Analysis
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DEFINITION
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Fund Flow Statement: The fund statement is statement summarizing the significant financial change which have occurred between the beginning and the end of a company’s accounting period. - Coleman

If the flow of fund is represented by changes in working capital, then a transaction involves changes on both current item and non current item. ? Every transaction has double entry. ? Transaction can involve
? ? ? ? ? ?

Change on current assets and on fixed assets (cash purchase of fixed assets) Change on current assets and on current assets (credit sale of inventory) Change on current assets and change on current liabilities (payment made to creditors) Change on current liabilities and change on current liabilities (short term loan taken to clear overdraft) Change on current liabilities and change on current liabilities (short term loan taken to clear overdraft)

DIFFERENT NAMES OF FUND-FLOW STATEMENT
A Funds Statement A statement of sources and uses of fund

A statement of sources and application of fund
Where got and where gone statement Inflow and outflow of fund statement

OBJECTIVES OF FUND FLOW STATEMENT
To help to understand the changes in assets and asset sources which are not readily evident in the income statement or financial statements.
To inform as to how the cans to the business have been used. To point out the financial strengths and weaknesses of the business

HOW TO PREPARE A FUND FLOW STATEMENT

Preparation of schedule changes in working capital (taking current items only).

Preparation of adjusted profit and loss account (to know fund from [or] fund lost in operations).
Preparation of accounts for non-current items (Ascertain the hidden information). Preparation of the fund flow statement.

IMPORTANCE OF FUNDS FLOW STATEMENT
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Management
• review cash budgets • evaluation of alternative finance & investments • assessment of long-range forecasts of cash requirements & availability of liquid resources.

Investors
• measure as how the company has utilized the funds supplied by them & its financial strength • gauge the company capacity to generate funds from operations. • On the basis of comparative study of the past with the present, investors can locate & identify possible drains on funds in the near future.

? Effective
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tools to the management for economic analysis
supplies additional information, which cannot be provided by financial statements, based on historical data.

? Explains
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the relationship between changes in working capital & net profits.
shows the quantum of funds generated from operations.

? Helps
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in the planning process of a company.

useful in assessing the resources available and the manner of utilization of resources.

? Funds

statement indicates the adequacy or inadequacy of working capital.

Explains the financial consequences of business activities ? provide explicit & clear awareness to questions regarding liquid & solvency positions of the company, distribution of dividend & whether the working capital has been effective or otherwise ? Forecasting in advance the requirements of additional capital & can plan its capital issue accordingly
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? Provides

clues to the creditors & financial institutions as to the ability of a company to use funds effectively in the best interest of the investors, creditors & the owners of the company. ? The information contained in fund flow statement is more reliable, dependable & consistent as it is prepared to include funds generated from operations & not net profit after depreciation. ? Indicate how profits have been invested, whether investments in fixed assets or inventories or ploughed back.

FINANCIAL FORECASTING
Sources of Funds

NET INCOME Subtracting costs and expenses from the

total revenue
Net income
5000 4500 4311 4000 THOUSANDS OF EUROS 3724 3500 3000 2500 2000 1500 1000 500 0 1997.5 2646 2311 2915

1998

1998.5

1999

1999.5

2000 2000.5 YEARS

2001

2001.5

2002

2002.5

ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Reduces the reported amount of accounts receivable

Increase in allowance for doubtful accounts
250

200 THOUSANDS OF EUROS

201

150

100

50
38 24 0 1997.5 7 1998 1998.5 1999 1999.5 2000 YEARS 2000.5 2001 2001.5

60

2002

2002.5

DEPRECIATION
Noncash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence

Depreciation

8000 THOUSANDS OF EUROS

7000
6000 5000 4000 3000 2000 1000 0 1997.5 1998 1998.5 1999 1999.5 2000 2000.5 YEARS 4314 5844 6068

7448 6766

2001

2001.5

2002

2002.5

SHORT-TERM DEBT
Any debt incurred by a company that is due within one year
Increase in short term debts
8000 7000 THOUSANDS OF EUROS 6000 5000 7249

4773

4000 3510
3000 2000 1000 0 1997.5

1768 1085

1998

1998.5

1999

1999.5

2000 2000.5 YEARS

2001

2001.5

2002

2002.5

ACCOUNTS PAYABLE
Represents an entity's obligation to pay off a short-term debt to its creditors
Increase in accounts payable
800 700 THOUSANDS OF EUROS 600 690 664

500
400 348 300 200 100 0 1997.5 177

492

1998

1998.5

1999

1999.5

2000 2000.5 YEARS

2001

2001.5

2002

2002.5

OTHER CURRENT LIABILITIES
Liabilities that are not assigned to common liabilities such as debt obligations or accounts payable

Increase in other current liabilities
1800 1600 1400 THOUSANDS OF EUROS 1200 1000 800 600 1635 1498 1462

1131

400
200 0 1997.5 -200 -36 1998 1998.5

1999

1999.5

2000
YEARS

2000.5

2001

2001.5

2002

2002.5

USES OF FUNDS

DIVIDEND PAYMENTS
Dividend payments
3500 3234 3000 2793 THOUSANDS OF EUROS

2500
2186 2000 1988 1734 1500

1000

500

0 1997

1998

1999

2000 YEARS

2001

2002

2003

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Implies strong commitment to maintain high level of dividends in the future or company does not know how to effectively utilize the generated income

INCREASE IN CASH BALANCE balance Increases in cash
3000

2817
2500

THOUSANDS OF EUROS

2000 1630 1500 1234 1000 1634

1595

500

0 1997

1998

1999

2000 YEARS

2001

2002

2003

?

The company is having optimum cash balance hence maintaining sufficient working capital.

INCREASE IN ACCOUNTS RECEIVABLE (GERMANY)
Increases in accounts receivable (Germany)
350 300

296

THOUSANDS OF EUROS

250 230 200 209

150

144

100 79 50

0 1997

1998

1999

2000 YEARS

2001

2002

2003

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No significant change as compared to Ukraine, due to a tight hold maintained on the distributors.

INCREASE IN ACCOUNTS RECEIVABLE (UKRAINE)
Increases in accounts receivable (Ukraine)
4000 3665 3500 3000 2500 2000 1500 1000 500 0 1997 2078 3074 2772

THOUSANDS OF EUROS

424

1998

1999

2000 YEARS

2001

2002

2003

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Unfavorable, company is having trouble collecting money back from its distributors.

INCREASES IN INVENTORIES
Increases in inventories
6000

5000

5072

THOUSANDS OF EUROS

4000

3000

2000 1417 1000 267

1906

1861

0 1997

1998

1999

2000 YEARS

2001

2002

2003

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Increase in the inventories of the company as company is working on improving the distribution channel.

INCREASES IN OTHER ASSETS
Increases in other assets
250 227 200

THOUSANDS OF EUROS

150

100 87

104

50

0 1997

1998

1999

2000

2001 -20

0 2002

2003

-50

YEARS

REDUCTION IN LONG-TERM DEBT
Reductions in long-term debt
9000 8563 8000 7000 THOUSANDS OF EUROS 6000 5000 4000 3000 2000 1000

943

943

943

943

0 1997

1998

1999

2000 YEARS

2001

2002

2003

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The sound financial condition of the company has ensured the stable repayment of long term loans and would continue to do so in future.

CAPITAL EXPENDITURES
Capital expenditures
8000 7000 6980

6822

6000
THOUSANDS OF EUROS 5000 4000 3000 2000 1000 2247

0 1997

0 1998

1999

0 2000 YEARS

2001

2002

2003

?

There is a projected increase in the capital expenditure due to probable purchase or replacement of Property, Plant or Equipment.

BREAK EVEN ANALYSIS

BREAK EVEN POINT
Total Revenue = Total Cost ? Business makes just enough revenue to cover their costs ? Profit is zero ? Point at which a product starts to generate profit ? BEP = fixed cost / contribution per unit
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BREAK EVEN ANALYSIS “BREAKEVEN ANALYSIS IS A MANAGEMENT
ACCOUNTING TOOL USED FOR PROFIT PLANNING OF A FIRM”

BREAK EVEN ANALYSIS DEPENDS ON:
Fixed cost

Variable cost

Products unit price

Products expected unit sales

BREAK EVEN ANALYSIS
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Solves various managerial problems:
Explains relationship between cost, production volume and returns

Indicates lowest amount of business activity necessary to prevent losses

Setting price levels

Targeting various VC/FC combination

Determining financial attractiveness of different strategic options

BREAK EVEN CHART
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Revenue against time or sales

USES:
Illustrate or forecast company's projected revenue Calculate the time for profitability to be reached

Predict the effect that changes in price will have on sales over time
Effect of changes in VC and FC on profitability

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break-even point is the point at which Beer product stops costing DEUTSCHE BRAUEREI money to produce and sell, and starts to generate a profit for the company.

1997

1998

1999

2000

2001

2002

Sales: Germany Sales: Ukraine

62032 0

62653 4262

64219 17559

66216 25847

68203 37479

70249 48722

Total Net Sales

62032

66915

81778

92063

105682

118971

Operating Expenses

Variable cost

Production Cost & Expenses

32258

35366

44271

49827

61393

71609

Fixed cost

Administrative & Selling Expenses

12481

13014

16274

18505

18500

18500

Fixed cost

Depreciation

3609

4314

5844

6068

6766

7448

Variable cost Total Operating Cost

Excise duties

9143 57491

9108 61802 5113

10486 76875 4904

11557 85957 6106

11625 98284 7398

13087 110644 8327

Operating Profit

4541

Variable cost

Allowance for doubtful accounts Interest expense

5 1185

7 1064

38 1046

24 1304

201 1468

60 1634

Earning before taxes Income taxes
Net earning Dividends on Dividends to all common shares Retentions of earning

3351 1132
2219

4042 1396
2646

3821 1510
2311

4779 1864
2915

5729 2005
3724

6633 2322
4311

1669 550

198 658

1734 577

2186 729

2793 931

3234 1078

Break Even Analysis of DEUTSCHE BRAUEREI

1997

1998

1999

2000

2001

2002

Sales: Germany Sales: Ukraine Total Net Sales

62032 0 62032

62653 4262 66915

64219 17559 81778

66216 25847 92063

68203 37479 105682

70249 48722 118971

Production Cost & Expenses Excise duties

32258 9143

35366 9108

44271 10486

49827 11557

61393 11625

71609 13087

Allowance for doubtful accounts Total Variable Cost

5 41406

7 44481

38 54795

24 61408

201 73219

60 84756

Administrative & Selling Expenses Depreciation Total Fixed Cost

12481 3609 16090

13014 4314 17328

16274 5844 22118

18505 6068 24573

18500 6766 25266

18500 7448 25948

(€ per hectoliters)

Per unit Sales =

9206300/1173000 =

78.48508099

Per unit variable cost =

61408000/1173000 =

52.35123615

Contribution per unit =

Per unit Sales - Per unit variable cost =

26.13384484

Breakeven Point =

Fixed cost/Contribution per unit

24573000/26.13384 =

940274.9633

Hence Number of units requires to be sold to reach breakeven point=

940275 hectoliters

ABOVE BREAK-EVEN

19.85%

80.15%

Revenue calculated from the Breakeven volume sales =

breakeven point volume* per unit sale price

940275 hectoliters * 78.48508099 = € 73797559.53

(€ thousands) Net Sales Total Variable cost Contribution 92063000 61408000 30655000

Fixed Cost
Profit

24573000
6082000

c/m ratio = Contribution/ Margin =30655000/92063000 = 0.332978504 Break-Even Point = Fixed Cost / c/m ratio = 24573000/0.332978504 = € 73797556.65

This analysis identifies the break-even volume, where revenues just equal total costs and Deutsche Brauerei recovers all its fixed cost at the break-even volume sale. Sales above Break-even Point will bring profits for the company.

Margin of Safety (volume) =

Total volume Sold – Breakeven volume

1173000 – 940275 = 232725 hectoliters

Margin of Safety (Revenue) = per unit sale price * Margin of safety volume

= 78.48508099 * 232725 = € 18265440.47

Variable Cost for selling 232725 hectoliters = per unit variable cost * Margin of Safety (volume)

= 52.35123615 * 232725 = € 12183441.43

Deutsche Breuerei has already covered up fixed cost expense with break even volume sale hence they will make profit above the sale of break even volume.

Net profit = Margin of Safety (Revenue) - Variable Cost for selling 232725 hectoliters

= € 18265440.47 - € 12183441.43 = € 6081999.041

CONCLUSION
Hence Deutsche Breuerei should stick to the

current

price level of beer and profit planning.
Break even chart of Venture shows that if they can reduce the Production Cost in coming years through new facility and equipment they can increase the profits in long term. As the company is showing a healthy sales of good they can invest on production facility to reduce the per unit production cost and expenses to increases the overall profits.



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