Financial Management

QSB 3414

Yam Yih Hwan 0305861Reuel Chan Ernyi 0315150Wong Choong Ling 0314504

Janice Kong Yin Ying 0308798Cheah Xing Nan 0314326

Lenggang Travel Sdn. Bhd.

O Organizes holidays abroad for Malaysian clients. O Charters planes and books hotels. O LTSB’s holidays are of two types: ‘beach’

holidays and ‘adventure’ holidaysO Charges a flat rate for all holidays, only

distinguishing between the beach holidays and the adventure ones.

O Full payment must be made with the booking.

O A 20–25% return on equity may or may not be considered adequate for the level of risk involved.

O The profit/contribution margin is relatively small.

O There is relatively high sensitivity to changes in demand, selling price and costs.

O During much of the year there are major cash surpluses. These need to be carefully managed to gain the maximum benefit from interest receipts, without placing the funds at serious risk.

Cash Budget

Forecasted YearCash Payment

Forecasted YearCash Receipt

Forecasted YearCash Balance

CommentsCash Budget

Cash Budget (con’t)O Negative cash flow can send LTSB into a

quick spiral of financial crisisO LTSB had spent more than it brings into the

business.

Comments

Ways To Be Taken To Ensure That A Positive Cash Flow

O Analyze and reduce its expenses cost as much as possible

O Create a strategy to increase revenueO Consider invest on short-term

investmentO Provide a cash budget annually

With a proper cash budget schedule, LTSB will know how much revenue the business is bringing in and also its spending. From there, LTSB can make decisions whether to take actions on their cash flow each month.

Income Statement

Forecasted Year

CommentsIncome StatementO Profitability of the companyO Only show LTSB’s revenue, expenses, profits

and loss.O Projected net profit = Sales – All Expenses

O Expecting net profit of RM 211,500.00 for the projected year

Balance Sheet

Forecasted Year

CommentsBalance SheetO This balance sheet = LTSB financial position at

a end of period (31 December)O Ratios is used to provide a further

understanding.O Ratio compare between both year

Ratios

Current RatioCurrent Asset/Current LiabilitiesO Current year,RM0.10 is current asset

for every RM1.00 in current liabilities.O Forecasted year, RM0.48 in current

asset for every RM1.00 in current liabilities

↑Current Ratio, ↑Liquidity

Debt RatioTotal Debt/Total AssetO Current year, 73% assets

finance by debt, 27% by equityO Forecasted year, 75% assets

finance by debt, 25& by equity

Debt to Equity RatioTotal Debt/Total EquityO Current year, debt to equity ratio at 2.64O Forecasted year, debt to equity ratio at

2.96

↑Debt to Equity Ratio, company financed more from creditor than investor

Revenue Recognition

Accrual basisO Recognizes revenue after holidays taken by

customer. O Do not recognize the payments received as

revenue until the holidays taken, known as “Trade payables”

HoweverO Due to Matching Principle the revenue

can only be recognized when there are expenses arises

O Lead to contradicting situation

Revenue Recognition (con’t)

Contradicting SituationO Sales were achieved, no revenues

recognized in that certain period because the holidays not yet taken.

O But in actual fact, LTSB is still able to maintain positive cash flows during that period

Revenue Recognition (con’t)

THANK YOU