1.Dinklage Corp. has 4 million shares of common stock outstanding. The current share price is $83, and the book value per share is $8. The company also has two bond issues outstanding. The first bond issue has a face value of $90 million, a coupon rate of 6 percent, and sells for 98 percent of par. The second issue has a face value of $60 million, a coupon rate of 7 percent, and sells for 106 percent of par. The first issue matures in 21 years, the second in 3 years.

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1.Dinklage Corp. has 4 million shares of common stock outstanding. The current share price is $83, and the book value per share is $8. The company also has two bond issues outstanding. The first bond issue has a face value of $90 million, a coupon rate of 6 percent, and sells for 98 percent of par. The second issue has a face value of $60 million, a coupon rate of 7 percent, and sells for 106 percent of par. The first issue matures in 21 years, the second in 3 years.
Suppose the most recent dividend was $5.50 and the dividend growth rate is 5 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 35 percent. What is the company’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

2.

You are given the following information for Watson Power Co. Assume the company’s tax rate is 35 percent.

 

  Debt: 6,000 6.7 percent coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 103 percent of par; the bonds make semiannual payments.
   
  Common stock: 390,000 shares outstanding, selling for $57 per share; the beta is 1.13.
   
  Preferred stock: 17,000 shares of 4 percent preferred stock outstanding, currently selling for $77 per share.
   
  Market: 6 percent market risk premium and 4.7 percent risk-free rate.

 

What is the company’s WACC?

3.

We are evaluating a project that costs $732,000, has a six-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 55,000 units per year. Price per unit is $60, variable cost per unit is $30, and fixed costs are $640,000 per year. The tax rate is 35 percent, and we require a return of 12 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±10 percent.

 

Calculate the best-case and worst-case NPV figures. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places, e.g., 32.16.)

4.

Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.94 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,160,000 in annual sales, with costs of $839,000. The project requires an initial investment in net working capital of $380,000, and the fixed asset will have a market value of $250,000 at the end of the project.

 

If the tax rate is 34 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (MACRS schedule) (Enter your answers in dollars, not millions of dollars, e.g. 1,234,567. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places, e.g., 32.16.)

5.

Hickock, Inc., is proposing a rights offering. Presently there are 800,000 shares outstanding at $48 each. There will be 160,000 new shares offered at $40 each.

 

a. What is the new market value of the company?
b. How many rights are associated with one of the new shares? (Do not round intermediate calculations.)

 

c. What is the ex-rights price? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)
d. What is the value of a right? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

Case Study – Payment Time Case Study

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Case Study – Payment Time Case Study

Major consulting firms such as Accenture, Ernst & Young Consulting, and Deloitte & Touche Consulting employ statistical analysis to assess the effectiveness of the systems they design for their customers. In this case, a consulting firm has developed an electronic billing system for a Stockton, CA, trucking company. The system sends invoices electronically to each customer’s computer and allows customers to easily check and correct errors. It is hoped the new billing system will substantially reduce the amount of time it takes customers to make payments. Typical payment times—measured from the date on an invoice to the date payment is received—using the trucking company’s old billing system had been 39 days or more. This exceeded the industry standard payment time of 30 days.

The new billing system does not automatically compute the payment time for each invoice because there is no continuing need for this information. The management consulting firm believes the new system will reduce the mean bill payment time by more than 50 percent. The mean payment time using the old billing system was approximately equal to, but no less than, 39 days. Therefore, if µ denotes the new mean payment time, the consulting firm believes that µ will be less than 19.5 days. Therefore, to assess the system’s effectiveness (whether µ < 19.5 days), the consulting firm selects a random sample of 65 invoices from the 7,823 invoices processed during the first three months of the new system’s operation. Whereas this is the first time the consulting company has installed an electronic billing system in a trucking company, the firm has installed electronic billing systems in other types of companies.

Analysis of results from these other companies show, although the population mean payment time varies from company to company, the population standard deviation of payment times is the same for different companies and equals 4.2 days. The payment times for the 65 sample invoices are manually determined and are given in the Excel® spreadsheet named “The Payment Time Case”. If this sample can be used to establish that new billing system substantially reduces payment times, the consulting firm plans to market the system to other trucking firms.

I. Executive Summary: Briefly summarize the key points of your proposal, giving the loan committee the most essential information while convincing them

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I. Executive Summary: Briefly summarize the key points of your proposal, giving the loan committee the most essential information while convincing them

to read further. Remember this is the first, and sometimes the only, section a selection committee will read in an initial screening.

II. Investment Project: Use this section to describe the investment for which you are seeking funding, its costs, and time frame. Specifically, you should:

A. Describe the investment project. Be sure to provide sufficient detail to give the loan committee a firm sense of the parameters of the activity,

the need for it, and what financial metrics are relevant for determining success. In other words, what do you propose to do, where, what

marketplace need will it fill, and how will you measure success?

B. Specify the resources the project will require and where these resources will come from. In addition to noting the amount of the loan you are

requesting, you should also consider human resources, facilities, government approvals, intellectual property, access to natural resources, and

other resources that might be required to carry out the project.

C. Time frame. When will the project start, what is the anticipated economic life of the proposed expansion, and how will you decide if, when, or

how to exit? Justify your choices with appropriate financial metrics.

III. Justification: In this section, you should analyze the impact of the investment proposal on your business. In particular, you should cover:

A. Why is now a good time for this investment given the global context? Justify your response, citing specific external factors such as trade

regulations, foreign currency considerations, or trends in foreign direct investment that might affect business financial decisions.

B. Strategic fit. Use this section to discuss why the investment proposal makes sense for your company strategically. Specifically:

1. How does the investment align with the company’s organizational and financial priorities? Support your argument with evidence from

company reports and financial statement analysis designed to persuade the lender that the investment is a good strategic fit for your

company.

2. How does the project fit within the global microeconomic environment? Support your response with evidence. For example, would the

expansion tap unmet demand for the company’s key products or services or fill a new niche? How do you know?

3. How does the project build on the organization’s core competencies and comparative advantage? For example, does the company have

a strategic advantage in regards to intellectual property, regional expertise, suppliers, or organizational structure?

C. Financial impact. This section should discuss the project’s most likely financial implications and the consolidated financial projection with and

without the project. Be sure to:

1. Project the incremental, annual, and cumulative cash benefits and outflows associated with the proposed expansion for the next seven

to 10 years, using a spreadsheet or other relevant presentation vehicle to support your narrative. Be sure to justify your assumptions

and methodology based on sound microeconomic and financial principles. For example, what assumptions have you made about

demand, price, volume, capital purchase costs, incremental hiring, and so on?

2. Develop a consolidated financial projection of revenue, pretax income, and cash flow for the overall business, over that same number of

years, both with and without the proposed investment. Use a spreadsheet or other relevant presentation vehicle to support your

narrative, being sure to describe any relevant assumptions.

IV. Risks: Use this section to discuss any risks that might affect the success of the project and how you have planned for those contingencies. In particular:

A. Internal. What are the company’s most significant internal risks and opportunities related to the project? How might they affect your financial

estimates and how will you address them? Support your response with specific examples.

B. External. How will you address significant qualitative risks outside the company that might affect project success? Give specific examples. For

example, how might culture or politics in the target country affect the proposed investment’s financial success? Natural disasters? How have you

planned for these risks?

C. Microeconomic. Assess the microeconomic factors that might affect decisions about the proposed investment. Support your response with

specific examples. For example, how competitive is the market you will be entering? How elastic is the price for your product or service?

D. Alternate financial scenarios. Use this section to discuss the sensitivity of your financial projections to different scenarios. Be sure to address:

1. How would your projected financial performance change if sales fall 20% short of or are 20% higher than your base assumption? What

does your analysis of these two scenarios imply for the proposed investment? Justify your response.

2. What do the net present value, internal rate of return, and payback values from your base scenario and the sales variation scenarios

above imply for the proposed investment? Be sure to explain how the time value of money affects your calculations and analysis.

V. Financing: In this section, compare the proposed loan to alternative financing methods. Specifically:

A. Weigh the pros and cons of raising money using internal financing mechanisms versus seeking funding through global capital markets via loans,

commercial paper, bonds, or equity financing. Which might be viable alternatives should the loan not be approved? Support your answer with

appropriate research and evidence.

B. Assess the viability of a business combination as a mechanism for expanding into the new market. Is this a reasonable option for the company?

Why or why not? Support your answer with appropriate research and evidence.

VI. Track Record: Use this section to persuade the lender that you are credit-worthy. You must:

A. Convincingly argue that your organization is on solid financial footing, and thus at a low risk for default, supporting your argument recent with

appropriate financial statements, ratios, and other indicators of financial performance and health.

B. Convincingly argue for your organization’s trustworthiness, providing credible evidence of legal and ethical financial behavior. For example, this

might include recent audit results; credit history; absence of significant lawsuits, recalls, or regulatory judgments; or other evidence designed to

show that the company holds itself to the highest legal and ethical standards.

VII. Questions and Answers: End your proposal by constructing a persuasive, evidence-based question-and-answer section that addresses additional

financial questions you think the loan committee might ask, including legal and ethical concerns and why the loan would be attractive to the bank.

Capital Budgeting Report and Analysis

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Capital Budgeting Report and Analysis

___________________________________________________________________________________

General information

Format:                                Report and Analysis

Submission:        Submit report with CRA matrix to Assignment Minder. Note that you need to attach the Assignment Minder ‘assignment cover sheet’ to the front of the document wallet.

Submit Excel analysis file by either:

 

–          Submitting a USB or CD containing the Excel file with your report to Assignment Minder. If using this method, you must ensure that the USB or CD is securely attached inside the document wallet.

When saving the Excel file, please ensure that:

–          the file name includes your name and student number.

–          the file is a .xls or .xlsx file (mac files, such as .numbers are not accepted).

 

__________________________________________________________________________________

Outline

Primitive Energy owns several coal seam gas reserves in south-west Queensland. As a relatively minor player in the Queensland Liquefied Natural Gas (LNG) market, Primitive does not have the capacity to transfer and process the gas for sale to international buyers. Instead, Primitive simply extracts the gas and then sells it immediately (at the well-head, which is at the surface) to one of the major gas companies operating in the area. Recently, Primitive entered into a contract to sell gas from one of its reserves for the next 12 years. The contract stipulates that the price is set at $3.50 per gigajoule in the first year and that the price will increase by 2.50% per year to adjust for inflation.

With this contract in place, Primitive’s management are currently trying to determine the optimal well type for extracting the gas. The choice has been narrowed to two types:

A-Type Wells:     Drill 3 A-Type wells per year up to and including the beginning of the 9th year. Wells have a 4 year life. The project will operate for 12 years.

B-Type Wells:     Drill 3 B-Type wells per year up to and including the beginning of the 10th year. Wells have a 3 year life. The project will operate for 12 years.

Primitive’s finance department conducted a preliminary discounted cash flow analysis of the wells (found in Analysis of Well Types.xlsx). Based on the annual equivalent (AE) figure for each type of well they have recommended that the B-Type well be selected because it generates the highest AE.

A member of the management team, who studied EFB210 Finance 1, believes that the analysis is flawed (wrong) and should be re-done. They have asked that you complete the following task.

Task

Provide a detailed financial analysis that reports the net present value (NPV) that each well type generates over the full life of the project. In addition, you are to write a detailed but concise report. In completing this task, the manager has requested the following:

–            The financial analysis is to be completed in Excel. The file is to be easily adjustable for different scenarios and all inputs must be in the one sheet called ‘Assumptions’ with the analysis of each well conducted on separate sheets.

–            The report is to be short (600 words + 20% tolerance) and written in a manner that can be understood by a person with a basic understanding of financial analytical tools. It should have the following sections:

o    Summary

o    Methodology

o    Recommendations

o    Limitations

The ‘Methodology’ section must explain how the NPV was calculated over the project’s total life and must justify why this methodology is preferred over that used by the finance department.

–            In making recommendations, the analysis and report must determine at what level of variable costs do B-Type wells become equivalent to A-type wells. Note: in doing this hold the variable costs of the A-type well fixed.

 

In order to prepare your analysis and report, your can refer to the information provided in the Analysis of Well Types xlsx file provided.

Lecture1 Finance Review and Introduction to ERP

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Lecture1 Finance Review and Introduction to ERP

FIN419

Learning Objectives

Review Finance basic concepts

Introduction to SAP

Review an Introduction to SAP

Understand the definition of ERP and business processes

Understand the inter-related nature of an ERP system and the impact on finance

Explain the silo effect

Review SAP Business Suite and basic concepts (master data and transactional data)

Understand Accounting in SAP

Explain the goal of FI and CO

Understand the basics of SAP navigation

Finance Review Forms of Business Organizations

The corporate form of business is the standard method for solving the problems encountered in raising large amounts of cash.

Three major forms in the United States

Sole proprietorship, a business own by one person

Partnership, a business own by two or more individuals or entities

General, with unlimited debt liability

Limited, with some partners with limited debt liability

Corporation, a legal “person” distinct from owners and with limited liability

General, subject to double taxation

S Corporation is taxed through its shareholders avoiding double taxation

Limited liability company allows to operate and tax like a partnership but retain limited liability for its owners

Finance Review A Comparison

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Corporation

Partnership

Liquidity

Shares can be easily exchanged

Subject to substantial restrictions

Voting Rights

Usually each share gets one vote

General Partner is in charge; limited partners may have some voting rights

Taxation

Double

Partners pay taxes on distributions

Reinvestment and dividend payout

Broad latitude

All net cash flow is distributed to partners

Liability

Limited liability

General partners may have unlimited liability; limited partners enjoy limited liability

Continuity

Perpetual life

Limited life

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Corporations account for the largest volume of business (in dollar terms) in the U.S. Advantages include limited liability, unlimited life, separation of ownership and management (ability to own shares in several companies without having to work for all of them), liquidity, and ease of raising capital. Disadvantages include separation of ownership and management (agency costs) and double taxation. Recent tax laws reduce the level of double taxation, but it has not been eliminated.

Although the corporate form of organization has the advantage of limited liability, it has the disadvantage of double taxation. A small business of 75 or fewer stockholders is allowed by the IRS to form an S Corporation. The S Corp. organizational form provides limited liability but allows pretax corporate profits to be distributed on a pro rata basis to individual shareholders, who are only obligated to pay personal income taxes on the income. A similar form of organization is the limited liability corporation, or LLC. LLC’s are a hybrid form of organization that falls between partnerships and corporations. Investors in LLC’s have the protection of limited liability, but they are taxed like partnerships. LLC’s first appeared in Wyoming in 1977 and have skyrocketed since. They are especially beneficial for small- and medium-sized businesses such as law firms or medical practices.

A Corporation by Another Name…Corporations exist around the world under a variety of names. Table 1.2 lists several well-known companies, along with the type of company in the original language.

Finance Review The Goal of Financial Management

The goal is to increase the value of the firm by maximizing investments while minimizing financing.

V = Σ CFt / (1+ i)t

Maximize the current value per share of the exiting stock

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Learning Objective: Apply goals of financial management in making decisions

Possible Goals

Profit Maximization – this is an imprecise goal. Do we want to maximize long-run or short-run profits? Do we want to maximize accounting profits or some measure of cash flow? Because of the different possible interpretations, this should not be the main goal of the firm.

Other possible goals that students might suggest include minimizing costs or maximizing market share. Both have potential problems. We can minimize costs by not purchasing new equipment today, but that may damage the long-run viability of the firm. Many dot.com companies got into trouble in the late 1990’s because their goal was to maximize market share. They raised substantial amounts of capital in IPO’s and then used the money on advertising to increase the number of “hits” on their site. However, many firms failed to translate those “hits” into enough revenue to meet expenses, and they quickly ran out of capital. The stockholders of these firms were not happy. Stock prices fell dramatically, and it became difficult for these firms to raise funds. In fact, many of these companies have gone out of business. The Goal of Financial Management From a stockholder (owner) perspective, the goal of buying the stock is to gain financially. Thus, the goal of financial management in a corporation is to maximize the current value per share of the existing stock. Is it ethical to sell a product that is known to be addictive and dangerous to the health of the user even when used as intended? Is the fact that the product is legal relevant? Do recent court decisions against the companies matter? What about the way companies choose to market their product? Are these issues relevant to financial managers?

How do we go about maximizing shareholder wealth?

Finance Review Agency Cost and Agency Problem

Agency relationship is the relationship that exist between stockholders and management

Principal hires an agent to represent its interests

Stockholders (principals) hire managers (agents) to run the company

Agency cost is the conflict of interest between stockholders and management

Stockholders goal is to increase the return on its investments (firm’s higher value)

Management may be more concern about its compensation or job security

Agency problem

Conflict of interest between principal and agent

Finance Review Do Managers Act in the Stockholders’ Interest?

Alignment between management and stockholders goals?

Managerial compensation

Incentives can be used to align management and stockholder interests

Incentives need to be carefully structured  to insure that they achieve their goal

Can management be removed if goals are different?

Corporate control

Proxy fights is the mechanism on which unhappy stockholders can remove management

Poorly manage firms are more attractive to takeovers

Finance Review Regulation

The Securities Act of 1933 and the Securities Exchange Act of 1934

Issuance of Securities (1933)

Creation of SEC and reporting requirements (1934)

Sarbanes-Oxley (“SOx”)

Increased reporting requirements and responsibility of corporate directors

Financial Statements and Cash Flow

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Historically, most regulation has focused on the disclosure of relevant information, thereby putting all investors on an equal playing field.

The Securities Act of 1933 and the Securities Exchange Act of 1934

 

These Acts provide the basic regulatory framework for the public trading of securities in the United States. The 1933 Act focuses on the issuance of securities, while the 1934 Act established the SEC and addressed other regulatory issues, such as insider trading and corporate reporting.

Sarbanes-Oxley

 

Following the scandals at Enron, WorldCom, and Tyco, among others, “Sarbox” was enacted in 2002. This Act significantly increased the auditing and reporting requirements that public firms face, and it also explicitly placed the responsibility for any fraud on the corporate directors.

 

As with any law, however, there is a cost. In response to the added burden, many (particularly small) firms have delisted and others have foregone going public. For others, the cost of compliance has significantly increased, thereby reducing profits.

SAP Introduction

SAP stands for Systems, Applications, and Products in Data processing

Very successful Enterprise Resource Planning (ERP) solution which is used to highly integrate business processes.

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SAP Introduction Name of Company and Software

Name of the Company

SAP AG (Walldorf)

SAP America (New Town Square)

Name of the Software

SAP R/2

SAP R/3

SAP ERP

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SAP Introduction Company Statistics

SAP AG

Founded in Walldorf, Germany in 1972

World’s Largest Business Software Company

World’s Third-largest Independent Software Provider

Company Statistics

Over 40,000 employees in more then 50 countries

1500 Business Partners

36,200 customers in more then 120 countries

12 million users

100,600 installations

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SAP is the world’s largest inter-enterprise software company and the world’s third-largest independent software provider overall. We have a rich history of innovation and growth that has made us a true industry leader.

SAP Americas

12 Million Users. 100,600 Installations. 1,500 Partners.

SAP Americas is a subsidiary of SAP AG, the world’s largest inter-enterprise software company and the third-largest software supplier overall. SAP Americas’s corporate headquarters is located in Newtown Square, PA, a suburb of Philadelphia. Our officers and executives lead a team of professionals dedicated to delivering high-level customer support and services.

Founded in 1972 as Systems Applications and Products in Data Processing, SAP has a rich history of innovation and growth that has made us the recognized leader in providing collaborative business solutions for all types of industries — in every major market. The company, headquartered in Walldorf, Germany, employs more than 37,700 people in more than 50 countries, and serves more than 34,600 customers worldwide.

Experience, Knowledge, and Technology for Maximizing Business

SAP has leveraged our extensive experience to deliver mySAP Business Suite, the definitive family of business solutions for today’s economy. These solutions are open and flexible, supporting databases, applications, operating systems, and hardware from almost every major vendor. What’s more, mySAP Business Suite allows employees, customers, and business partners to work together successfully — anywhere, anytime.

By deploying the best technology, services, and development resources, SAP has delivered a business platform that unlocks valuable information resources, improves supply chain efficiencies, and builds strong customer relationships. And through the Global Solution Center, SAP Americas identifies customer needs and develops solutions to meet these needs.

SAP is listed on several exchanges, including the Frankfurt Stock Exchange and the New York Stock Exchange, under the symbol “SAP.”

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SAP Introduction From SAP R/3 to HANA

Database layer

From Oracle/ Ms SQL

To SAP HANA

Presentation layer

From SAP GUI

To SAP Fiori

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Central database stores all data and application programs.

The application gives access to the database to read and write data.

The presentation allows for input/output of data to the users

3-tier client server system

Web server

Internet transaction server

Brings it to a single database across the world.

What is Client-server Computing?

The short answer: Client/server is a computational architecture that involves client processes requesting service from server processes. The long answer: Client/server computing is the logical extension of modular programming. Modular programming has as its fundamental assumption that separation of a large piece of software into its constituent parts (“modules”) creates the possibility for easier development and better maintainability. Client/server computing takes this a step farther by recognizing that those modules need not all be executed within the same memory space. With this architecture, the calling module becomes the “client” (that which requests a service), and the called module becomes the “server” (that which provides the service). The logical extension of this is to have clients and servers running on the appropriate hardware and software platforms for their functions. For example, database management system servers running on platforms specially designed and configured to perform queries, or file servers running on platforms with special elements for managing files. It is this latter perspective that has created the widely-believed myth that client/server has something to do with PCs or Unix machines.

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SAP Introduction Software Applications

Industry Solutions (Business Suite & Business All in One)

SAP ERP

SAP CRM

SAP SCM

SAP SRM

SAP PLM

Digital (Business Suite & Business All in One)

SAP S/4 on HANA

Success Factors & Fieldglass

Ariba, Concur

Hybris

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SAP Introduction SAP 3-Tier Architecture

3-tier client-server architecture

Database layer

One single data repository

Application layer

One or more, help distribute work load

Client layer (Presentation layer )

Graphical User Interface or Web Interface (GUI)

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Central database stores all data and application programs.

The application gives access to the database to read and write data.

The presentation allows for input/output of data to the users

3-tier client server system

Web server

Internet transaction server

Brings it to a single database across the world.

What is Client-server Computing?

The short answer: Client/server is a computational architecture that involves client processes requesting service from server processes. The long answer: Client/server computing is the logical extension of modular programming. Modular programming has as its fundamental assumption that separation of a large piece of software into its constituent parts (“modules”) creates the possibility for easier development and better maintainability. Client/server computing takes this a step farther by recognizing that those modules need not all be executed within the same memory space. With this architecture, the calling module becomes the “client” (that which requests a service), and the called module becomes the “server” (that which provides the service). The logical extension of this is to have clients and servers running on the appropriate hardware and software platforms for their functions. For example, database management system servers running on platforms specially designed and configured to perform queries, or file servers running on platforms with special elements for managing files. It is this latter perspective that has created the widely-believed myth that client/server has something to do with PCs or Unix machines.

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Enterprise Resource Planning ERP and Business Processes

Enterprise Resource Planning

System that integrate the management of core business processes end to end within an Enterprise

Benefits

Integration / Improve profitability, productivity and reduce TCO

Standardization / Governance/ Single source of truth / Improve productivity

Audit trail / Governance and risk reduction

Immediate availability of data (reports) / Financial management

Business Processes

Sequence of tasks or activities that produce desired outcomes

Key processes

Operations

Finance and Accounting

Human Resources

Sales and Distribution

Procurement

Processes interrelated with other processes

Processes may have sub-processes

Regardless of their type or size, successful organizations and industries use processes and enterprise systems to complete the work needed to achieve their goals.

A business process, illustrated in Figure 1-2, is a set of tasks or activities that produce desired outcomes.

Because different functional areas or departments carry out the various process steps, effective communication and collaboration among the departments is essential to the smooth execution of these processes.

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Enterprise Resource Planning Integrated Processes

Order to Cash

Procurement to Pay

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Sales Order

Capacity Materials

Load schedule

Procurement

Receiving

Manufacturing

Shipping

Billing

Incoming Payment

Sourcing

Purchase Order

Receiving

Invoice receipt

Outgoing payment

Enterprise Resource Planning Integrated Sub-processes

Month End-Close

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Post recurring entries

Complete asset transactions

Run depreciation

Complete interco transactions

Complete monthly accts maintenance

Post accruals

FASB 52

Consolidation and report

Close manufacturing accounting

Close AR and AP

Enterprise Resource Planning Business Processes Impact on Finance

ERP covers end to end processes

All process are cross functional requiring inter-dependent tasks between the organization’s groups.

Share responsibilities among functional areas

Each process has a trigger and an outcome

The final outcome of all processes is always financial

Finance

Procurement

Process

Fulfillment Process

Production Process

Inventory process

Enterprise Resource Planning Silo Effect and its Implications

Silo Effect

The tendency to focusing on functional objectives without regard to process objectives

Focus optimizing functional goals vs. process goals

Implications

Impossible to manage processes that are geographically dispersed without utilizing modern information systems

Lack of communication/coordination among functions

Reduction of productivity

Reduction of profitability

Lack of standardization

Lack of real time reporting

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Most companies are organized according to functional departments, which group together related activities and assets under specialized management controls. Although this approach enables companies to focus resources on specific activities, it also creates communication difficulties and delays between the highly specialized groups. Business processes cut across the vertical barriers (silos) that characterize the functional structure. For this reason they require cross-functional communication and collaborative execution. Enterprise systems allow companies to effectively manage business processes across functional areas and institutional boundaries. They perform this task by removing barriers to sharing and accessing information, thereby providing a holistic platform to execute integrated business processes consistently and efficiently. One of the key benefits to managing business processes with an integrated enterprise system is that process data are collected throughout the execution of each step of the process. Managers can then use these data to monitor and improve the organization’s processes. Enterprise systems enable companies to achieve operational efficiency through transparency across functional areas, and they provide consistent information for managerial decision-making. All business processes have an impact on the organization’s financial status, and the real-time impact of process execution can be monitored and analyzed through the use of an integrated enterprise system.

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SAP Business Suite SAP ERP Solution Map

SAP Business Suite Solutions and SAP ERP (Core)

HR

PP

SD

FSCM

CO

MM

QM

PM

FI

PS

BW

APO

PLM

GTS

CRM

SCM

SNC

ME

SRM

XI

Business Warehouse

Advance Planning

Product Lifecycle

Global Trade

Customer Rel Mng

Supply Collab

Mfg Execution

Supply Chain

Supplier Rel, Mng

Exchange Infrastructure

HR

PP

SD

FSCM

CO

MM

QM

PM

FI

PS

Finance and Controlling

Human Resources and Payroll

Purchasing &

Inventory

Quality

S&D

Plant Mnt

Production Planning

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SAP Basic Concepts Client and Data Types

Is the highest organizational level in the system.

Each client represents a group of companies or a firm regardless of its size.

Organizational (Configuration)

Used to represent structure in an enterprise

Master data

Reusable data relevant to multiple business processes

Transactional (Application)

Data that reflects outcomes of business processes

Application Server

Client 020

Client 010

Configuration

Master data

Configuration

Master data

Application data (transactions)

Application data (transactions)

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SAP Basic Concepts Master Data

Master Data

Set of reusable data that will influence the flow of transactional data within the system. It is the most important element of a system design and operational integrity.

Information is organized into views which are assigned to organizational elements.

Data at the client level can be used by all company codes.

Master Data is created centrally and can be used by all applications and all authorized users

Chart of Accounts

Customers

Vendors

Materials

Bill of Materials

Cost Centers

Profit Centers

HR Master record

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SAP Basic Concepts Tables Relationship (Master Data)

Source: Google.com | Search for “sap tables pdf”

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SAP Basic Concepts Transactional Data

Transaction Data

Data that represents an event within the system and reflects the consequences of executing process steps

Whenever possible, master data is copied during transaction processing, thus avoiding the re-entry of data.

When a business process transaction is executed in the system and saved, a document is created.

Journal entry (Chart of Accounts)

Billing (Customers)

Invoice (Vendors)

Good receipt (Materials)

Manufacturing (Bill of Materials)

Journal entry (Cost Centers)

Journal entry (Profit Centers)

Payroll (HR Master record)

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SAP Basic Concepts Tables Relationship (Transactional Data)

Source: Google.com | Search for “sap tables pdf”

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Accounting in SAP SAP ERP Financials Features

Standardized business processes

Single version of truth

Improved transparency

Accurate prediction of future costs and profits

Tighter control of overhead

Analysis of profitability based on criteria that is important to you

Improved control of project initiatives

Accurate and timely reporting

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Standardized business processes across all of your subsidiaries, divisions, and departments, while factoring in individual requirement help to improve productivity and interoperability of your employees.

Every one in the company accesses the same data, same transactional details, and same reports providing enhanced information sharing across departmental boundaries.

You can drill down from summarized consolidated statements to the individual accounting entries and associated information. You also have detailed audit trail accountability.

Detailed business information from sales, manufacturing, procurement, and other systems are integrated and can provide information useful in predicting costs and profits.

FI support planning, budgeting, analyzing and controlling of direct and indirect costs at the departmental level. The support of activity based costing provides even greater control over planning, budgeting, and analyzing the costs of business activities in your company.

Fully customizable framework for profitability analysis allows you to calculate and analyze contribution margin by any criteria relevant to your business.

You can analyze your complex projects for recording overhead costs, capitalizing investments, or manufacturing products per customer specifications.

With numerous standard reports and reporting tools you can quickly design custom reports that generate consistent, timely, and accurate reporting across all levels of your company.

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Accounting in SAP Financial (FI) and Managerial Accounting (CO)

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What is Managerial Accounting?

There are seven key differences between financial accounting and managerial accounting:

 Users: Financial accounting reports are prepared for external parties, whereas managerial accounting reports are prepared for internal users.

 Emphasis on the future: Financial accounting summarizes past transactions. Managerial accounting has a strong future orientation.

 Relevance of data: Financial accounting data should be objective and verifiable. Managerial accountants focus on providing relevant data even if these data are not completely objective and verifiable.

 Less emphasis on precision: Financial accounting focuses on precision when reporting to external parties. Managerial accounting aids decision makers by providing good estimates as soon as possible rather than waiting for precise data later.

 Segments of an organization: Financial accounting is concerned with companywide reports. Managerial accounting focuses on the segment reports. Examples of segments include: product lines, sales territories, divisions, departments, etc..

 Managerial accounting–no externally imposed rules: Financial accounting conforms to GAAP and IFRS. Managerial accounting is not bound by GAAP and IFRS.

 Managerial accounting–not mandatory: Financial accounting is mandatory because various outside parties require periodic financial statements. Managerial accounting is not mandatory.

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Accounting in SAP Finance (FI) and Controlling (CO)

HR

PP

SD

FSCM

CO

MM

QM

PM

FI

PS

Finance and Controlling

Human Resources and Payroll

Purchasing &

Inventory

Quality

S&D

Plant Mnt

Production Planning

Financial accounting (FI) is meant for external reporting.

FI is structured and mandated by legal requirements.

Management Accounting (CO) purpose is for internal management information regarding cost and revenue

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Finance (FI) and Controlling (CO) FICO Modules and Corporate Finance

FI-AP

FI-GL

FI-AR

TR

AM

PCA

CCA

IOA

PC

PA

Controller

Treasurer

Cash Manger

Credit Manager

Financial planning Manager

Tax Manager

Cost Accounting Manager

Financial Accounting Manager

FI

CO

TR

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Finance (FI) and Controlling (CO) Relationship/Dependency

CO is the foundation for managerial accounting and it is closely intertwined with FI

CO controls the Sales, COGS and expense to determination the profitability element on the balance sheet which is controlled by FI

CO

Profit Centers

FI

Assets

Liabilities

Equity

Sales

COGS

Cost centers

Expense

Sales

COGS

Expense

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SAP Finance (FI) Goal

Financial accounting is designed to collect the transactional data that provides a foundation for preparing the standard portfolio of reports.

In general, these reports are primarily, but not exclusively, directed at external parties.

Standard reports include:

Balance Sheet

Income Statement

Statement of Cash Flows

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Assets

Fixed

Liabilities+ Equity

Equity

Current

Current

Long term

SAP Finance (FI) Sub-modules

General Ledger (GL) use to record the financial impacts of business process steps. It constrains the data for financial reporting.

Accounts Receivables (AR) is associated with the fulfillment process and is used to manage money owned by customers for good and services sold

Accounts Payables (AP) is associated with the procurement process and is used to managed money owned by vendors for the purchase of materials and services

Asset Management (AM) is used to record data related to the purchase, use and disposal of assets.

SAP Controlling (CO) Goal

Managerial accounting – termed controlling – is designed to collect the transactional data that provides a foundation for preparing internal reports that support decision-making within the enterprise.

These reports are exclusively for use within the enterprise and include:

Cost center performance

Profit center performance

Budget analysis

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Sales Salaries Rent Dep Others 80 50 35 15

SAP Controlling (CO) Sub-modules

Cost center Accounting (CCA) use to control the cost incurred in the organization by department

Profit Center Accounting(PCA) use to control the profit and losses of the organization by business

Internal Order Accounting (IOA) use to control certain types of cost that requires monitoring through out the business process

Product Costing (PC) use to plan for the cost of materials

Profitability Analysis (COPA) use to evaluate profitability by market segments and classify them by multiple dimensions (sales org, business areas, plant, company code, etc)

SAP Navigation SAP Logon Screen

Click on the icon in your desktop.

If not, Find and double-click on the icon depicted on the left side of this page that you can find on your desktop. If it is not there, choose Start ► All Programs ► SAP Front End ► SAP Logo

Select system ID: BK8

SAP Navigation User Logon Screen

Enter the following information:

Client: 126

User ID: GBI-XXX (001 to 025)

Password: TampaPAS

Enter a new password

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Enter Client, Server and Password

Client is a numeric field and this number represents a whole business entity.

Users are client specific which means that having a user identification in one client will only allow access to that particular client.

The system settings are stored in a file on your machine called the saplogin.ini file. This file is normally preconfigured centrally and then made available to all the users. Once you have been provided with the SAP Logon, you need a username and password to logon to the SAP system. The username and password is unique for each user and you do have the option to change your password using the New password button available on the screen.

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SAP Navigation Application Tool-bar

Enter icon

Command (T-code)

Save icon

Back button

Exit button

Cancel button

Print button

Find/Expand icons

Scroll icons

Create a new session

Create a desktop shortcut

Help icon

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1

2

3

4

5

6

7

8

9

10

11

12

Learning objective: basic navigation

You have an option to start an application by directly entering its transaction code in the command field which is hidden as default.

The push buttons in the standard toolbar are shown on every SAP screen. The push buttons that cannot be used in a specific application are deactivated. You can view the flag with the name or function of the push button if you place the cursor on it for a few seconds.

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SAP Navigation User Settings

User specific settings

Use tcode SU3 to define your defaults settings

Language: EN (English)

Decimal notation: 1,234,567.89

Date format: MM/DD/YYYY

Save your entries

SAP Navigation SAP Easy Access Structure

The left side of the screen contains a tree hierarchy of the menus available to you in the SAP system.

The menu bar

Logistics

Materials Management

Purchasing (PU)

Inventory Management (IM)

Sales and Distribution (SD)

Production (PP)

Quality (QA)

Accounting

Financial Accounting (FI)

Financial Supply Chain (FSC)

Controlling (CO)

Human Resources (HR)

The transaction code (T-code)

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1

2

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SAP Navigation Favorites Folder

If you frequently use a transaction, you can use drag&drop to add it to your favorites (or choose Favorites ► Add).

You can then double-click it to run it without having to navigate through the SAP Easy Access menu. Furthermore you can add folders, reports, files and web addresses as favorites.

SAP Navigation Transaction code

Every business transaction (not every screen) has a corresponding transaction code in SAP.

To display transaction codes choose Extras ► Settings and select Display technical names

You can use various control parameters to influence what happens to the session when you call a transaction.

/n. Exits current transaction

/o. Opens a new session

SAP Navigation Screen Features

Manu Bar

Title Bar

Customizing display bottoms

Entry

Required field

Default entry field

Optional entry field

Tool bars

Message bar

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1

2

3

4

4

5

6

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SAP Navigation System Messages

E –Error

An invalid entry has been made. The cursor moves to the field where the error has occurred.

W-Warning,

Indicates a possible error. The user can continue without changing.

I –Information

Confirms a transaction was posted.

A –Abnormal End,

Indicating serious system error.

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SAP Navigation System Help

F1 Key. It give you help about fields and technical information by providing explanations for fields, menus, functions and messages

F4 Key. It gives you information and possible entries

Further help can be found in the help menu. Choose Application Help for context-sensitive help on the transaction you are currently using. Choose SAP Library to open the online SAP Library. You can also access it on the Internet at help.sap.com

SAP Navigation Logging Off

For security purposes it is important to log off SAP at the end of the day or whenever you leave your PC.

Your username is linked with every transaction you perform to provide an audit trail.

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When reviewing transactions or running reports the username of the person responsible for entering or maintaining system information is displayed.

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Financial AccountingManagerial Accounting

1. UsersExternal persons whoManagers who plan for

make financial decisionsand control an organization

2. Time focusHistorical perspectiveFuture emphasis

3. VerifiabilityEmphasis onEmphasis on

versus relevanceobjectivity and verifiabilityrelevance

4. Precision versusEmphasis on Emphasis on

timelinessprecisiontimeliness

5. SubjectPrimary focus is onFocus on

companywide reportssegment reports

6. RulesMust follow GAAP / IFRSNot bound by GAAP / IFRS

and prescribed formatsor any prescribed format

7. RequirementMandatory forNot

external reportsMandatory

Sheet1

Financial Accounting Managerial Accounting
1. Users External persons who Managers who plan for
make financial decisions and control an organization
2. Time focus Historical perspective Future emphasis
3. Verifiability Emphasis on Emphasis on
versus relevance objectivity and verifiability relevance
4. Precision versus Emphasis on Emphasis on
timeliness precision timeliness
5. Subject Primary focus is on Focus on
companywide reports segment reports
6. Rules Must follow GAAP / IFRS Not bound by GAAP / IFRS
and prescribed formats or any prescribed format
7. Requirement Mandatory for Not
external reports Mandatory
&A
Page &P

What Is Case Study Analysis?

/0 Comments/in /by
  • What Is Case Study Analysis?
  • Analyzing a Case Study
  • Writing a Case Study Analysis
  • The Role of Financial Analysis in Case Study Analysis
    • Profit Ratios
    • Liquidity Ratios
    • Activity Ratios
    • Leverage Ratios
    • Shareholder-Return Ratios
    • Cash Flow
  • Conclusion