FINANCIAL BALANCE
INDEX
Financial elements …..........................................................................2 Balance sheet …...................................................................................3 Liabilities financial analysis.....................................................................4 Assets financial analysis.…....................................................................5 Working capital.......................................................................................5 Balance analysis.....................................................................................6 Income statement...................................................................................6 Financial investment...............................................................................7 Investment process steps......................................................................9 Investment suitability..............................................................................9 Investment types...................................................................................11 Selection methods................................................................................12 Ratios...................................................................................................13 Ratios and working capital applied to our balance...............................15 Liquidity ratios......................................................................................16 Solvency ratios.....................................................................................17 Advantages and disadvantages of external financing..........................18 Most common financial options for a bussiness..................................20 Best financial for our hotel....................................................................21 Financial sources.................................................................................21 Financial for 20.000.000€ for chain hotel.............................................22
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FINANCIAL BALANCE ELEMENTS
- As s e ts . These are items of economic benefit that are expected to yield benefits in future periods. Some examples are accounts receivable,inventory, and fixed assets. - Liabilitie s . These are legally binding obligations payable to another entity or individual. Few examples are accounts payable, taxes payable, and wages payable. - Equity. This is the amount invested in a business by its owners, plus any remaining retained earnings.
CASH
BANK LOANS
- R e ve nue . This is an increase in assets or decrease in liabilities caused by the provision of services or products to customers. It is a quantification of the gross activity generated by a business. Some examples are product sales and service sales. - Expe ns e s . This is the reduction in value of an asset as it is used to generate revenue. Few examples are interest expense, compensation expense, and utilities expense.
RESERVES
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BALANCE SHEET
NON-CURRENT LIABILITIES Other non-current financial liabilities
15192
Preference shares and bons and other negotiable securities
313967
Deferred tax liabilities
147713
Provisions
34428
Capital grants and other deferred inconme
16613
TOTAL NON-CURRENT LIABILITIES
527913
CURRENT LIABILITIES Current tax liabilities
21077
Other current liabilities
66320
Bank Loans
1003565
Liabilities associated with non-current assets held-for-sale
14768
Trade creditors and other payables
310800
Bonds and other negotiable securities
3746
TOTAL CURRENT LIABILITIES TOTAL GENERAL LIABILITIES AND NET EQUITY
1420276 3216173
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LIABILITIES FINANCIAL ANALYSIS Total liabilities quantity is 1295686€ and it can be divided in current liabilities and non-current liabilities. Our current liability is 527913€ and our non-current liability is 767773€. If the 100% of our liabilities is 1295686€, the current liability percent is 40% and the non-current liability percent is 60%
LIABILITIES 1295686€ 100%
CURRENT LIABILITIES 40%
NONCURRENT LIABILITIES 60%
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ASSETS FINANCIAL ANALYSIS Total assets quantity is 3216173€ and it can be divided in current assets and non-current assets. Our current assets are 824372€ and our non-current liability is 2391802€. If the 100% of our assets is 3216173€, the current assets percent is 26% and the non-current assets percent is 74% Investment measured using the equity, which is 192737€, a 8% of the total assets Other non-current financial assets, 223949€ is a 9 % of the total non-current assets. Other intangible assets, 102117€ becomes a 4% of the non-current assets Investment property which is 132960€ is a 5% of the total non – current assets Godwill is 35532€ which becomes 1% of the non-current assets Property plant and equipment is 1555134€ and it is 65% of the total non-current assets. Deferred taxes are 149373, which is a 6% of the non-current assets
8%
9%
4% 5%
1 %
65%
6%
WORKING CAPITAL WORKING CAPITAL CURRENT ASSETS / CURRENT LIABILITIES CURRENT ASSETS – CURRENT LIABILITIES As the result is high enough we are credit worthly
CURRENT ASSETS / CURRENT LIABILITIES 824372 / 767773 = 1,07 CURRENT ASSETS - CURRENT LIABILITIES 824372 - 767773 = 56599
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BALANCE ANALYSIS
Our company has a total investment of 3216173€ and the highest, in order to the adquisition of Property, machinery and equipment is 2391802€. Our balance is made because the active is the same that the liabilities and the patrimony, 3216173= 3216173 Thanks to the result of our balance, we can make decissions. The working capital is not enough, and we would need to get into short terms debts. In next point of this Journal we will show the ratios, which have also been calculated to help you understanding the balance. Hotel chain has a 95% of an small part of the company called Melia hotel international, and the other 5% Belongs to other investors. We cannot control that percentage, and we do have to make meetings to get in touch and to decide what to do.
CONSOLIDATED INCOME STATEMENT The operating incomes is 1464284, which gets into the EBITDAR if we do substraction of the production costs, which are supplies (-184648), staff costs (-429335) and other expenses (-496260). The result is 354042, the EBITDAR as we have said before. If we deduct the leases ( -12507) from this one, we get the EBITDA, 228334€. If we susbtract the amortization which is -95927, and it becomes in EBIT. THE EBIT is 132407, and if we get out the interest, exange differences (-24056), borrowings (-107101), and other financial incomes (16972), it makes up the Net financial incomes, which is the quantity of -66073. The net income before the taxes is 57145, and if we check it after the income taxes it comes to 31864€
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FINANCIAL INVESTMENT
An investment is an item that is purchased with the intention that It generates an income. Economically talking it is the purchase of goods That are not consumed today but are used in the future to create wealth.
SOURCES OF FOUNDING ANGEL EQUITY
If you must sell an ownership stake to get your company off the ground, start by finding a respected industry executive who is willing to invest a reasonable amount and give your venture credibility with other investors. The advice and networking– without all the heavy-handed demands of a VC–come in handy, too.
SMART LEASES
Leasing fixed assets conserves cash for working capital which is generally tougher to finance, especially for an unproven business. Warning: Don’t put so much money down that you end up spending the same amount of cash as you would have had you bought the asset with a down payment. The cost of a lease may be slightly higher than bank financing but the cost of the down payment you did not have to make is likely to be less painful than the dilution you suffer from giving away equity.
BANK LOANS
Banks are like the supermarket of debt financing. They provide short-, mid- or long-term financing, and they finance all asset needs, including working capital, equipment and real estate. This assumes, of course, that you can generate enough cash flow to cover the interest payments and return the principal.
SBA 7 (a) LOANS
Of all the federally sponsored debt-financing programs, this is the most popular, and perhaps the best. It loosens the flow of credit by guaranteeing the lender against a portion of any loss incurred on the loan. Not to say that banks aren’t careful when making 7(a) loans: They are required to keep the non-guaranteed portion on their books
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FINANCIAL INVESTMENT
LOCAL AND STATE ECONOMIC DEVELOPMENT ORGANIZATIONS
Economicdevelopment organizations can charge tantalizingly low interest rates when lending alongside a bank.
CUSTOMERS
Advance payments from customers–assuming the terms aren’t too onerous–can give you the cash you need, at a relatively low cost, to keep your business growing. Advances also demonstrate a level of commitment by that customer to your operation.
VENDORS
Dick Schulze built Best Buy with financing from large consumer electronics firms–in other words, his suppliers. This way, your financiers do not control your growth; you do. Just be sure not to enslave yourself to a handful of powerful suppliers in the process.
FRIENDS & FAMILY MEMBERS
SMALL BUSINESS RESEARCH
INNOVAATION
Getting past the paper-intensive application process and SBIR grants can be a great way to turn your intellectual property into mailbox money. For more on these grants
TAX INCREMENT FINANCING
TIF subsidies are geared toward real estate development in targeted areas. Depending on the state, the subsidies can be as large as 20% to 30% of the cost of the project. Better yet, you may even be able to borrow against this subsidized value. If your own community does not offer a TIF program, look at communities that do.
BOODSTRAPPING
Many billion-dollar entrepreneurs find a way to grow without external financing so that financiers don’t control their destinies or grab a disproportionate slice of the wealth pie. For more on the sound strategic thinking you’ll need in order to live on your own cash flow
If you’re lucky, friends and family members might be the most lenient investors of the bunch. They don’t tend to make you pledge your house, and they might even agree to sell their interest in your company back to you for a nominal return.
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INVESTMENT PROCESS STEPS INVESTMENT POLICY
It determines and involves personal financial affairs and objectives before making investments. The investor has to see that he should be able to create an emergency found, an element of liquid and quidk convertibility of secures into cash
INVESTMENT ANALYSIS
The investor must make a comparative analysis of the type of industry, kind of security and fixed versus variable securities.
VALUATION FO SECURITIES
It may be the most important consideration of the valuation of investments. Investment value is taken to be present worth the owners of future benefits from investments.
PORTFLIO CONSTRUCTION
It requires a knowledge of the different aspect of securities. These are briefly recapitulated here, consisting of safety and growth of principal, liquidity of assets...
INVESTMENT SUITABILITY THE NATURE OF SUITABILITY An investment is appropriate in terms of an investor's willingness and ability (personal circumstances) to take on a certain level of risk. It is essential that both these criteria be met. If an investment is to be suitable, it is not enough to state that an investor is risk friendly. He or she must also be in a financial position to take certain chances. It is also necessary to understand the nature of the risks and the possible consequences.
NATURAL AND LEGAL IMPORTANCE The main problem is that investors often do not understand what risk really entails, while brokers might be tempted to advise people toward riskier investments. The matter is the fact that excessively low-risk investment can be just as damaging to an investor port-folio. Another way of looking at suitability is that it referes to investments that are just not right for someone.
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DYNAMIC NATURE OF SUITABILITY It is constantly in flux. Needs from soneone who is 30 are different from sobedoy who is 60. Getting married, having children, getting a big raise, or losing a job altogether should prompt a reconsideration of suitability.
KNOWLEDGE AND UNDERSTANDING Knowledge and understanding also play a role in suitability. This does not mean that just because an investor understands the risks associated with futures that this investment is suitable. However, investors should have an understanding of the risks of the securities in their portfolios.
LEGAL DILEMMAS If an investors goes into an investment purely on his or her own initiativeand no one has advised the person to do so, there isn't much the law can do. On the other hand, if a broker or bank advises an investor into an unsuitable investment, that financial professional could be liable for the investor's losses, provided the person can prove the investment really was unsuitable and that the broker or advisor did not make the risks clear. As a result, in some cases, cautious brokers will only sell really high-risk and potentially unsuitable investments if buyers sign a document stating that they are aware of the risks associated with these investments.
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INVESTMENT TYPES BOND
Is essentially a loan that you are giving to the government or an institution in exchange for a pre-set interest rate paid regularly for a specified term. The bond pays interest (a coupon payment) while it's active and expires on a specific date, at which point the total face value of the bond is paid to the investor. If you purchase or sell a bond between the time it is issued and the time it matures, you may experience losses or gains on the price of the bond itself.
MUTUAL FUND
An investment vehicle that allows you to invest your money in a professionallymanaged portfolio of assets that, depending on the specific fund, could contain a variety of stocks, bonds, market-related indexes, and other investment opportunities.
STOCK
A type of investment that gives you partial ownership of a publicly traded company.
MONEY MARKET ACCOUNT
Type of savings account that offers competitive rate of interest (real rate) in exchange for larger-than-normal deposits.
a
EXCHANGE-TRADED FOUND (ETF)
ETFs are funds – sometimes referred to as baskets or portfolios of securities – that trade like stocks on an exchange. When you purchase an ETF, you are purchasing shares of the overall fund rather than actual shares of the individual underlying investments.
CASH EQUIVALENT
Cash equivalent investments protect your original investment and let you have access to your money. Examples include: savings accounts, money market accounts, certificates of deposits.
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SELECTION METHODS
STATIC METHOD
DYNAMIC METHOD
This type of methods do not regard the moment in which its generated cash flows, consequently for them is different that an investment generates a charges of X euros now or in some years. The already named characteristic is the principal inconvenient of this type of methods, whose principal advantage is the simplicity in its calculation. Inside this group are: - Payback period - Total cash flow - Average cash flow
This group of tools is characterized for consider the moment in which the collections and payments of each inversion, in manner which it give more value a one amount obtained in the present. Inside this group the principles methods are: - Net present value - Internal rate of return - Discount payback period - Rate of return
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RATIOS
DEBT RATIO
The debt ratio quantifies how leveraged a company is, and a company's degree of levarage is often a measure of risk. LIABILITIES / ASSEST This ratio is used to calculate if you can ask for money To the bank. If it is under 0,6 you can ask but if it is over 0,7 you cannot
TURNOVER RATIO
The receivables turnover ratio is one that is categorized as an activity ratio because it measures the company’s effectiveness in collecting its credit sales. REVENUE / RECEIVABLES
AVERAGE
ACCOUNTS
Inventory is money. It costs money to buy, it costs money to just hold it because it takes up a lot of overhead if it isn’t cleared out. You waste shelf space, the product gets old and it may have to be sold at a fraction of the price just to get rid of it.
DEBT RATIO
SERVICE
COVERAGE
It can be explained as the amount of assessable cash flow to congregate the annual interest and principal payments on debt, not forgetting the sinking fund payments. NET OPERATING INCOME / TOTAL DEBT SERVICE
DAYS PAYABLE OUTSTANDING (DPO) Days Payable Outstanding shows the time in days a business has to pay back its creditors. On the flip side, it also shows how long the company can utilize the cash before paying it back. (ACCOUNTS PAYABLE / COGS) * 365
COGS / AVERAGE OF INVENTORY
CASH CONVERSION CYCLE
The entire cash conversion cycle is a measure of management effectiveness. The lower the better, and a great way to compare competitors. DIO + DSO – DPO
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RATIOS
AVERAGE AGE INVENTORY
verage age of inventory is just the inverse of Inventory Turnover. AVERAGE OF INVENTORY / REVENUE
INTANGIBLES TO BOOK VALUE RATIO
This balance sheet metric is helpful in checking the quality, as well as the health. INTANGIBLES / BOOK VALUE
CAPITAL STRUCTURE RATIO Capital structure is looking at the company’s debt and equity. The following ratios all help to show you how much a company is using debt to run the business. LONG TERM DEBT / INVESTED CAPITALS SHORT TERM DEBT / INVESTED CAPITALS
DAYS PAYABLE INVENTORY OUTSTANGDING (DIO)
SERVICE COVERAGE RATIO
It can be explained as the amount of assessable cash flow to congregate the annual interest and principal payments on debt, not forgetting the sinking fund payments. NET OPERATING SERVICE
INCOME
/
TOTAL
DEBT
DEBT TO EQUITY
Stockholders' equity is the portion of the balance sheet that represents the capital received from investors in exchange for stock (paid-in capital), donated capital and retained earnings. LIABILITIES / EQUITY
INVENTORY TO SALES RATIO A rather simple and less used ratio. It is mostly useful when you track it year over year or every quarter. INVENTORY / REVENUE
This financial ratio is used to measure the average number of days a company holds inventory before selling it. (INVENTORY / COGS) * 365
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RATIOS APPLIED TO OUR FINANCIAL BALANCE DEBT RATIO:
DEBT TO EQUITY:
LIABILITIES / ASSEST
LIABILITIES / EQUITY
1948188 / 3216173 = 0,60
1948188 / 1267985 = 1,54
WORKING CAPITAL
WORKING CAPITAL CURRENT ASSETS / CURRENT LIABILITIES CURRENT ASSETS – CURRENT LIABILITIES
WORKING CAPITAL APPLIED
CURRENT ASSETS / CURRENT LIABILITIES 824372 / 1420276 = 0,58 CURRENT ASSETS - CURRENT LIABILITIES
In both equations we have adquired a low result, wich means that we are not creditworthy
824372 - 1420276 = - 595904
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LIQUIDITY RATIOS
CURRENT RATIO
An even simpler variant to the quick ratio and is used to determine the company’s ability to pay back its short term liabilities. You’ll see this balance sheet ratio everywhere. CURRENT ASSETS LIABILITIES
DAYS SALES (DSO)
/
CURRENT
QUICK RATIO:
The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. (CURRENT ASSETS – INVENTORIES) – CURRENT LIABILITIES
OUTSTANDING
Cash is king and a business capable of converting its receivables into cash quickly is a great sign of health and efficiency. SALES OUTSTANDING = (RECEIVABLES / REVENUE) *365
LIQUIDITY RATIOS APPLIED CURRENT RATIO
QUICK RATIO:
CURRENT ASSETS / CURRENT LIABILITIES
(CURRENT ASSETS – INVENTORIES) – CURRENT LIABILITIES
824372 / 1420276 = 0,58
(824372 – 71999 ) - 1420276 = - 667903
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SOLVENCY RATIOS
DEBT TO EQUITY:
DEBT TO ASSETS:
LIABILITIES / EQUITY
TOTAL DEBT / TOTAL ASSETS
Stockholders' equity is the portion of the balance sheet that represents the capital received from investors in exchange for stock (paid-in capital), donated capital and retained earnings.
This ratio measures the percentage of a company's assets that have been financed with debts. A higher ratio indicates a greater degree of leverage, and consequently, financial risk.
INTEREST COVERAGE RATIO
It measures the company's ability to meet the interest expense on its debt with its operating income, which is equivalent to its earnings before interest and taxes. The higher ratio, the better the company's ability to cover its interest expense. OPERATION INCOME / INTEREST EXPENSE
SOLVENCY RATIOS APPLIED DEBT TO EQUITY: LIABILITIES / EQUITY 1948188 / 1267985 = 1,55
DEBT TO ASSETS: TOTAL DEBT / TOTAL ASSETS 1948188 /3216173 = 0,61
OPERATION INCOME / INTEREST EXPENSE 1464284 / 75262 = 19,45
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ADVANTAGES & DISADVANTAGES OF EXTERNAL FINANCING
PRESERVING YOUR RESOURCES
Allow you to use internal financial resources for others purposes. Find an investment higher than the bank loan, your company just secured , it makes sense to preserve your own resources and put your money into that investment, using the external financing for business operations
OWNERSHIP
Investors or shareholders require you to give a portion of your ownership in your company in exchance for the funding. Part of the financing agreement is the investor is allowed to vote on company decisions.
COMPETITIVE POSITION
A business often needs to spend money on various items, such as new technology or product research, to remain competitive. External financing can help with these costs. Without external financing, you might have to forgo important investments and projects that you cannot afford, which can give better-funded competitors the upper hand.
GROWTH
Organizations use external funding to finance growth projects the company could not found on its own.
INTEREST
External funding sources require a return on their investments. Banks will add interests to a bussiness loan , and investors will ask for a rate of return in the investment agreement. Interests adds to the overalll cost of the investments.
SACRIFICE
External financing doesn’t come free — you have to give something up to get it. When you use equity financing, you relinquish a portion of your ownership stake in your company and a share of your profits. Stockholders can also vote on important company decisions, which can reduce your control.
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ADVANTAGES & DISADVANTAGES OF INTERNAL FINANCING INTERNAL FINANCING It is the name for a firm using its profits as a source of capital for new investmentinstead of obtaining capital elsewhere.
CONS
PROS
- Capital is immediately available - There are no interest payments - No control procedures regarding creditworthiness - Spares credit line - There is no influence of third parties - It is more flexible - Owners are given more freedom
- It is more expensive because internal financing is not tax-deductible - There is no increase of the capital - There may be losses and they are not tax-deductible - It is limited volume
DIFFERENT WAYS OF INTERNAL FINANCING RETAINED EARNINGS
Retained earnings are an easy source of internal financing to use because they are liquid assets. They are the portion of net income that you have retained in your company and not paid out. In a small business, retained earnings are usually paid out to the owners, who often do not draw a budgeted salary. Instead of paying out retained earnings, you can reinvest them into the company.
CURRENT ASSETS
Current assets consist of cash or anything that can easily be converted into cash. For example, if your business has stock holdings in other companies, you can divest yourself of those stocks and use the proceeds as a source of financing. You should be careful, however, not to decrease your current assets to levels less than your current liabilities, as this may prevent you from paying off your debts.
PERSONAL SAVING
FIXED ASSETS
Fixed assets are those that are not easily converted to cash. Typically, these assets include equipment, property and factories. Because these assets take time to convert to cash, they cannot be relied on for short-term access to finance
Personal savings are the backbone of many small businesses. If your business doesn't have the assets to finance your project, you may still have personal finances that you can contribute to the business. This provides an alternative to seeking external investors or loans and allows you to retain control over your business.
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We consider the best way to finance our company the internal method because we are going to invest the profits that we are having. As we also have shareholders, they are interested even more than us in our company benefit. For example, if we owe money one of our suppliers we can offer him being a shareholder of our company, and then, he would be more interested in the company than in getting the money we had to give him. In the external finalcial methods, we definetely choose the 'angel' method because it is composed by people who are close to us, maybe our relatives, friends... who can give us the money to invest in our company, and we do not have a deadline to give them back the money as we would have with the bank if we asked for a loan or a credit.
MOST COMMON FINANCIAL OPTIONS FOR A BUSINESS There are few times of financing a business, some of them are: Consider factoring Pledge some of your future earnings Get a bank loan Attract an Angel investor Use a credit card Secure an SBA Loan Tap into your 401(k) Raise money from family and friends Try Crowdfunding Get a microloan There are different types of financial option, depending on short or medium to long term. Short term: Time loans done for specific period, lines of credit annually renewable. Medium to long term: Working capital or loans for equipment If there are no bank options of financing your company, assets- based is the best option
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BEST WAY TO FINANCE THE BUSINESS BANK LOANS
SECURE AN SBA LOAN
We consider that is a good way to finance our hotel because they provide short-, mid- or longterm financing, and they financeall asset needs, including working capital, equipment and real estate and because it has several advantages for example: -The business is guaranteed the money for a certain period, generally three to ten years (unless it breaches the loan conditions). -Loans can be matched to the lifetime of the equipment or other assets the loan is for. -While interest must be paid on the loan, there is no need to provide the bank with a share in the business. -Interest rates may be fixed for the term, making it easier to forecast interest payments
Also, we would choose secure an sba loans becausethe Small Business Administration (SBA) is a federal agency dedicated to helping entrepreneurs improve their small businesses, take advantage of contracting opportunities, and get better access to small business loans, and it has some advantages like the lowest down payments, the reasonable interest rates and that it's suitrable for a wide range of business purposes, so it's a good option for our hotel.
HOW TO FINANCE YOUR BUSINESS If you want to ask for a bank loan, you have to investigate before. We have found some information, for example: 'Ahora TĂş' is on the top of the ranking, because it has a very low interest, 4,95% 'Laboral Kutxa' has a 4,99% of interest The Caixa General bank loan is still between the cheapest, although it has increased the interests, from 5,5 to 6,5 % Banco Popular offers a 11% of interest You have to make sure how much and for how long you will want the bank loan, and depending on this, choosing which bank offers you the most suitable one. In the Secure SBA an Loan we have found that they have not changed much since 2015. You can ask for them at different banks. The maximum you can ask for is 12,50 millions â‚Ź. As we want to ask for a 5 year SBA we will have an interest of 4,30 % Bankia Banco popular BBVA
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BEST WAY TO FINANCE THE BUSINESS This are two mock situations. The fist one is a bank loan and the Second one would be a Secure SBA an Loan This bank loan has been asked to 'Ahora tĂş' because it has the lowest interest of all the we have been looking for
The Secure SBA an Loan we have choosen ins from Bankia, because ti was a low interest.
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WEBGRAPHY
http://www.investopedia.com/terms/q/quickratio.asp http://www.oldschoolvalue.com/blog/valuation-methods/balance-sheet-ratios/ http://www.investopedia.com/terms/i/investment.asp http://yourbusiness.azcentral.com/advantages-disadvantages-external-financing-11683.html http://www.myaccountingcourse.com/financial-ratios/equity-ratio Www.nationwide.com/investment-types.jsp http://infoautonomos.eleconomista.es/financiacion-autonomos-empresas/lineas-del-instituto-de-credito-oficial-ico/ https://www.kelisto.es/prestamos/mejor-compra/los-mejores-prestamos-personales-3487
JESSICA ENRIQUEZ Mª DOLORES MARTINEZ SILVIA ONTIVEROS MARTA SEVILLA 2º GAT