MACC 212: FINANCE AND FINANCIAL MARKETS Scenario 1. Compute the following ratios using the original data.

Cash and Cash Equivalent 3,000,000 A ccounts Payable 2,000,000

a. Current Ratio Marketable Securities 500,000 Utilities Payable 150,000
A ccounts Receivable 2,000,000 A ccrued Labor 600,000
Current Asset Prepaid Rent 100,000 Notes Payable 800,000
Current Ratio = Prepaid Insurance 150,000 TOTA L 3,550,000
Current Liabilities Inventories 1,500,000
Notes Receivable 600,000
7,850 ,000
Current Ratio = 3,550 ,000
TOTA L 7,850,000

Current Ratio = 𝟐. 𝟐𝟏𝐱 A ccounts Receivable = 1/3 Net Credit Sales

2,000,000 = 1/3 ?
Net Credit Sales = (A ccounts Receivable) / (1/3)

Net Credit Sales = (2,000,000) / (1/3)

b. Receivable turnover
Net Credit Sales = 6,000,000
Net Credit Sales
Receivale Turnover =
Average Receivables
6,000,000 A verage Receivables = (Beginning AR + Ending AR) / 2
Receivable Turnover = A verage Receivables = 2,600,000
2,600,000
Receivable Turnover = 𝟐. 𝟑𝟏𝐱 Note: Notes Receivable should not be included.
No Beginning A R

c. Return on sales Net Sales = Cash Sales + Net Credit Sales CoGS = . 60 (Net Credit Sales)
Earnings after Tax Net Sales = [. 25 (3,000,000)] + 6,000,000 CoGS = . 60 (6,000,000)
Return on Sales = Net Sales = 750,000 + 6,000,000 CoGS = 3,600,000
Net Sales Net Sales = 6,750,000
2,350,000
Return on Sales = Earnings A fter Tax = Net Sales – (CoGS + General & A dministrative Exp. + Tax Exp. )
6,750,000 Earnings A fter Tax = 6,750,000 – (3,600,000 + 550,000 + 250,000)
Earnings A fter Tax = 6,750,000 – (4,400,000)
Return on Sales = 𝟑𝟒. 𝟖𝟏%
Earnings A fter Tax = 2,350,00

d. Inventory turnover
Cost of Good Sold A verage Inventory = Beginning Inv. + Ending Inv.
Inventory Turnover = A verage Inventory = 1,500,000
Additional Data: Average Inventory
3,600,000 Note: No Beginning Inventory
1. The account receivable balance is only 1/3 of the net credit sales while cash sales are 25% of Inventory Turnover =
1,500,000
cash and cash equivalents balance.
Inventory Turnover = 𝟐. 𝟒𝐱
2. The Cost of Goods Sold is 60% of the net credit sales. General and administrative expenses is Total Liabilities = Current Liabilities + Non-current Liabilities
Total Liabilities = (A P+UP+AL+NP) + (Bonds Payable)
550,000 while tax expense is 250,000. e. Debt ratio Total Liabilities = 3,550,00 + 1,000,000
Total Liabilities Total Liabilities = 4,550,000
3. Common shares: 100/share Debt Ratio =
Total Assets Total A ssets = Current Asset + Non-current Assets
4. Preferred shares: 200/share, 10% preferred and non-commulative 4,550,000 Total A ssets = (C&CE + MS + AR + PR + PI + Inv + NR) + (Bonds Receivable + PPE)
Debt Ratio = Total A ssets = 7,850,000 + (2,500,000 + 5,000,000)
15,350,000 Total A ssets = 15,350,000
5. ABC Company declared dividends equal to the 10% non-commulative preferred dividends. Debt Ratio = 𝟐𝟗. 𝟔𝟒%

“Be scared, and do it anyway. Comfort is the enemy of growth. Get uncomfortable.” “Be scared, and do it anyway. Comfort is the enemy of growth. Get uncomfortable.”

Charlene Mae B. Avanzado, futureCPA Charlene Mae B. Avanzado, futureCPA

 f. Operating Cycle
d. Return on Sales
Operating Cycle = (Average Age of Receivable) + (Average Age of Inventory)
Earnings After Tax
Number of Working Days in a Year Number of Working Days in a Year
Return on Sales =
Operating Cycle = ( )+( ) Net Sales
Receivable Turnover Inventory Turnover 2,950,000
Return on Sales =
365 days 365 days 6,750,000
Operating Cycle = ( )+( )
2.31 2.4 Return on Sales = 43.70%
Operating Cycle = 158.01 𝑑𝑎𝑦𝑠 + 152.08 days
e. Current Ratio Current Liabilities = A P + UP + AL + NP + BP
Operating Cycle = 𝟑𝟏𝟎. 𝟎𝟗 𝐨𝐫 𝟑𝟏𝟎 𝐝𝐚𝐲𝐬 Current Assets Current Liabilities = 2,000,000 + 150,000 + 600,000 + 800,000 + 1,000,000
Current Ratio = Current Liabilities = 4,550,000
Current Liabilities
g. Cash flow cycle 7,850,000 Note: Bonds Payable becomes current liability, since it will be due on March 2024 which
Cash Flow Cycle = (Average Inventory + Average Accounts Receivable) − (Average Trade Payable) Current Ratio = is less than 1 year of the operating cycle.
Average Inventory Average Accounts Receivable 4,550,000
Cash Flow Cycle = (( × 365 days ) + ( × 365 days )) Current Ratio = 𝟏. 𝟕𝟑𝐱
Cost of Goods Sold Total Credit Sales
Average Trade Payable
−( × 365 𝑑𝑎𝑦𝑠)
Cost of Goods Sold f. Gross Profit Margin Ratio
1,500,000 2,000,000 2,000,000
Cash Flow Cycle = (( × 365 days) + ( × 365 days)) − ( × 365 𝑑𝑎𝑦𝑠) Gross Profit Gross Profit = Net Sales – Cost of Goods Sold
3,600,000 6,000,000 3,600,000 Gross Profit Margin Ratio = Gross Profit = 6,750,000 – 3,000,000
Cash Flow Cycle = (152 Days + 122 Days ) − (203 Days) Net Sales Gross Profit = 3,750,000
Cash Flow Cycle = (274 Days ) − (203 Days) 3,750,000
Gross Profit Margin Ratio =
Cash Flow Cycle = 𝟕𝟏 𝐃𝐚𝐲𝐬 6,750,000
Gross Profit Margin Ratio = 𝟓𝟓. 𝟓𝟔%
Scenario 2. Compute the following ratios when the bonds payable is due on March 2024 while Cost of
Goods Sold is 50% on net credit sales.
Scenario 3. Compute the following ratios when the bonds receivable is to be collected before March
a. Equity Ratio 2024 while Cost of Goods Sold is 50% on net sales.
′
Total Stockholder s Equity Total Stockholder’s Equity = Common Shares + Preference Shares + Share Premium + RE
Equity Ratio = Total Stockholder’s Equity = 4,500,000 + 3,000,000 + 500,000 +2,800,000 a. Current Ratio Current A ssets = C & CE + MS + AR + PR + PI + Inv + NR + BR
Total Assets Total Stockholder’s Equity = 10,800,000 Current A ssets = 3,000,000 + 500,000 + 2,000,000 + 100,000 + 150,000 + 1,500,000 + 600,00 + 2,500,000
10,800,000 Current Assets Current A ssets = 10,350,000
Equity Ratio = Current Ratio =
15,350,000 Current Liabilities
10,350,000 Note: Bonds Receivable becomes current asset, since it will be due on March 2024 which is less than 1 year of
Equity Ratio = 𝟕𝟎. 𝟑𝟔% Current Ratio = the operating cycle.
3,550,000
b. Debt - Equity Ratio Current Ratio = 𝟐. 𝟗𝟐𝐱
Total Liabilities
Debt − Equity Ratio = b. Inventory Turnover Cost of Goods Sold = . 50 (Net Sales)
Total Shareholder ′s Equity Cost of Goods Sold = . 50 (6,750,000)
4,550,000 Cost of Good Sold Cost of Goods Sold = 3,375,000
Debt − Equity Ratio = Inventory Turnover =
10,800,000 Average Inventory
3,375 ,000
Debt − Equity Ratio = 𝟒𝟐. 𝟏𝟑% Inventory Turnover =
1,500 ,00
Inventory Turnover = 𝟐. 𝟐𝟓𝐱
c. Return On Equity Net Income = Net Sales – (CoGS + General & A dministrative Exp. + Tax Exp.)
Net Income Net Income = 6,750,000 – (3,000,000 + 550,000 + 250,000)
Return on Equity = Net Income = 6,750,000 – (3,800,000)
Owner ′ s Equity Net Income = 2,950,000
2,950,000 Note: CoGS is 50% of net credit sales
Return on Equity = CoGS = . 50 (6,000,000)
10,800,000
CoGS = 3,000,000
Return on Equity = 𝟐𝟕. 𝟑𝟏%

“Be scared, and do it anyway. Comfort is the enemy of growth. Get uncomfortable.” “Be scared, and do it anyway. Comfort is the enemy of growth. Get uncomfortable.”

Charlene Mae B. Avanzado, futureCPA Charlene Mae B. Avanzado, futureCPA

 Pasar Bako Company Pasar Bako Company
Statement of Financial Position Income Statement
c. Average Age of Inventory December 31, 2023 December 31, 2023
Number of Working Days in a Year
Average Age Inventory =
Inventory Turnover Cash 4,000,000 Sales 5,000,000
365 Accounts Receivable 500,000 CoGS 2,000,000
Average Age Inventory =
2.25 Inventory 500,000 Gross Profit 3,000,000
Average Age Inventory = 𝟏𝟔𝟐. 𝟐𝟐 𝐃𝐚𝐲𝐬 Property, Plant, & Equipment 5,000,000 G& Exp 900,000
Total Asset 10,000,000 Tax Exp. 600,000
Preferred Dividend = % of NCPD (Preferred Shares)
d. Earnings per Share Preferred Dividend = . 10 (3,000,000) Net Income 1,500,000
(Net Income − Preferred Dividend) Preferred Dividend = 300,000 Accounts Payable 1,500,000
Earnings per Share = Other Current Liabilities 500,000
Weighted Average Number of Common Shares WA # of CS = Common Shares / A mt. per Share
(2,575,000−300,000) WA # of CS = 4,500,000 / 100 Bonds Payable 1,500,000
Earnings per Share = WA # of CS = 45,000
45 ,000 Other Noncurrent Liabilities 500,000
Earnings per Share = 𝟎. 𝟓𝟔 Common Shares 1,500,000
Preferred Shares 2,000,000
e. Return on Total Asset Retained Earnings 2,500,000
Net Income Total Liabilities and Equity 10,000,000
Return on Total Asset =
Total Asset
2,575 ,000
Return on Total Asset = Additional ratio:
15,350,000
Return on Total Asset = 𝟏𝟔. 𝟕𝟖% 1. The current ratio is 2.5x and inventory turn-over is 4x.
2. The net credit sales is equal to the total sales, and the receivable turnover is 10x.
f. Fixed Asset to Long Term Liabilities Note: Total Liabilities here only pertaining to the non- 3. The Cost of Goods Sold is 40% of the total sales.
Fixed Asset current liabilities (long-term liabilities) which is the
bonds payable of 1,000,000. 4. Preferred shares: 200/share, 10% preferred and non-commulative.
Fixed Asset to Long Term Liabilities =
Total Liabilities 5. ABC Company declared dividends equal to the 10% non-commulative preferred dividends.
5,000,000
Fixed Asset to Long Term Liabilities = Compute the following:
1,000,000
Fixed Asset to Long Term Liabilities = 𝟓 1. Cash = 4,000,000 Current Asset (5,000,000)
Current Asset = Total Asset – Noncurrent Asset Cash 4,000,000
Current Asset = 10,000,000 – 5,000,000 Accounts Receivable 500,000
Current Asset = 5,000,000 Inventory 500,000
Noncurrent Asset (5,000,000)
PPE 5,000,000
TOTAL ASSETS 10,000,000
2. Inventory = 500,000
𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
2,000,000
4𝑥 = Note: Since there is only ending inventory
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
given, the average inventory is
4𝑥(𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦) 2,000,000 automatically the inventory.
=
4𝑥 4𝑥
Average Inventory = 500,000

“Be scared, and do it anyway. Comfort is the enemy of growth. Get uncomfortable.” “Be scared, and do it anyway. Comfort is the enemy of growth. Get uncomfortable.”

Charlene Mae B. Avanzado, futureCPA Charlene Mae B. Avanzado, futureCPA

 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐴𝑓𝑡𝑒𝑟 𝑇𝑎𝑥 Note: Earnings After Tax and Net Income is
3. Accounts Receivable = 500,000 14. Return on Sales =
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
𝑁𝑒𝑡 𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠 Note: Since there is no beginning AR given, the same.
𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 the average receivable is assumed to be the 1,500,000
5,000,000 𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑆𝑎𝑙𝑒𝑠 =
receivable. 5,000,000
10𝑥 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒
𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑆𝑎𝑙𝑒𝑠 = 30%
10𝑥 (𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒) 5,000,000 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
= 15. Return on Equity =
10𝑥 10𝑥 𝑂𝑤𝑛𝑒𝑟′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦
1,500,000
Average Receivable = 500,000 𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐸𝑞𝑢𝑖𝑡𝑦 =
6,000,000
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡 −𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 −𝑃𝑟𝑒𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠
4. Acid Test Ratio = 𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐸𝑞𝑢𝑖𝑡𝑦 = 25%
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
5,000,000 − 500,000 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
𝐴𝑐𝑖𝑑 𝑇𝑒𝑠𝑡 𝑅𝑎𝑡𝑖𝑜 = 16. Return on Total Asset =
2,000,000 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡
4,500,000 1,500,000
𝐴𝑐𝑖𝑑 𝑇𝑒𝑠𝑡 𝑅𝑎𝑡𝑖𝑜 = = 2.25𝑥 𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡 =
2,000,000 10,000,000
. 𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡 = 15%
5. Total Current Asset = 5,000,000
6. Total Asset = 10,000,000 𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦
17. Debt to Equity =
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝑇𝑜𝑡𝑎𝑙 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦
7. Debt Ratio = 4,000,000
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
4,000,000 𝐷𝑒𝑏𝑡 𝑡𝑜 𝐸𝑞𝑢𝑖𝑡𝑦 =
𝐷𝑒𝑏𝑡 𝑅𝑎𝑡𝑖𝑜 = = 40% 6,000,000
10,000,000 𝐷𝑒𝑏𝑡 𝑡𝑜 𝐸𝑞𝑢𝑖𝑡𝑦 = 66.67%

8. Bonds Payable = 1,500,000 (Net Income−Preferred Dividend)

𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡
18. Earnings per Share = Weighted Average Number of Common Shares
9. Fixed Asset to Long-term Liabilities = 𝐿𝑜𝑛𝑔−𝑡𝑒𝑟𝑚 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 (1,500,000 − 200,000)
5,000,000 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒 =
𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡 𝑡𝑜 𝐿𝑜𝑛𝑔 − 𝑡𝑒𝑟𝑚 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 = 15,000
2,000,000 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒 = 86.67
𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡 𝑡𝑜 𝐿𝑜𝑛𝑔 − 𝑡𝑒𝑟𝑚 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 = 2.5𝑥
Net Sales
19. Sales to Fixed Asset = Fixed Asset
10. Operating Cycle = (Average Age of AR) + (Average Age of Inv.)
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐷𝑎𝑦𝑠 𝑖𝑛 𝑎 𝑌𝑒𝑎𝑟 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐷𝑎𝑦𝑠 𝑖𝑛 𝑎 𝑌𝑒𝑎𝑟 5,000,000
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐶𝑦𝑐𝑙𝑒 = + 𝑆𝑎𝑙𝑒𝑠 𝑡𝑜 𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡 =
𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 5,000,000
365 365 𝑆𝑎𝑙𝑒𝑠 𝑡𝑜 𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡 = 1
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐶𝑦𝑐𝑙𝑒 = +
10 4
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐶𝑦𝑐𝑙𝑒 = 36.5 + 91.25 = 127.75 𝐷𝑎𝑦𝑠 Total Stckholder ′ s Equity
20. Equity Ratio =
Total Assets
6,000,000
11. Total Sales = 5,000,000 𝐸𝑞𝑢𝑖𝑡𝑦 𝑅𝑎𝑡𝑖𝑜 =
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 10,000,000
12. Gross Profit Margin Ratio =
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠 𝐸𝑞𝑢𝑖𝑡𝑦 𝑅𝑎𝑡𝑖𝑜 = 60%
3,000,000 Sales 5,000,000
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 𝑅𝑎𝑡𝑖𝑜 =
5,000,000 CoGS (2,000,000)
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 𝑅𝑎𝑡𝑖𝑜 = 60% Gross Profit 3,000,000
G& Exp. (900,000)
13. Net Income = 1,500,000 Tax Exp. (600,000)
Net Income 1,500,000

“Be scared, and do it anyway. Comfort is the enemy of growth. Get uncomfortable.” “Be scared, and do it anyway. Comfort is the enemy of growth. Get uncomfortable.”

Charlene Mae B. Avanzado, futureCPA Charlene Mae B. Avanzado, futureCPA

 Finance is the system includes the circulation of money, granting credit, making investments MACC 213: Operations Management and TQM
and the provision of banking facilities.
 AREAS OF FINANCE are the following: TOPIC 1: Operations Management
i. Financial Management – also called corporate finance, focuses on decisions relating to
how much and what type of assets to acquire, how to raise capital needed to purchase  What is Operations Management?
Operations Management is an area of management that involves in planning,
assets and how to run the firm so as maximize its value.
ii. Capital Markets –relates to the markets where interest rates along with stock and bond conducting the process of production and re-designing business operation, and
production of goods and services.
prices are determines including financial institution.
iii. Investments –relates to decision concerning stocks and bonds and includes numbers of It is a business function that plans, organizes, coordinates, and controls the resources
activities such as Security Analysis, Portfolio Theory and Market Analysis. needed to produce a company’s goods and services.
 Finance has a direct relationship with accounting in which the product of accounting such Marketing function provides promotion for the merchandise, and the finance function
as financial statements is relevant for decision making. In the other side, the product of finance provides the needed capital. But it is the operations function, however, that plans and
creates impact on the accounting. coordinates all the resources needed to design, produce, and deliver the merchandise to
 Finance within the Organization: the various retail locations. Without operations, there would be no goods or services to
sell to customers.
 Role of Operations Management
The role of operations management is to transform a company’s inputs into finished
goods or services. Inputs include human resources (such as workers and managers),
facilities and processes (such as buildings and equipment), as well as materials,
technology, and information. Outputs are the goods and services a company produces.
It is a dynamic and continuous process that keeps changing as per market trends. It is
the management of activities that involved in the conversion of raw materials into finished
products.
Customer Feedback

Inputs
Outputs
 The main goal of finance is to create values for investors but it does not limit to maximizing broad Human Resources The
Facilities & processes Goods
range of financial activities such as growth, earnings per share, market per share and other
Technologies
Transformation
aspects of finance. Services
Materials Process
 Determinants of Value
i. Intrinsic Value is an estimate of a stock’s true value based on accurate risk and return
data
ii. Market Value is an estimate of a stock’s value based on perceived data in the market. It
is possibly incorrect since the data in the market is limited and not accurate.
iii. Equilibrium is the situation in which the market value equals the intrinsic value. Investors
in this situation are indifferent between buying and selling of stocks.
Performance Information

“Be scared, and do it anyway. Comfort is the enemy of growth. Get uncomfortable.” “Be scared, and do it anyway. Comfort is the enemy of growth. Get uncomfortable.”

Charlene Mae B. Avanzado, futureCPA Charlene Mae B. Avanzado, futureCPA

 STRATEGIC & TACTICAL DECISIONS
 THREE MAJOR BUSINESS FUNCTIONS
Strategic Decisions are the decisions that set the direction for the entire company; they are broad in
scope and long term in nature. They address questions such as What are the unique features of
product? What market do we plan to compete in? What do we believe will be the demand for our
PRESIDENT OR CEO product?
Tactical Decisions are decisions that are specific and long-term in nature and are bound by strategic
decisions. It is more focus on specific day-to-day issues, such as quantities and timing of specific
resources.
TODAY’S OM ENVIRONMENT
Marketing Operations Finance Today’s OM environment is very different from what it was just a few years ago. Customers demand
V.P. of Marketing V.P. of Operations V.P. of Finance better quality, greater speed, and lower costs. In order to succeed, companies have to be masters of
the basics of operations management.
Manages: (a) Customer Manages: (a) People Manages: (a) Cash Flow
Demands (b) Equipment (b) Current Lean System take a total system approach to creating an efficient operation and pull together best
(c)Technology Assets practice concepts, including Just-in-Time (JIT). Total Quality Management (TQM), continuous
Generates: Sales for (d) Materials & (c) Capital improvement, resource planning, and Supply Chain Management (SCM).
Goods (e) Information Investments
Services Enterprise Resource Planning (ERP) large information system, a sophisticated software programs for
To produce: Goods identifying and planning the enterprise-wide resources needed to coordinate all activities involved in
Services producing and delivering products to customers.
Customer Relationship Management (CRM) encompasses software solutions that enable the firm to
collect customer-specific data, information that can help the firm identify profiles of its most loyal
customers, and provide customer-specific solutions.

 Marketing is responsible for sales, generating customer demands, and understanding customer Cross-Functional Decision Making requires coordinated interaction and decision making among the
wants and need. different business functions of the organization.
 Finance is responsible for managing cash flows, current assets, and capital investments. Operations Management in Practice
 Accounting is not part of finance. Finance is typically focuses on planning and directing the
financial transactions. Accounting, on the other hand, focuses on recording and reporting Highlights
financial transactions. But in some business organization, they consider accounting as part of Operations Management is the business function that is responsible for managing and coordinating the
Finance Department. resources needed to produce a company’s products and services. Without operations management
TYPES OF ORGANIZATIONS there would be no products or services to sell.

Manufacturing Organization – produce physical, tangible goods that can be stored in inventory before Organizations can be divided into manufacturing and service operations, which differ in the tangibility
they are needed. of the product and the degree of customer contact. Manufacturing and service operations have very
different operational requirements.
Service Organization – produce intangible products that cannot be produced ahead of time.
Operations management is responsible for a wide range of decisions, ranging from strategic decisions,
such as designing the unique features of a product and process, to tactical decisions, such as planning
OPERATIONS MANAGEMENT DECISIONS worker schedules.

All management functions need to work together efficiently and effectively in order to reach the desired A number of historical milestones have shaped operations management into what it is today. Some of
goal of producing useful goods and quality services for consumers. the more significant of these are the Industrial Revolution, scientific management, the human relations
movement, management science, and the computer age.

“Be scared, and do it anyway. Comfort is the enemy of growth. Get uncomfortable.” “Be scared, and do it anyway. Comfort is the enemy of growth. Get uncomfortable.”

Charlene Mae B. Avanzado, futureCPA Charlene Mae B. Avanzado, futureCPA

Operations management is highly important function in today’s dynamic business environment. Among Developing a Business Strategy
the trends that have had a significant impact on business are just-in-time, total quality management,
A company’s business strategy is developed after its managers have considered many factors and
reengineering, flexibility, time-based competition, supply-chain management, a global marketplace ,
have made some strategic decisions.
and environmental issues.
Operations managers need to work closely with all other business functions in a team format. Marketing
needs to provide information about customer expectations. Finance needs to provide information about Business Strategy
budget constraints. In turn, OM must communicate its needs and capabilities to the other functions. Defines long-range plan for company

TOPIC 2: OPERATION STRATEGY AND COMPETITIVENESS Mi s sion,

Stra tegic
The Role of Operations Strategy a nd Ta ctics
Mission
Environmental Scanning Core Competencies
Is to provide a plan for the operations function so that it can make the best use of its resources. Statement that defines What is
Monitoring the business Unique strengths that can help
Operations strategy specifies the policies and plans for using the organization’s resources to support our business; Who are our
environment for market trends, us win in the market.
its long-term competitive strategy. threats, and opportunities clients; and How our values
define our business.

Business Strategy
Every organization has a mission. The It helps define a business strategy
Defines long-range plan for company It is the process of monitoring the
mission defines the company. by understanding the company’s
external environment for changes
and trends to determine business strengths.
Ex. Dell Computer Corp.: “to be the
strengths and weaknesses, and most successful computer com. in the In order to formulate a long-term
opportunities and threats. world” plan, the company’s managers
This includes trends in the market, in must know the competencies of
Delta Airlines: “worldwide airlines
the economic and political choice” their organization. Core
environment, and in society. These competencies could include
trends must be analyzed to IBM: “translate advanced special skills of workers, such as
determine business opportunities technologies into values for our expertise in providing customized
Marketing Strategy Operations Strategy Finance Strategy and threats. customers as the world’s largest services or knowledge in
information service company information technology.
Defines marketing Develops a plan for the Develops financial plans
plans to support the operations function to to support business
business strategy support the business strategy
strategy 1. Workforce_ Highly trained; Responsive in meeting customer needs;
Flexible in performing a variety of tasks; Strong technical capability;
Creative in product design
This includes the location, 2. Facilities_ Flexible in producing a variety of products; Technologically
size, and type of facilities advanced; An efficient distribution system
available; worker skills and 3. Market Understanding_ Skilled in understanding customer wants and
talents required; use of predicting market trends
technology, special process 4. Financial Know-How_ Skilled in attracting and raising capital
needed, special 5. Technology_ Use of latest production technology; Use of information
equipment; and quality technology; Quality control techniques
control methods.
“Be scared, and do it anyway. Comfort is the enemy of growth. Get uncomfortable.” “Be scared, and do it anyway. Comfort is the enemy of growth. Get uncomfortable.”

Charlene Mae B. Avanzado, futureCPA Charlene Mae B. Avanzado, futureCPA

Once a business strategy has been BUSINESS STRATEGY Strategic Role of Technology
developed, an operations strategy Technology has enabled companies to share real-time information across the globe, to improve the
Defines the long-term plans for the company.
must be formulated. This will provide a speed and quality of their processes, and to design products in innovative ways. Companies can use
plan for the design and management of technology to help them gain an advantage over their competitors. For this reason, technology has
the operations function in ways that become a critical factor for companies in achieving a competitive advantage. In fact, studies have
support the business strategy. The shown that companies that invest in new technologies tend to improve their financial position over
operations strategy relates the OPERATIONS STRATEGY
those that do not.
business strategy to the operations Develops a plan for the operations function
function. It focuses on specific Three Primary Types of Technologies
focusing on specific competitive priorities in
capabilities of the operation that give order to meet the long-range plan 1. Product Technology – new technology developed by a firm.
the company a competitive edge. 2. Process Technology – is the technology used to improve the process of creating goods and
These capabilities are called Competitive Priorities
services.
competitive priorities. Cost 3. Information Technology – enables communication, processing, and storage of information.
Quality Productivity
Cost- competing based on cost means offering a product at a low
price relative to the prices of competing products. Time It is a measure of the effective use of resources, usually expressed as the ratio of output to input.
Quality- Many companies claim that quality is their top priority, and Flexibility Productivity measures are useful for tracking an operating unit’s performance over time and judging
many customers say that they look for quality in the products they the performance of an entire industry or country.
buy. Yet quality has a subjective meaning; it depends on who is
defining it. To one person, quality could mean that the product lasts Why Productivity Matters?
a long-time. To another, quality might mean high performance. DESIGN OF THE OPERATIONS FUNCTION
Quality as a competitive priority has two dimensions. The first is high- High productivity is linked to higher standards of living
performance design. This means that the operations function will be Developed to focus on the identified competitive
Higher productivity relative to the competition leads to competitive advantage in the marketplace.
designed to focus on aspects of quality such as superior features, properties
close tolerances, high durability, and excellent customer service. The
second dimension is goods and services consistency, which measures
Structure: Facilities, Flow of Goods, Technology
how often the goods or services meet the exact design specifications. Output Produced
Infrastructure: Planning & Control System, Total Productivity Measure =
All Inputs Used
Time/Speed- is one of the most important competitive priorities Workers, Pay, Quality Output Output Output Output
Partial Productivity Measure = or or or
today. Companies in all industries are competing to deliver high- Labor Machines Materials Capital
Output Output Output
quality products in as short a time as possible. Making time a Multifactor Productivity Measure = or or
Labor+Machine Labor+Material Labor+Capital+Energy
competitive priority means competing based on all time-related
Example:
issues, such as rapid delivery and on time delivery. Rapid delivery
Units Produced = 5,000 Cost of Labor = $25/hour
refers to how quickly an order is received; on-time delivery refers to Structure_ operations decisions related to the design
Standard Price = $30/unit Cost of Materials = $5,000
the number of times deliveries are made on time. of the production process, such as characteristics of
Labor Input = 500 Hours Cost of Overhead = 2x labor cost
Flexibility- as a company’s environment changes rapidly, including facilities used, selection of appropriate technology,
Total Productivity = Output/(Labor + Material + Overhead)
customer needs and expectations, the ability to readily and the flow of goods and services through the
Total Productivity = (5,000 x $30) / (500 hrs x $25 + $5,000 + (2(500 x $25))
accommodate these changes can be a winning strategy. This is facility.
= $150,000 / $42,000
flexibility.
Infrastructure_ operations decisions related to the = 3.5294
Two Dimensions: planning and control systems of the operation, such Partial (Labor) Productivity = Output / Labor
as the organization of the operations function, the Partial (Labor) Productivity = 5,000 / 500
1. Product Flexibility is the ability to offer a wide variety of
skills and pay of workers, and quality approaches. Partial (Labor) Productivity = 10 units / hr
goods/services and customize them to the unique needs of
clients. Multi-factor Productivity = Output / Labor + Material
2. Volume Flexibility is the ability to rapidly increase or Multi-factor Productivity = (5,000 X $30) / (500 hrs. x $25) + $5,000
decrease the amount produced in order to accommodate Multi-factor Productivity = $150,000 / $17,500 = 8.57
changes in the demand.

“Be scared, and do it anyway. Comfort is the enemy of growth. Get uncomfortable.” “Be scared, and do it anyway. Comfort is the enemy of growth. Get uncomfortable.”

Charlene Mae B. Avanzado, futureCPA Charlene Mae B. Avanzado, futureCPA