EDUARDO SÁ SILVA

Financial Management
Solved Exercises
Includes a framework for developing a business plan.
General Index

Acknowledgments ...................................................................................................7

Note.....................................................................................................................9

CHAPTER I – Business Finance

CHAPTER II - Investment Analysis..........................................................39

CHAPTER III - International Finance

Futures/FRA...............................................................................................97
SWAP
•Options.....................................................................................................119
Exchange Rate Risk
•Others.........................................................................................139
CHAPTER IV - Annexes (from IAPMEI)
Appendix A...................................................................................................155
Rules for the preparation of a Business Plan, according to IAPMEI/FINICIA
[Link]

Appendix B
Template for developing an Investment Project, according to the rules
defined by IAPMEI/FINICIA) [Link]

5
Acknowledgments

This edition involved the participation of various faculty members from the Management area.
Finance of ISCAP, which contributed to the overall improvement of the appreciation
presentation of this work and to whom I want to express my gratitude here.

In this context, I want to express a very special thanks.

to colleague Carlos Moreira Carneiro, for the effort demonstrated in the preparation
of this edition, as well as to the entire team of the scientific area of Financial Management
(Carlos Mota, Adalmiro Pereira, Mário Queirós and Gonçalves da Silva).

7
Note
The present work contains a series of exercises taught at ISCAP (Higher Institute of Accounting and Administration).

Superior School of Accounting and Administration of Porto) relating to the subjects of

area of Financial Management of the Bachelor's degree in Accounting and Master's degrees in Con-
Stability and Finance and Management of Organizations. The subjects considered are
Corporate Finance, Financial Management, Investment Projects
International Finance

These solved exercises constitute, on the other hand, the practical support of the following
works published by Vida Económica:

Financial Management - Financial Flow Analysis (Corporate Finance);

Financial Management - Investment Analysis
Contains two attachments that were included with the permission of IAPMEI (Institute of
Support for Small and Medium Enterprises, namely:

Annex A - rules for the creation of a Business Plan;

• Annex B – model for the preparation of an Investment Project. This model
has the particularity of being in SNS (accounting standardization system).

9
 CHAPTER I
Corporate Finance
 Corporate Finance Chapter I

Case 1

The Vitorino brothers own a footwear industry that sells

directly to several commercial stores. In order to promote the sale-
from their products, the Vitorinos place the displays at the customer's location.
for the footwear of your brand, debiting them by their respective amounts.
This equipment is lent to the customer on a loan basis,
deducted from the customer's debt when returned, totaling 100,000
euros in the two years under analysis.

From the moment an order is started until the product

It takes about 1 month for the client. Clients benefit from 1
mês para pagamento da mercadoria, pois este prazo é o mesmo de que
The Vitorinos benefit in order to pay their suppliers of materials.
On its part, the company has sufficient materials in storage to
1 month and a half of production. The FSE are paid upfront.

For the next three months, the company expects to make sales of
montante de 20 000 em Janeiro, 36 000 em Fevereiro e 30 000 em
March. The consumption of raw materials accounts for about 40% of
final product value.
The financial statements are the following and, for 2010,
they deserve the subsequent notes.

Balance 31-12-09 31-12-10 Income Statement 2009 2010

Active Product sales 480,000 360,000
Tangible fixed assets 500,000 450 000 Variation invent. production 20,000 -5 000
Raw materials 24,000 18,000 Cost of consumed materials 192,000 144,000
Finished and intermediate products 30,000 25,000 Gross result 308,000 211,000
Clients 140,000 138,000 Supplies and external services 12,000 12,600
Expenses to be recognized 5,000 6,000 Personnel expenses 180,000 200,000
Box and deposits 7,500 0 RADGFI (EBITDA) 116,000 -1 600
Total Assets 706 500 637,000 Depreciations and amortizations 60,000 50,000
Own Capital Operating result (EBIT) 56,000 -51 600
Paid-in capital 300,000 300,000 Interest and similar earnings obtained 0 0
Reserves and results carried forward32,000 69,500 Interest and similar expenses support. 6,000 5,500
Net results 37,500 -57 100 Earnings Before Tax (EBT) 50,000 -57 100
Total Equity 369 500 312 400 Tax on income for the period 12,500 0
Passive Net income 37,500 -57 100
Bank loans 110,000 84,600
Financial locations 35,000 30,000
Supplies 175,000 175,000
Suppliers 16,000 34,000
Differences 1,000 1,000
Total Passivo 337,000 324 600
Total Equity + Liabilities 706 500 637,000

Financial Management - Solved Exercises 13

 Chapter I Corporate Finance

a) The accumulated depreciation amount is A250,000.

b) The current account of clients includes a debt from Sa-
pataria Socas, in the amount of A8000, related to an order
delivered on September 30. It must be settled soon.
c) There is a debt of A17,000 to the supplier Curtumes.
Modern ones that should have already been paid.

d) The expenses to be recognized relate to the exploration activity.

ção.
It is expected the amortization of medium-term bank loans.
long-term of A10,000 and of financial leases of A5,000
in early 2011.
f) A empresa tem um descoberto bancário deA9600, incluído no
Bank loans

Pedidos:
1. Construct the Functional Balance for 2010.

14
 Corporate Finance Chapter I

2. Calculate the financial balance indicators for 2010 (Fund

Working Capital, Working Capital Needs, and Net Cash Flow.
Elaborate on the comments you deem appropriate knowing that in
2009 temos (em euros): FM = 74 500 e NFM = 82 000.

For 2010 the indicators are: FM = 27,400; NFM = 61,000; TL =

-33,600; in 2009 we have TL = -7,500. The fact that the Working Capital
being always positive is an indicator of financial balance in the medium term
and long terms, as permanent capital fully covers the
Non-current asset. We also noted that the operational activity
it is deficient in funds, which can be considered normal in this
type of activity. The problem may arise when it is verified that
the funds released by investment activity are not sufficient
to meet the needs of the exploration activity, generating
thus a negative net treasury.

The company should replace short-term debt with equity.

remains, for example, through an increase in share capital or
medium/long term loan.

3. Based on the evolution of the indicators table that follows,

elaborate on the comments you consider relevant regarding the
the company's situation and its evolution.

Financial Management - Solved Exercises 15

 Chapter I Business Finance

INDICATOR 2009 2010

Variation in Business Volume 10.0% -25.0%

Variation Net Results 64.2% – 252.3%

Gross Profit from Sales 64.2% 58.6%

Operational profitability of the asset 7.9% -8.1%

Return on Equity 10.1% -18.3%

Decrease in the company's activity, measured by the variation in volume

The business department was the main cause of the decrease in results.
Liquids, as the decrease in gross sales profitability is not
sufficient to explain this variation.
Also, because of the decrease in the company's activity,
the return on the invested capital changes from 7.9% to -8.1%,
leading to the Net Result being able to be negative, and thus the
return on equity as well.

4. Fill in the boxes related to the forecast balances and flows.

seated below. Regarding the financial flows of which not
have data, consider that the corresponding monthly expenses are
twelfths of the values verified in 2010 are paid immediately.

a) Client and payment map

RUBRIC Jan Feb Mar

Initial balance 38,000 20,000 30,000

Turnover 20,000 36,000 30,000

Receivables 38,000 20,000 36,000

Final balance 20.000 36.000 30,000

16
 Business Finance Chapter I

b) Map of Raw Materials

RUBRIC Jan Feb Mar

Initial balance 18,000 12,000 21,600

Goods purchases 2.000 24,000 8,400

Cost of goods sold 8,000 14.400 12,000

Final balance 12.000 21.600 18,000

c) Supplier and payment map

HEADER Jan Feb March

Initial balance 34,000 2,000 24.000

Purchasing goods 2.000 24,000 8.400

Payments 34,000 2.000 24,000

Final balance 2.000 24,000 8.400

d) Cash Flow Map

HEADER Jan Feb March

Initial balance 0 -13.717 -13.433

Customer Receivables 38,000 20,000 36,000

Payments to suppliers 34,000 2.000 24.000

Other payments 17.717 17.717 17.717

Final balance -13.717 -13.433 -19.150

[Link] on the following statement:

This company has very limited financial autonomy, which

originates high financing costs, which harms its
operational results, thus contributing to the results
negative liquids of 2010.

Financial Management - Solved Exercises 17

 Chapter I Corporate Finance

This statement contains some errors. First of all, autonomy

the company's financial structure is high (52.3% in 2009 and 49.0% in 2010). For
On the other hand, financial expenses are not relevant in the structure of
costs, representing only 1.33% of the total expenses.
Finally, financing financial expenses never influence.
the operational results, as they are related to the investment activity
mentoring and not operational.

Thus, as has already been identified previously, the main

reason for the decrease in operational results, and consequently-
The decrease in the company's activity was one of the results.

18
 Corporate Finance Chapter I

Case 2
REDFISH is a company that is dedicated to the creation and marketing
of ornamental fish. Fish farming requires the selection of breeds
purified from progenitors that, after being crossed, produce individuals
with unusual characteristics. Therefore, one of its main
assets are those senior breeding fish.
The creation of a new population of fish ready to be sold
it takes wholesalers an average of two months, given that the fish
are sold at different ages. The related expenses
directly with production are food, chemical products
electricity - whose values practically represent the entirety
of Supplies and External Services.
Currently, customers pay, on average, in 45 days, while the
company pays its expenses one month later.
The financial statements are as follows and, for 2010,
they deserve the later notes.
Balance 31-12-09 31-12-10 Demonstration of Results 2009 2010
Active Sales of products 120,000 130,000
Tangible fixed assets 200,000 190,000 Variation in production 10,000 5,000
Biological assets 50,000 60,000 Supplies and external services 12,000 13,000
Clients 15,000 16,000 Expenses with personnel 35,000 36,000
Cash and deposits 2 550 19 100 RADGFI (EBITDA) 63,000 76,000
Total Assets 267 550 285 100 Depreciations and amortizations 10,000 10,000
Equity Operating profit (EBIT) 53,000 66,000
Capital raised 80,000 120,000 Interest and similar income obtained 0 0
Reserves and transferred results 14,000 50 750 Interest and similar expenses incurred. 4,000 3,000
Net results 36,750 47 250 Earnings Before Taxes (EBT) 49,000 63,000
Total Equity 130,750 218,000 Tax on income for the period 12,250 15,750
Passive Net result 36,750 47 250
Funds obtained from banks 50 000 45,000
Financial locations 30,000 15,000
Finances obtained from partners 50,000 0
Suppliers 1,000 1 100
Deferments 5,800 6,000
Total Liability 136,800 67 100
Total Own Capital + Liabilities 267 550 285 100

a) The accumulated value of the depreciations is: A50,000.

b) There is an amount of discounted and not yet due letters (asset/

passive) of A4000.

Financial Management - Solved Exercises 19

 Chapter I Business Finance

c) A debt of the Stores is included in the current account of customers.

of Animals, in the amount of A10 000, related to an order
delivered on October 15. It should be settled soon.
d) The deferrals relate to the exploration activity.
It is anticipated the amortization of bank loans of A10 000 and
of financial locations of A5 000 in 2011. The remaining values
will be amortized later.
f) The value of breeding fish (classified as Biological Assets
ascends to A35,000.

In the calculations to be made, ignore the existence of VAT.

Orders:
[Link] the Functional Balance for 2010.

20
 Business Finance Chapter I

2. Calculate the financial balance indicators for 2010 (Fund

of Working Capital, Working Capital Requirements and Net Cash.
Elaborate the comments you consider pertinent knowing that, in
2009, temos (em euros): FM = –34 250 e NFM = 28 200.

Para 2010 os indicadores são: FM = 38 000; NFM = 27 900; TL=10100;

In 2009 we have TL = –62,450.
The working capital had a negative value in 2009 and goes
positive in 2010.
This change is due to the fact that the company has increased its foun-
permanent capital tests, namely, a capital increase
Made and the retention of dividends. Contrary to what happened
in 2009, in 2010, the company already shows financial balance
medium and long terms. As the exploration activity is unprofitable
in funds and its value changes little, the Net Treasury goes from
a negative value and of large size for a positive value. What
indicates that the liquidity problems identified in 2009 should
having been resolved with the increase of permanent capital.

3. Complete the table of indicators that follows. Elaborate the comments

matters that you consider relevant to the company's situation
and its evolution.

Financial Management - Solved Exercises 21

 Chapter I Corporate Finance

INDICATOR 2009 2010

Variation Volume Business 10.0% 8.3%

Variation of Net Results 43.2% 28.6%

Gross Sales Profitability 52.5% 58.1%

Operational yield of the asset 19.8% 23.1%

Return on Equity 28.1% 21.7%

Registering a slight improvement in the gross profitability of sales,

the increase in business volume will lead to higher results
liquids, because fixed costs change very little.
Also because of the increase in company activity, the yield-
the overall quality of the capitals improves. The same does not happen
with the profitability of own capital because there is a register of an increase
a significant increase in social capital and an accumulation of results that
they raise equity more than proportionally. However,
this increase in equity becomes necessary due to issues
of medium and long-term financial balance.

4. To decide on a more profitable trade policy, the

REDFISH intends to analyze the impact on the results of the adoption of
alternative policies. Besides being able to maintain the current hypothesis, it is
considering (Hypothesis B) granting a prompt payment discount
of 2%, reducing the maximum payment term to 30 days, or
Hypothesis C) grant a 2% early payment discount and
a payment term of 60 days. The foreseeable consequences are
as stated in the following table:

22
Financial Management
Solved Exercises

This work is a workbook, a study aid that allows

recap concepts and consolidate and deepen knowledge in
Financial Management. All chapters have proposed exercises.
and resolved

It is a support work for two other publications by Vida

Economic, namely: 'Financial Management: Analysis of Financial Flows'
"ros" and "Financial Management: Investment Analysis"

Includes, with the authorization of IAPMEI, a drafting scheme

of a business plan.

[Link]

ISBN: 978-972-788-434-6

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