Finances in the Building Company

1. Finances in the Building Company

2. Revenues in a building company Revenues • In monetary units expressed outputs of a company Classification of revenues • According to the kinds: • Revenues from the sale of goods • Revenues from the sale of own production • Financial revenues • For needs of enumerating of economic result: • Operational • Financial • Extra Financing

3. Costs in a building company Costs • In monetary units expressed consumption of property and work in order to achieve outputs Classification of costs • According to the kinds • Consumption of material • Wage costs • Consumption of services • Depreciation and amortization • Financial costs • According to the purpose, for that they were consumed • Production • Administrative • Costs for research and development • Calculation classification • Direct costs • Overhead costs Financing

4. Property structure in a company Basic classification of property in a company • Long-term property • Long-term intangible property (lifetime longer then 1 year, PP min. 60 000 CZK) • Long-term tangible property (lifetime longer then 1 year, PP min. 40 000 CZK) • Long-term financial property (lifetime longer then 1 year) • Short-term property • Supplies (stocks) • Bought (material, goods) • Own production (unfinished production, intermediate products of own production, products) • Accounts receivable (receivables) • From a business contact • Tax receivables (advance tax payments are higher then real tax – tax overpaid) • In face of institutions of social and health insurance • Financial property • Money • Bank accounts • Short-term financial property Financing

5. Ways of property assessing in a company Property can be assessed by: • Purchase prices • Including buying price and costs connected with purchasing (transport, manipulation with property) • Own costs • Aggregate of own costs connected with production • Used in the case of assessing of property of own production • Replacement price • Price, for that the property could be purchased (price estimate realized by expert in the case, when the property was purchased without charge) • Nominal value • In the case of ready money or valuables (post stamps) Financing

6. Depreciation of long-term property Depreciation • It concerns about cost expressing annual decreasing of long-term property value owing to its attrition • According to the purpose of depreciation assignment it is possible to define: • Accounting depreciation • It expresses real decreasing of a property value in connection with its real lifetime (for purpose of the income tax calculation it’s necessary this depreciation to transform into tax depreciation) • Tax depreciation • It expresses maximal amount of depreciation that it’s possible to include into costs used for the income tax calculation (described by law n. 586/1992 Sb., about income taxes) • Calculation depreciation • It serves for projection of costs connected with the property attrition into the unit price of a product Financing

7. Calculation of depreciation Methods of a depreciation assignment • Linear (equal) depreciation • Depreciation is equally distributed on the whole property lifetime • Digressive (accelerated) depreciation • Amount of annual depreciation is decreasing in time • Progressive depreciation • Amount of annual depreciation is increasing in time Financing

8. Tax depreciation • Identification of depreciation group of the long-term property after the purchase of the property. Depreciation groups and property included into these groups are defined in the Income tax law, annex 1 • Choice of linear or digressive way of depreciation that will be next used for the whole time of the property lifetime Financing

9. Linear (equal) depreciation • In the case of linear depreciation there are defined maximal annual depreciation rates for each depreciation group: • Depreciation is calculated as a multiplication of input price of a property and annual depreciation rate for certain depreciation group Financing

10. Digressive (accelerated) depreciation • Calculation of the depreciation for the first year • Calculation of depreciation for next years of depreciation Where IP … input price DP… depreciated price k … number of whole years of depreciation (the number of years of a property lifetime) n … number of years, for that the property has been depreciated Financing

11. Input price assignment Input price of a long-term property for purpose of the depreciation calculation can be in the form of: • Purchase price • Own costs, if the property is produced on the company’s own • Replacement price in other occasions founded according to the special legislation (expert price) Financing

12. Sources of the property coverage Equity (own capital) Equity has the long-term character. These can be in the form of: • The registered capital • Capital invested by the businessman into the company • In the case of capital commercial companies (Limited Company and Corporation) the minimal amount of the basic capital there is assigned with the Business Code. • The capital funds • the capital funds serves to cover the property that was obtained without charge. • The funds created from net (after-tax) profit • Formed compulsorily according to the Business Code (reserve fund) • The economic result (the profit or the lost) of the past years and the current period Financing

13. Sources of the property coverage Extraneous sources (liabilities) Long-term extraneous sources • Back long-term commercial papers • e.g. released bear accounts, bonds, obligations, etc. • Long-term bank credits • credits, those time of maturity is longer than 1 year • Dotations • Irrecoverable provided sources (provided for certain activity and it is not possible to use it for another purpose) Short-term extraneous sources: • Short-term liabilities: present the debenture relation among the firm and another subject. • trade liabilities: it means the liabilities towards the suppliers • liabilities towards the state budget (required, but still unpaid taxes) • liabilities towards the employees (still unpaid wages or another remuneration) • liabilities towards the institutions of the social and health insurance • Short-term bank credits • operational credits, the time of their maturity is shorter than 1 year Financing

14. General principles of company’s property financing Basic principle of financing: • Long-term property should be financed by own sources and long-term extraneous sources • These sources should partly finance also short-term property Net working capital: • Short-term property financed by long-term sources Net Working capital (WC) = short-term property – short-term sources WC > 0 … from the aspect of working capital the financial stability of a company is ensured WC = 0 … effective, but from the aspect of working capital risk, position of a company WC < 0 … long-term property financed by short-term sources, threat of a financial stability (Remark: Financial stability expresses abilities of a company to comply its debts with own payables from a long-time aspect) Financing

15. Financial management and decision making • It deals with the move of money and company’s capital • It follows the whole technical and economic strategy of a company Objectives of financial management • Long-term objectives • Maximization of a market value of a company • Assurance of an optimal balance between risk and profit • Short-term objectives • Continuous assurance of a company’s payment ability • Payment ability expresses ability of a company to cover own liabilities in required time and amount • Payment ability should be managed so that in the company will not be held excessive amount of money Financing

16. Financial management and decision making Basic areas of a financial management: • Assurance of financial sources at the company’s foundation • Choice of optimal capital structure • Financing and management of short-term property and choice of optimal way of short-term financing • Investing of finances into the fixed (long-term) property and valuation of investment variants • Dividing of a company’s profit • Financial planning of creation and use of internal and external financial sources from the short-term and long-term aspect • Financial management in the case of association, reorganization, sanitation or downfall of a company Financing