8.2 Managerial Accounting Tools for personal and professional achievements

            My personal goal is to be the best person giving as many benefits to humanity as possible. The benefits can be given in the form of sharing knowledge and skills, building career and job opportunities, sharing scholarships information and hunting. To achieve those personal goals, the professional goals of having well reputable social foundations and profit oriented companies need to be achieved.  The future foundations I would like to establish are GUYS ( Galuh's Young Scholar Foundation ), Holy Quran Memorizing Foundation, etc. Some of the foundations i have also need to own good companies such as LC ( Learning Consultants ) Inc., Pilarindo news Inc as an online legal media company, Lutfi Energy Consulting or Lutfi Consulting as a renewable and non-renewable energy consultants, and P.T Lutfi tour and travel as a pilgrim service provider. Those planned future companies should be run by using at least three excellently most beneficial managerial accounting tools which are key financial statements, budgeting, and financial ratios.

            The key financial statements (Lumen, n.d) are statements of cash flow, income statement and balance sheet. Those financial statements are the standardized report for all companies around the world. The standardized financial statements are really important because of the need of all managers and financial users to read, interpret and make decisions based on the company's financial health reported in the financial statements to be further processed in budgeting problems.

            The budgeting problems mainly consisted of master budget creation and methods of capital budgeting decisions. The importance of master budget for all of my planned future companies is that it can be used as a good forecasting and targeting method for determination of how many tickets of my LC (Learning Consultants) that should be sold in each quarter of the four quarters in a year in such a way that cross subsidies for unrich students can be given by students with good economic conditions,  how many subscribers of my Pilarindo news should be achieved so that advertising as non-direct and all buyers or customers who want to daily read or want to post their advertising platforms as the ones generating direct revenues can gain pilarindo's growth. Related to energy consulting, the forecasting is beneficial for determining how many energy plants should be installed until the sale price decision to the public should be determined for at least keeping all company members alive. For the last planned company I have which is the Lutfi Tour and travel of pilgrims, the forecasting should be until the point of determining the personal ticket price in such a way that no one feels expensive, more and more people can have enjoyable spiritual trips to the two holy cities for hajj and umrah, and the company can have well growth incomes. All of the above hopes can be strategically done by giving affordable accessible prices to as many prospective customers. The principle of economy i would like to gain is that Low price with big numbers of customers is better than high price with small numbers or even zero customers (Anonimous, n.d.).

            The importance of the methods for capital budgeting decision is that the choice of spending capital for investments can be mathematically analyzed based on the available cash flow data based on all managerial accounting terms such as initial investments, costs and revenues in such a way that the negative or positive NPV, IRR and how many years of the payback period can be determined in such a way that whether everything for investment will be done or no are based on very well stormed effort of brain. Having good cash flow data of the two previous years of my future planned companies can predict excellent cash flow so that the payback period prediction and profit or loss sharing ratio can be easily determined to apply for the prospective investors. Instead of using the time value of money ( Nurrachmi et al, 2012) resulting in the legal views of interest, my companies choose the economic value of time by proposing selling the product or service / tickets by credit with a higher amount of non credit price.

            Last but not least, the important tools of managerial accounting are financial ratios (Elmerraji, 2021). For the moment of speaking, my future planned companies span any kinds of services ranging from education (LC), news (pilarindo), consulting and spiritual tour and travels all of which rely heavily on non-product /non inventory ratios. The possible ratios can be GPM, current, debt to equity ratios, etc.  The importance of those ratios are to keep my companies strictly tight on the national or even international standard to have globally competitive strength and competencies.

References

Elmerraji, J. (2021, May 19). Analyze investments quickly with ratios. Investopedia. Retrieved October 29, 2021, from https://www.investopedia.com/articles/stocks/06/ratios.asp.

Nurrachmi, R., Fathia, M., Mad-ahdin, A., Radenarmad, N., & Akhtar, R. (2012, March 1). Time value of money in Islamic perspective and the practice in Islamic Banking Implications. Munich Personal RePEc Archive. Retrieved October 29, 2021, from https://mpra.ub.uni-muenchen.de/46818/.

Anonimous. (n.d.). Master budget of non manufacturing organization. Budgeting in nonmanufacturing organizations. Retrieved October 29, 2021, from https://saylordotorg.github.io/text_managerial-accounting/s13-04-budgeting-in-nonmanufacturing-.html.

Lumen, et al. (n.d.). Introduction to business. Lumen. Retrieved October 29, 2021, from https://courses.lumenlearning.com/wmopen-introductiontobusiness/chapter/key-financial-statements/.

 

 

8.1 Financial ratios of P.T Krakatau steel (KRAS)

In general, the company’s performance can be assessed by it’s financial ratios which are classified into four categories including the ratio of profitability, liquidity, solvency and market valuation. Profitability is the assessment of the ability of a company to earn profits based on operations or sales, equity of shareholders or balance sheet assets. In this discussion, we choose the Gross Profit Margin (GPM) ratio as one of the most widely used profitability ratios. GPM is the difference between revenues and cost of production over the revenues or simply net income divided by revenues (Hayes, 2021a). Liquidity ratios are the measure of the ability of a company to pay debt liabilities including the safety margin in their perspective through the metrics including operating cash flow ratio, quick ratio and current ratio. In this discussion, we choose the current ratio as one of the most widely used liquidity ratios. The current ratio is the measure of the ability of a company to pay short term obligations such as one year obligations. The ratio is simply  the total current assets divided by the total current liabilities (Hayes, 2021b). Solvency ratios are the used metric for measurement of the ability of an enterprise to solve the long term liabilities often used by prospective profit oriented organizations. This discussion chose the debt to equity ratio as one of the most commonly used solvency ratios. It is actually the total liabilities divided by the total shareholder’s equity (Hayes, 2021c). The last assessment tool is the market valuation ratios which are those ratios used for evaluation of the price of the current share for the stock of a publicly-held company. Those ratios are utilized by the potential and current investors to determine if the shares of a company are under or over priced (Bragg, 2021). This discussion chose the trailing P/E (price to earning) ratio as one of the most commonly used market valuation ratios. Price to earning is simply the per share market price over that of reported earnings (Bragg, 2021). The trailing P/E is the ratio of a share price of a company in the market with respect to the per share earnings of the past years (Chen, 2021).   

Resume of the trailing price to earning (P/E) as one of market valuation ratios are separated in table 1 due to the difficulty to find data for exact calculations of every year and Resumes of GPM, current and debt to equity ratios as one of the subsequent profitability, liquidity, and solvency ratios can be analyzed in the table 2, 

Table 1. Recent market valuation measures of PT. Krakatau Steel (Yahoo, 2021)

In IDR	2020	2019	2018	2017	2016
Net Income	344,275	-7,122,536	-2,384,661	-1,093,895	-2,283,587
Sales/Revenue	19,684,467	20,088,160	24,798,294	19,390,485	17,885,257
GPM ratio	1.75%	-35.46%	-9.62%	-5.64%	-12.77%
Total Current Assets	11,736,555	9,587,366	13,820,215	13,861,874	13,436,448
Total Current Liabilities	11,626,319	34,623,510	25,640,417	18,477,646	16,497,090
Current Ratio	1.0094815	0.27690335	0.53900117	0.75019696	0.81447382
Total Liabilities	42,678,645	40,825,614	39,666,065	30,683,946	28,387,703
Total Liabilities / Total Assets	87.13%	89.44%	77.03%	54.97%	53.39%
Total Equity	6,304,558	4,820,559	11,831,418	25,137,986	24,785,048
D to E Ratio	6.7694904	8.4690621	3.3526044	1.2206206	1.1453559

Table 2. GPM, Current and D to E ratios based on selected financial statement data of krakatau steel for the past five years (Journal, 2020)

Table 1 shows the recent trailing P/E value is 13.99 with the current price per share at close of October 25 is Rp. 545, increasing from the previous time. The standard value of P/E ratios historically range from 13 to 15 (Murphy, 2021). These values are based on S&P 500 which is the indices of 500 best companies in different kinds of sectors registered in the united state stock markets.  Compared to the available standard, the trailing P/E ratio of Krakatau steel with the above value of >13 means that Krakatau steel performance is considered to be the same as that of the S&P 500 making Krakatau steel a well globally competitive company. Trailing P/E ratio means the stock of krakatau steel is trading 13.99 times its trailing 12 month earnings in 2020. Therefore, with the stock price of Rp. 545 the earning per share for that year period can be determined by EPS = price / (trailing p/e) = Rp.545 / 13. 99 =  Rp. 38.96

Table 2 reported data processing of net income and sales of income statements, total current assets, total current liabilities, total liabilities and total equity of balance sheet for the recorded five years financial data of PT. Krakatau Steel from 2016-2020. Based on the available standardized ratios, the evaluations and meanings of the above data can be explained by the following table ,

 

	2020	2019	2018	2017	2016
GPM ratio	1.75%	-35.46%	-9.62%	-5.64%	-12.77%
evaluation	< 5%	< 5%	< 5%	< 5%	< 5%
meanings	low ratio	low ratio	low ratio	low ratio	low ratio
Current Ratio	1.0094815	0.27690335	0.53900117	0.75019696	0.81447382
evaluation	1.2 to 2 (good Current ratio), < 1 is not a good ratio
meanings	best ratio	worst ratio
D to E Ratio	6.7694904	8.4690621	3.3526044	1.2206206	1.1453559
evaluation	> 1 is not ideal; < 1 is ideal
meanings		the most unideal ratio			the most ideal ratio

 

the best question if we were to invest in the company is that when will the company get the best ideal ratios for around five years period so that we can get good return.

 

 

References

Hayes, A. (2021a, October 22). The importance of profitability ratios. Investopedia. Retrieved October 25, 2021, from https://www.investopedia.com/terms/p/profitabilityratios.asp. 

Hayes, A. (2021b, October 22). What are liquidity ratios? Investopedia. Retrieved October 25, 2021, from https://www.investopedia.com/terms/l/liquidityratios.asp. 

Hayes, A. (2021c, October 22). What is a solvency ratio? Investopedia. Retrieved October 25, 2021, from https://www.investopedia.com/terms/s/solvencyratio.asp. 

Bragg, S. (2021, October 19). Market value ratios. AccountingTools. Retrieved October 26, 2021, from https://www.accountingtools.com/articles/market-value-ratios.html. 

Chen, J. (2021, May 19). Trailing price-to-earnings (trailing P/e) definition. Investopedia. Retrieved October 26, 2021, from https://www.investopedia.com/terms/t/trailingpe.asp. 

Journal, W. S. (2020). Kras.id | Krakatau Steel annual income statement - WSJ. The Wall Street  Journal. Retrieved October 19, 2021, from https://www.wsj.com/marketdata/quotes/ID/XIDX/KRAS/financials/annual/income-statement. 

Yahoo. (2021, October 26). Krakatau Steel (persero) tbk. (KRAS.JK) valuation measures & financial statistics. Yahoo! Finance. Retrieved October 26, 2021, from https://finance.yahoo.com/quote/KRAS.JK/key-statistics/. 

Murphy, C. B. (2021, May 31). Assessing a stock's future with the price-to-earnings ratio and Peg. Investopedia. Retrieved October 27, 2021, from https://www.investopedia.com/investing/use-pe-ratio-and-peg-to-tell-stocks-future/.