FINANCE FOR NON-FINANCIAL MANAGERS

MODULE

EMERGING MANAGERS PROGRAMME (EMP)

by

Mr Steven MsomiOhpis Nevets Investments (Pty)Ltd

Ohpis Nevets Investments:

who we are?

To Be Covered

To Be Covered

1. FINANCIAL STATEMENTS

o ITHALA DELOPMENT FINANCE CORP

o ITHALA SOC

1. South Africa’s 2014/5 Budget

2. RATIO ANALYSIS

3. FOREX Rate Determination

o Inflation

o Interest Rates

3. Capital Structure

4. Budgeting Process

5. LEGISLATION ( PFMA, FICA, FAIS, NCA, BASEL III)

THE TRAP:

E(Rp)

RISK ()

RISK:RETURN RELATIONSHIP

6%

0

12%

8%

16%

12%

18%

14%

Capital Market Line

(CML)

30%

22%

THE INVESTMENT BACKGROUND

An investment can be

defined as postponed

consumption

OR

An investment is the

sacrifice of certain present

value for future value

B. THE INVESTMENT BACKGROUND

Three main attributes of

an investment:

time

inflation

risk

LOCATION (Risk & Return Line)

SAVING & INVESTMENTS

available investment vehicles

Investment vehicles

choice

property

bonds

ISITOKOFELAequities

cash

B. THE INVESTMENT BACKGROUND

diversification

Never keep

all your eggs

in one

basket!

C. THE ECONOMYbusiness cycles

through

peak

through

MASLOW Hierarchy of Needs:

FINANCIAL Markets:

RATING Agencies:

Tax Revenue (2015/6):

Budgeting, 2015:

Budget Estimates:

EDUCATION Budget:

SOCIAL PROTECTION Budget:

FOREX Rate Determination:

FOREX Determination:

INFLATION

If two countries that are engaged in trade with one another, the one with higher

inflation rate between the two, is the one whose currency is expected to weaken

within medium term.

FOREX Determination:

INTEREST RATES

If two countries that are engaged in trade with one another, the one with higher

interest rate between the two, is the one whose currency is expected to strengthen

within short to medium term.

Capital Structure:

It is vitally important for a business to determine the ratio between debt & equity in its funding

Debt is considered cheaper to certain level. After that level, higher levels of debt become risky.

Please explain how this happens?

RATIOS Formulae:

Balance Sheet:

Income Statement:

ADDITIONAL Infor:

For market value measures we assume that Cathula has 35 mlnshares issued, which sold for R88 per share at the end of the year. If we recall Cathula net income was R385 mln, we can calculate EPS,

PE & Market to book ratios.

IDFC Income Statement- 2015

IDFC Income Statement- 2015

IDFC Balance Sheet 2015

IDFC Balance Sheet 2015

UW FINANCIALS

THE BANKING LICENCE ISSUE:

THE BANKING LICENCE ISSUE:

TRAINING NUMBERS:

STATS: OPERATIONS

STAFF NUMBERS:

PROPERTY, HIGHLIGHTS:

BUSINESS FINANCE:

BUSINESS FINANCE:

LEGISLATION

THE STRUCTURE:

STRATEGY:

ITHALA SOC

ITHALA SOC

THE PERFORMANCE

ITHALA SOC

THE PERFORMANCE

BALANCE Sheet, 2014 &2013

NON-CURRENT LIABILITIES & RESERVES

INCOME Statement, 2014 &2013

REVENUE

ITHALA SOC

THE FINANCIALS

CASH FLOW Statement, 2014 &2013

FROM OPERATIONS & INVESTING

ITHALA SOC

THE BALANCE SHEET

MOSES Mabhida ,2014 &2013

MOSES Mabhida ,2014 &2013

2014 2013

REVENUE R78 000 000 R73 000 000

EXPENDITURE R181 000 000 R224 000 000

DEFICIT R103 000 000 R151 000 000

BUDGTING, The Municipality

THE POLICY

MUNICIPAL FINANCE MANAGEMENT ACT, ACT 56, 2003 – The Council must yearly approve a budget;

The Mayor must present the budget to council (Subsection-2 of Act) This should be 90-days before start of Budget Year; The budget must address diverse community needs; The Budget must accommodate Macro-economic & Fiscal policies of

SA; Major Players in Budgeting:-o THE COUNCILo THE MAYORo ACCOUNTING OFFICER (MM)o CHIEF FINANCIAL OFFICESo SENIOR MANAGERSo THE COMMUNITY

BUDGTING, The Municipality

THE PRINCIPLES

Cannot budget for a deficitRevenue projections need to be realisticTHREE year budget needs to be prepared and annually

approved by the council (MEDUIM TERM REVENUE & EXPENDITURE FRAMEWORK)

MTREF must always be within Municipal Integrated Development Plan;

BUDGTING, The Municipality

THE PREPARATION PROCESS

FORMULATION OF THE BUDGET

PUBLIC PARTICIPATION PROCESS

APPROVAL OF THE BUDGET

PUBLICATION OF THE BUDGET

SERVICE DELIVERY & BUDGET IMPLEMENTATION PLAN

PFMA

ACT 1, 1999

Focus on outputs & responsibilities

Flexibility with accountability

Clarity of role of accounting officer

“Let the managers manage,But hold them accountable”

PFMA

THE AIMS OF PFMA

To regulate financial management

To ensure all revenue, expenditure, assets, and liabilities … are managed efficiently and effectively;

To provide for the responsibilities of persons entrusted with financial management;

Applicable to all public entities , except the Reserve Bank, Auditor General, higher education institutions and local authorities (own acts)

PFMA

KEY OBJECTIVES OF PFMA

Modernise the system of financial management

Enable public sector managers to manage, but at the same time to be accountable

Ensure timely provision of quality information

To eliminate waste and corruptionin the use of public assets

PFMA

NATIONAL TREASURY, SEC 6(1) &(2)

Promote and enforce transparency and effective management in respect of revenue, expenditure, assets and liabilities

Must prescribe uniform Treasury norms and standards

Must enforce the PFMA and any prescribed norms and standards

May assist departments in building capacity for efficient, effective and transparent financial management

May investigate any system of financial management and internal control in any department

PFMA

RESPONSIBILITIES OF ACCOUNTING OFFICERS

Must ensure that the department has and maintains• Effective and efficient systems of financial and risk management and internal control

• A system of internal audit under control of an audit committee

• An appropriate procurement and provisioning system which is fair, equitable, transparent and cost effective

Responsible for the effective, efficient, economical and transparent use of resources of the department

Must take effective and appropriate steps to prevent unauthorized, irregular and fruitless and wasteful expenditure and losses resulting from criminal conduct

Must take effective and appropriate disciplinary steps against any official who

• Commits an act which undermines the financial management and internal control systems

• Makes or permits an unauthorized, irregular or fruitless and wasteful expenditure

Delegate in writing any powers or duties to an official in the department

PFMA

RESPONSIBILITIES OF OTHER OFFICIALS

Must ensure that the system of financial management and internal control established for that department is carried out

Is responsible for the effective and efficient use of financial and other resources

Must take effective and appropriate steps to prevent unauthorized, irregular and fruitless and wasteful expenditure

Is responsible for the management, including safeguarding of the assets within that officials responsibility

PFMA

FINANCIAL MISCONDUCT

An accounting officer commits an act of financial misconduct if willfully or negligently fails to comply with a requirement of sec 38

An official of a department to whom a power or duty is assigned in terms of section 44 commits an act of financial misconduct if willfully or negligently fails to exercise that power or perform that duty

An official of a treasury to whom a power or duty is assigned in terms of section 10 commits an act of financial misconduct if willfully or negligently fails to exercise that power or perform that duty

An accounting officer is guilty of an offence and liable on conviction to a fine or to imprisonment for a period not exceeding five years, if that accounting officer willfully or in a grossly negligent way fails to comply with a provision of section 38

PFMA

THE PROCUREMENT SYSTEM

Accounting Officer must ensure that his department has and maintains an appropriate procurement and provisioning system (Sec 38)

Accounting Officers must accept responsibility and accountability for AD HOC tenders

Accounting Officer must submit procurement procedures to national treasury for accreditation

Preferential Procurement Policy Framework Act (no 5 of 2000) requires that criteria to be applied during evaluation and adjudication must form part of tender documents.

Procurement reforms aims to strengthen accountability, ensure a fair and open system and to prevent corruption

WACC:

“ We simply attempt to be

fearful

when others are

greedy,

and to be

greedy

when others are

fearful”

IN CLOSING…

“Anything

that CANNOT

go on forever

WILL END”

PLEASE THINK THIS OVER…

QUESTIONS: