Cash Flow , Ratio,

and Tax
November 19th, 2022

Wuthivet Vetchabutsakorn
Course Topics

▪ Financial Ratios
▪ Cash Flow and Cash Management
▪ Basic Taxation

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Financial Ratios

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 Component of
Department P&L

▪ Sales
▪ Cost of Sales
▪ Salaries/Wages
▪ Benefits
▪ Controllable Costs
▪ Department Profit or
Expense
▪ Gross Operating Profit
(GOP)

A Guide:
Uniform System of Accounts
- For the Lodging Industry
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Cost Concept
How many costs are there in the Hotel? And what are they?

1. Variable Costs ( move in relation to Sale volume)

• Examples-
• Food Cost, Beverage cost
• Guest supplies & Amenities
• Travel Agent Commission, Reservation expense
• Utility
• Hourly labor (some)
2. Fixed Cost ( Do not vary with Sale volume)
• Examples-
• Management Salaries
• Contracts/Rental costs
• Real and Personal Property Taxes
 Nature of the costs:
Fixed or Variable

Fixed Variable

Management Wages Cost of Sales/Food Cost/Bev erageCost

Payroll Benefits Non-Management Wages

General & Administration (except

Casual Labor
Credit Card expense)

Repair & Maintenance Operating Supplies, Controllable

Heat, Light & Power Other Department Expense

Sales & Marketing : Fixed Contracts Sales & Marketing : Volume based

BACK TO BASICS 6
Hotel Profit & Loss Statements
Room Department F&B Department MOD Department

Total Department Income

Statement

- Undistributed Operating Expenses Support Center

= Gross Operating Profit (GOP)

• Management fees
• Insurance
• FF&E
• Property Tax
- Fixed Charges • Rental

= EBITDA
• Ratios are an analyst's microscope; they allow us get a better view of
the firm's financial health than just looking at the raw financial
statements. Ratios are useful both to internal and external analysts of
the firm.
• Internal purposes:
• Ratios can be useful in planning for the future, setting goals, and evaluating the
performance of managers.
• External purposes:
• External analysts use ratios to decide whether to grant credit, to monitor
financial performance, to forecast financial performance, and to decide whether
to invest in the company.
Categories of Ratios:
1. Liquidity ratios: describe the ability of a firm to meets its current obligations.
3. Leverage ratios: reveal the degree to which debt has been used to finance the firm's asset
purchases.
4. Coverage ratios: are similar to liquidity ratios in that they describe the ability of a firm to pay
certain expenses.
5. Profitability ratios: provide indications of how profitable a firm has been over a period of time.
Liquidity Ratios
• The term liquidity refers to the speed with which an asset can be converted into cash without
large discounts to its value. Some assets, such as accounts receivable, can easily be converted to
cash with only small discounts. Other assets, such as buildings, can be converted into cash very
quickly only if large price concessions are given. We therefore say that accounts receivable are
more liquid than buildings. All other things being equal, a firm with more liquid assets will be
more able to meet its maturing obligations (i.e., its bills) than a firm with fewer liquid assets.
The Current Ratio
• Generally, a firm's current assets are converted to cash (e.g., collecting on
accounts receivables or selling its inventories) and this cash is used to retire its
current liabilities.

• The higher the current ratio, the higher the likelihood that a firm will be able to
pay its bills.
The Quick Ratio
• Inventories are often the least liquid of the firm's current assets. For
this reason, many believe that a better measure of liquidity can be
obtained by ignoring inventories. The result is known as the quick ratio
(sometimes called the acid-test ratio), and is calculated as:

• Quick ratio will always be less than the current ratio. This is by design.
However, a quick ratio that is too low relative to the current ratio may
indicate that inventories are higher than they should be.
 Leverage Ratios
• Leverage refers to a multiplication of changes in
profitability measures. For example, a 10%
increase in sales might lead to a 20% increase in
net income The amount of leverage depends on
the amount of debt that a firm uses to finance its
operations, so a firm which uses a lot of debt is
said to be highly leveraged. Leverage ratios
describe the degree to which the firm uses debt in
its capital structure.
 Leverage Ratios
• This is important information for creditors and
investors in the firm. Creditors might be concerned
that a firm has too much debt and will therefore
have of debt can lead to a large amount of
volatility in the firms earnings. However, most
firms use some debt. This is because the tax
deductibility of interest can increase the wealth of
the firm's shareholders.
 The Total Debt Ratio
• The total debt ratio measures the total amount of debt
(long-term and short-term) that the firm uses to finance its
assets:

• Many analysts believe that it is more useful to focus on just

the long-term debt (LTD) instead of total debt. The long-
term debt ratio is the same as the total debt ratio, except
that the numerator includes only long-term debt:
 The Debt to Equity Ratio

• The debt to equity ratio provides exactly the same

information as the total debt ratio, but in a slightly
different form that some analysts prefer:

• To see that the total debt ratio and the debt to

equity ratio provide the same information, realize
that:
 Coverage Ratios
• The coverage ratios are similar to liquidity ratios in that they describe the
quantity of funds available to cover certain expenses. We will examine two very
similar ratios that describe the firm's ability to meet its interest payment
obligations. In both cases, higher ratios are desirable to a degree. However, if
they are too high, it may indicate that the firm is under-utilizing its debt capacity,
and therefore not maximizing shareholder wealth.
 The Times Interest Earned Ratio

• The times interest earned ratio measures the ability of the firm to pay
its interest obligations by comparing earnings before interest and
taxes (EBIT) to interest expense
 The Cash Coverage Ratio
• EBIT does not really reflect the cash that is
available to pay the firm's interest expense. That is
because a non-cash expense (depreciation) has
been subtracted in the calculation of EBIT. To
correct for this deficiency, some analysts like to
use the cash coverage ratio instead of times
interest earned. The cash coverage ratio is
calculated as:
• Note that the cash coverage ratio will always be
higher than the times interest earned ratio. The
difference depends on the amount of depreciation
expense, and therefore the investment and age of
fixed assets.
 Profitability Ratios
• Investors, and therefore managers, are particularly interested in the profitability
of the firms that they own. There are many ways to measure profits. Profitability
ratios provide an easy way to compare profits to earlier periods or to other firms.
Furthermore, by simultaneously examining the first three profitability ratios, an
analyst can discover categories of expenses that may be out of line.
• Profitability ratios are the easiest of all of the ratios to analyze.
Without exception, high ratios are preferred. However, the definition
of high depends on the industry in which the firm operates. Generally,
firms in mature industries with lots of competition will have lower
profitability measures than firms in younger industries with less
competition.
 The Gross Profit Margin
• The gross profit margin measures the gross profit relative to sales. It
indicates the amount of funds available to pay the firm.s expenses
other than its cost of sales. The gross profit margin is calculated by:
 The Operating Profit Margin

• We can calculate the profits that remain after the firm has paid all of
its usual (non-financial) expenses.
 The Net Profit Margin
• The net profit margin relates net income to sales. Since net income is
profit after all expenses, the net profit margin tells us the percentage
of sales that remains for the shareholders of the firm:
• Taken together, the three profit margin ratios that we have examined
show a company that may be losing control over its costs. Of course,
high expenses mean lower returns, and well see this confirmed by the
next three profitability ratios.
 Return on Total Assets
• The total assets of a firm are the investment that
the shareholders have made. Much like you might
be interested in the returns generated by your
investments, analysts are often interested in the
return that a firm is able to get from its
investments. The return on total assets is:
 Return on Equity
• While total assets represent the total investment
in the firm, the owners. Investment (common
stock and retained earnings) usually represent only
a portion of this amount (some is debt). For this
reason it is useful to calculate the rate of return on
the shareholder's invested funds. We can calculate
the return on (total) equity as:
• Note that if a firm uses no debt, then its return on equity will be the
same as its return on assets. The higher a firm's debt ratio, the higher
its return on equity will be relative to its return on assets.
 Using Financial Ratios
• Calculating financial ratios is a pointless exercise unless you
understand how to use them. One overriding rule of ratio analysis is
this: A single ratio provides very little information, and may be
misleading. You should never draw conclusions from a single ratio.
Instead, several ratios should support any conclusions that you make.
 Trend Analysis
• Trend analysis involves the examination of ratios over time. Trends, or
lack of trends, can help managers gauge their progress towards a
goal. Furthermore, trends can highlight areas in need of attention.
• One potential problem area for trend analysis is seasonality. We must
be careful to compare similar time periods.
 Comparing to Industry Averages
• one of the most beneficial uses of financial ratios is to compare
similar firms within a single industry. Most often this is done by
comparing to the industry average ratios. These industry averages
provide a standard of comparison so that we can determine how well
a firm is performing relative to its peers
Cash Flow and Cash Management

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Cash
• Cash is one of the current asset
• It is needed at all times in the business
• Business should always keep sufficient cash for meeting its
obligations.
• Cash is the most unproductive of all the assets. The cash in
hand will not add anything to the concern.

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Nature of Cash
• Only currency – Cash in hand and cash at bank and also
includes marketable securities too as part.
• It does not produce goods or services
• It is a medium to acquire other assets
• It help the business in producing cash
• There is a gap between cash inflows and cash out flows.

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Objectives of cash management
1. To meet cash disbursement needs (payment schedule)
2. To minimize funds committed to cash management

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Factors determining cash needs

1. Synchronization of cash flows

2. Short cost
3. Excess cash balance
4. Procurement and management
5. Uncertainty

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Strategies require for effective Cash
Management

• Cash Planning – A technique to plan and control. A

projected cash flow statement will help to determine
the possible uses of cash.

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• Cash Forecasting and Budgeting – It is a technique or device for the
control of receipts and payments of cash. It is an analysis of flow cash
in a business over a future, short or long period of time. It is a forecast
of expected cash intake and outlay. Long term and short term forecasts
may be made with the help of the following methods.
• Receipts and disbursements method
• Adjusted net income method
• Managing cash flows:
Cash management will be successful only if cash
collections are accelerated and cash disbursements as
far as possible delayed. The following methods of cash
management will help.

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• Methods of accelerating cash inflows
• Make the customers to pay promptly
• Convert the payments which is in the form of Cheques or DD into
cash quickly
• Big firms operating in different areas can have collection centers in
those area (Decentralized collections)
• Lock Box system – firm hires post box from post office and the parties
are asked to send the Cheques to that post box number.
• Methods of slowing cash outflows:
• Delaying the payments till last date
• Making payments through drafts
• Adjusting the payroll funds by making the weekly payment in to
month etc.
• Cheques shall be issued from the main office then it will take time for
the Cheques to be cleared through post.
• Inter – bank transfers shall be made to make efficient use of cash

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Determining Optimum Cash Balance

• The two approaches to determine the optimum cash balance are

i. Minimizing Cost models
ii. Preparing Cash budget
• Cash budget is the most important tool for cash management.

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Cash management: basic strategies
1. Cash cycle
2. Cash turnover
3. Minimum operating cash
a) Stretching accounts payable
b) Efficient inventory-production management
c) Speedy collection of accounts receivable
d) Combined cash management strategies

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Taxation

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Definition
Tax is a compulsory contribution levied on
persons, property, or businesses for
the support of government for economic and
social operations.

In other words, it is money paid to a government

to fund its programs and services.

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Tax Planning / Tax Avoidance / Tax Evasion Tax Evasion
An illegal method or unlawful attempt to reduce
the tax liability of taxpayers. It refers to techniques
or illicit practices of showing fewer profits to
minimize the individual or company’s tax burden

Tax Avoidance
The act of minimizing tax liability within the limits
of the law or without breaking the law. In other
words, you can use legitimate methods to reduce
the amount of tax payable in association with your
financial activities.

Tax Planning
Maximizing your tax benefits under eligible
provisions of the tax framework through a variety
of means, namely deductions, credits, rebates,
and exemptions provided under the Income Tax
Act or the corresponding tax laws.

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 Business activities VS Tax WHT

Payroll to
Vehicle Owns motor employee
tax vehicle
Collect money
Department from customers
Owns land and CIT
of Land Transport Property
building Make payment to
tax
vendors
Have
signboard/billboard Sell product or
Signboard
render service Revenue
tax VAT Department
Local Government Sells Luxury
Organization products
Enter into contract
(กทม / อบจ)
Excise Import/Export
tax products Sells building Duty
stamp
Customs
SBT

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Corporate Income Tax (CIT)
Tax paid on gross receipts

2 %

3 %
International transportation
by a foreign carrier
10 %
Foundation or association

*Income from membership fees and donations is exempted.

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Corporate Income Tax (CIT) EBT
Tax paid on profits (Accounting)
- A company or juristic partnership incorporated in Thailand is Adjusted revenues/expenses
subject to corporate income tax on all profits derived from in accordance with conditions
domestic and foreign sources. prescribed in Section 65 Bis
and Section 65 Ter.
- Taxable profit is derived from the sum of all revenue less allowable
expenditure in the accounting period.
Taxable profit
Taxpayer Tax base (THB) Tax rate
Companies or juristic
All taxable profit 20%
partnerships x Tax Rate
1-300,000 Exempt
SMEs 300,001 - 3,000,000 15%
Over 3,000,000 20%
SMEs are defined as companies or juristic partnerships with paid-up capital not exceeding
Tax to be paid
THB 5 million on the last day of the accounting period, and with income from sales of
goods or provision of services in any accounting period of not more than THB 30 million. 53
Corporate Income Tax (CIT)
Examples of non-deductible expenses >> added back to taxable profit
- Reserves and provisions
- Personal/private expenses
- Capital expenditures >> to be depreciated
- Penalties, surcharges and criminal fines imposed under all tax laws / corporate income tax / VAT
(except in certain cases)
- Artificial or incorrect period expenses
- Damages claimable from insurance or a contract of indemnity
- Bad debt written-off which does not comply with ministerial regulations
- Expenses for which the payer cannot identify the recipient
- Expenses without sufficient supporting documentation
- Expenses determined based on profit
Corporate Income Tax (CIT)
Corporate Income Tax (CIT)
Depreciation allowances
Depreciation must be based on the historical cost of an asset acquired, using generally accepted accounting methods. For tax
purposes, the depreciation period must not be less than the prescribed period applicable to each fixed asset type below:
Minimum depreciation period
Asset type
General company SME
Building 20 years 20 years or 20 years with 25% upfront on the acquisition date for factory building
Acquisition cost of depletable natural resources 20 years
Leasehold rights - Lease period plus any renewable periods
- 10 years if there is no lease agreement, or period of use is unlimited
Trademarks, goodwill, licenses, patents and copyrights - Period of use if the period of use is limited
or other rights - 10 years if period of use is unlimited
Computer hardware and software 3 years 3 years or 3 years with 40% upfront on acquisition date
Cash registers used for issuing abbreviated tax invoices
A choice of either 5 years, 5 years with 40% upfront depreciation and 1 year
by retail or other businesses
Furniture, fixtures, machinery, equipment, motor
5 years 5 years, or 5 years with 40% upfront depreciation for machinery and its parts
vehicles and other not mentioned above
Corporate Income Tax (CIT)
Depreciation of passenger cars
The depreciation base for passenger cars seating up to 10 persons is capped at THB 1 million. The excess Is neither
depreciable nor claimable as costs/expenses upon disposal for tax computation purposes. However, this does not
apply for vehicles used for rental and qualified prototype cars.

Accounting Tax
Cost base THB 2,090,000 1,000,000
Useful life 5 years 5 years
Depreciation/year THB 418,000 THB 200,000
The variance of THB 218,000 (THB 418,000 – THB 200,000) each year will be
added back to the accounting profit before tax to calculate taxable profit.
 Corporate Income Tax (CIT)
Dividend income

Company B Limited
(Foreign juristic person)
Company A Limited
(Thai juristic person) Company C can exclude dividend of Company B
(foreign company) from taxable income if and only if:

Dividend
Dividend
- Company C owns at least 25% equity interest.
- Held at least 6 months before receiving dividends
- Profit that Company C distributed is subject to
income tax in overseas country at rate of not less
than 15%
Z Company Limited
X Company PLC Y Company Limited (Limited Company)
(SET-listed company) (Limited Company) held A less than 25%)
100% Exempt held A at least 25%)
50% Exempt* Company C Limited
100% Exempt* (Thai juristic person)
*Remark: On the condition that Y and Z have held the shares in A more than 3 months before receiving the
dividend and do not dispose shares in A within 3 months after receiving the dividend (held 3+3)
Withholding Tax (WHT)
Withholding tax (“WHT”) is a deduction from payments made to suppliers who provide a service. Whether WHT is
applicable and what rate to deduct depends on the nature of the service provided.

Whom to deduct? What to deduct?

Payroll
Permanent employee (from payroll) Service fee (3%)
(Progressive rate)

Normal person Rent (5%) Advertising (2%)

Juristic person
Transportation (1%) Dividend (10%)

Foreign juristic person

Withholding Tax (WHT)
Company A sold an industrial machine to Company B. Due to its specialized specification, the machine needs to be
installed by an engineer from Company A. The price of this machine included the installation fee.

When Company A issued tax invoice to Company B,

which one do Company B have to deduct WHT upon
payment?
Company A Company B

Tax invoice Tax invoice Tax invoice Tax invoice

Machine 1,000,000 Machine 800,000 Machine 800,000 Install fee 200,000
Install fee 200,000

Case A Case B Case C

Value Added Tax (VAT)

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Value Added Tax (VAT) Exemptions

Taxable persons
- Sales of agricultural product, animals, and animal products
(except canned foods)
- Sales of fertilizers, drugs or chemicals for the care of plants or animals, and
insecticides or pesticides for plants and animals
- Sales of ground fishmeal and animal feeds
Sellers of goods
- Sales of newspapers, periodicals, textbooks and e-books
in Thailand
Providers of services Importers of goods
- Rendering of services in the fields of modern medicine, auditing and litigation
in in Thailand and services
- Hospital services
Persons deemed by the law to be traders, e.g. a - Domestic transport of all types and international transportation by land
local agent of an overseas corporation selling - Leasing of immovable property
goods or providing services in Thailand - Businesses subject to Specific Business Tax (SBT)

VAT Rate
- Exports of goods
- Provisions of services that are used abroad
Imports of goods or sales of goods or

7 0
- Sales of goods or services to the United Nations (UN),
provision of services not subject to 0% UN specialized agencies, embassies and consulates
% rate or exemptions % - Sales of goods or provision of services to government agencies or
state enterprises under projects funded by a foreign loan or aid
- International air or sea transportation services
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VAT exemption or not?

- Access during limited time (9AM - 10 PM - 24/7 access

- ให้ใช้พ้ืนที่ - ให้เช่าพื้นที่

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Specific Business Tax (SBT)
Tax rate
Type of business Tax base
(including municipal tax)
Banking and quasi-banking Interest, discounts, fees, FOREX 3.3%
Finance, securities and credit foncier revenue, etc. 3.3%
Factoring 3.3%
Interest, fees and service charges
Life insurance 2.75%
Interest, fees and sales of pawned
Pawnbroking 2.75%
items
Trading in immovable properties Gross receipts 3.3%
0.1%
Sale of securities on the SET Gross receipts
(currently exempt)

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Stamp Duty
Stamp duty is imposed at varying rates on certain legal instruments,
such as the examples in the table below:

Type of instrument Tax rate

Lease agreement for immovable property 0.1% of total rental or any other payment under the agreement
Share transfer instrument 0.1% of paid-up value of shares, or nominal value of the instrument,
whichever is greater
Hire-purchase agreement 0.1% of total hire-purchase price
Hire-of-work agreement 0.1% of total service fee
Loan agreement 0.05% of total amount of loan (capped at THB 10,000)

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Thank you

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