Finance for Non-Financial Managers

honeydewscreenManagement

Nov 9, 2013 (3 years and 6 months ago)

49 views







Copyright © 2011 Nelson Education Limited

Finance for Non
-
Financial Managers
, 6
th

edition

PowerPoint Slides

to

accompany

Prepared by

Pierre Bergeron, University of Ottawa







Copyright © 2011 Nelson Education Limited

Finance for Non
-
Financial Managers
, 6
th

edition

CHAPTER 1

OVERVIEW OF FINANCIAL
MANAGEMENT







Copyright © 2011 Nelson Education Limited


Overview of Financial Management



Chapter Objectives

1.
Define the meaning of financial management.

2.
Identify the individuals responsible for the
finance function.

3.
Explain the four financial objectives.

4.
Comment on the three major types of business
decisions.

5.
Discuss the issues related to corporate
transparency and accountability.

Chapter Reference

Chapter 1: Overview of Financial Management







Copyright © 2011 Nelson Education Limited

The Changing Role of Financial Management

The Statement of Financial Position

Today

Yesterday

Internal activities

• Working capital

• Capital budgeting

• Management information


systems

Focus

• Economy

• Efficiency

• Effectiveness

External activities

• Mergers

• Acquisitions

• Reorganization

• Recapitalization

Focus: Raising funds

Legal matters

Operating and
financial matters







Copyright © 2011 Nelson Education Limited

Chapter 1 Overview of Financial Management


Accounting, Financial Statements

and Ratio Analysis

Chapter 2 Accounting and Financial Statements

Chapter 3 Statement of Cash Flows

Chapter 4 Financial Statement Analysis


Operating Decisions

Chapter 5 Profit Planning and Decision
-
Making

Chapter 6 Working Capital Management

Chapter 7 Planning, Budgeting, and Controlling


Financing Decisions

Chapter 8 Sources and Forms of Financing

Chapter 9 Cost of Capital, Capital Structure and


Financial Markets


Investing Decisions

Chapter 10 Time Value of Money Concepts

Chapter 11 Capital Budgeting

Chapter 12 Business Valuation

Organization of the Book
Finance for Non
-
Financial Managers







Copyright © 2011 Nelson Education Limited

1. The Meaning of Financial Management

Statement of Financial Position

Assets


Return on

assets

Investors


Cost of

financing

• How are we doing and is the business profitable?

• How much cash do we have on hand and can we pay our bills on time?

• What should we spend our funds on? Operating activities or non
-
current assets?

• Where will our funds come from? From internal operations? From lenders?


From shareholders?

• How will our investors’ interests be protected? How much will it cost?

10%

7%







Copyright © 2011 Nelson Education Limited

2. Who is Responsible for the Finance Function?


General accounting


Cost accounting


Credit and collections


Management information


systems


Trade and other payables


Corporate accounting


Internal auditing


Budgets and analysis


Systems and procedures


Planning and controlling


Interpreting financial reports


Evaluation and consultation


Preparing reports for


government agencies


Reports on capital assets


Raising capital


Investor relations


Short
-
term borrowings


Divide
nds

and interest payments


Insurance management


Analysis of investment securities


Retirement funds


Property funds


Property taxes


Investment portfolio


Cash flow requirements


Actuarial


Underwriting policy and manuals


Tax administration

All MANAGERS

CONTROLLER

TREASURER







Copyright © 2011 Nelson Education Limited


3. The Four Financial Objectives

R.O.R

R.O.A

R.O.I

R.O.E

Current assets $

Less: current liabilities $


Net working capital $



Revenue



Working capital



Non
-
current assets



Profit for the year



Equity %

Assets



Debt %

%

Efficiency

Liquidity

Growth

Stability

(Incubation)

(Total insolvency: debt
is out of proportion)

(Financial insolvency =
inaction)

(Cash shortage: must
rely on credit)







Copyright © 2011 Nelson Education Limited

Return on Revenue Objective

Return on
revenue

$8,000 or

$0.08

Internal use

(retained earnings)

$5,000 or

$0.05

External use

$3,000 or

$0.03

Non
-
current assets

$3,000 or

$0.03

Current assets

$2,000 or

$0.02

Dividends

$2,000 or

$0.02

Debt reduction

$1,000 or

$0.01







Copyright © 2011 Nelson Education Limited

4. Types of Business Decisions

Investing
decisions

Operating
decisions

Financing
decisions

Non
-
current assets


Current assets

Statement of Financial Position

Managers

CEO/CFO/Treasurer

Managers

Equity

• Share capital

• Retained earnings


Liabilities



Long
-
term



Short
-
term


Statement of Income

Revenue

Cost of sales

Gross profit

Operating expenses

Profit before taxes

Income tax expense

Profit for the year







Copyright © 2011 Nelson Education Limited

Operating Decisions

Working Capital Management



Inventories



Trade receivables



Trade and other payables



Cash

Statement
of Financial
Position



Demassing



Planned downsizing



Productivity indicators



Rewarding simplification



Cutting back useless activities



Rewarding quality work



Empowering workers



Zero
-
based budgeting

Statement of
Income







Copyright © 2011 Nelson Education Limited

Financing Decisions



The matching principle




Sources and forms of financing




Cost of borrowed funds




Financing mix







Copyright © 2011 Nelson Education Limited

Investing Decisions


Capital Assets



Research and development



Expansions



New plants



Modernizations



Acquisitions







Copyright © 2011 Nelson Education Limited

5. Corporate Transparency and Accountability


Government Legislation
(most recent Act,
Sabarnes
-
Oxley in 2002).


Corporate Governance
(a push towards
transparency, integrity and ethical behaviour).


Corporate Culture
(emphasis on shared values and
beliefs).


Global Accounting and Financial
Statements
(creation of the International Accounting
Standards Committee (IASC), the International Financial
Financial Reporting Interpretations Committee (IFRIC) and the
development of the International Financial Reporting Standards
(IFRS).