Finance for Business Leaders :
By A.V. Vedpuriswar
The Financial System
Suppliers of Funds
Deposits / Shares
Chandra, “ Financial management”
Classification of Financial Markets
Nature of claim
Maturity of claim
Seasoning of claim
Timing of claim
Cash or Spot Market
Forward or Futures Market
Chandra, “ Financial Management”
Role of The Financial Manager
Principles of Corporate finance
How Finance adds value for shareholders
Key Financial Decisions
Get the highest return on investments
Allocate scarce financial resources
value for shareholders
The Financial Lifecycle
Every company has a financial life cycle.
It involves :
using the money to run and grow the business
returning money to shareholders.
The lifecycle can be divided into :
Finance conveys performance of business at a glance
Financial statements represent reality.
But they are not the reality.
Finance / Accounting are both art and science.
The heart of Finance
Assets ( what the company owns)
Liabilities ( what the company owes)
Revenues ( money generated by the business)
Expenses ( money spent on the business)
Inflows and outflows of cash ( a measure of liquidity)
Generally Accepted Accounting Principles
The Business Entity Principle
The Cost Principle
The Objectivity Principle
The Stable Dollar Principle
Book neither too early nor too late.
What matters is not the actual collection or payment
What matters is whether the revenue can be
and whether the expense must be booked.
The Income Statement
This is earned money.
This is the cost of doing business.
Gross profit :
Operating profit :
elling and general
expenses, depreciation expenses,
: Operating profit
The Revenues and expenses always balance. The balancing
entry is the profit/loss made.
What we can learn from the income
Sales, costs and profits
Specific unexpected expenditures
Whether the business is profitable
Drill deeper into individual segments
The Balance Sheet
A "snapshot" of a company's financial position at a moment
What a company owns (assets) and what it owes (liabilities)
The difference between the two is the shareholder equity.
The Balance Sheet always balances.
What we can learn from the Balance Sheet
Basis for computing
rates of return,
measuring exposure to debt
Evaluating capital structure and assessing liquidity and
What assets does the company hold?
How much debt does it owe?
Is there enough cash to manage its inventory and pay its creditors?
How financially sound is the company?
Can it handle the normal fluctuations of revenues and expenses?
The Cash Flow statement
Operating cash flows:
flows and out
a business on account of its day
Financing cash flows :
Cash flows from "raising"
money for a company's business.
Investing cash flows :
Using cash for the purchase of
plant, property, and equipment, and for long
investments and receiving cash out of their sales.
Sources and Uses of Funds
What we can do with the cash flow statements
Forecast cash requirements
Identify financing needs
Locate cash drains
Identify problems in the cash budgeting process
The Connection between Income statement and
Profits not distributed come back as Retained Earnings on
Expenses incurred but not paid come back as Accrued
expenses on Balance Sheet.
Expenses incurred for benefits not yet received come back
as Pre paid assets on Balance Sheet.
Depreciation and other non cash expenses incurred appear
in both statements.