14
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, 6th edition
PowerPoint Slidesto accompany
Prepared by Pierre Bergeron, University of Ottawa
Copyright © 2011 Nelson Education Limited
Finance for Non-Financial Managers, 6th edition
CHAPTER 1
OVERVIEW OF FINANCIAL MANAGEMENT
Copyright © 2011 Nelson Education Limited
Overview of Financial Management
Chapter Objectives1.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 ReferenceChapter 1: Overview of Financial Management
Copyright © 2011 Nelson Education Limited
The Changing Role of Financial ManagementThe 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 mattersOperating and financial matters
Copyright © 2011 Nelson Education Limited
Chapter 1 Overview of Financial Management
Accounting, Financial Statements and Ratio AnalysisChapter 2 Accounting and Financial StatementsChapter 3 Statement of Cash FlowsChapter 4 Financial Statement Analysis
Operating DecisionsChapter 5 Profit Planning and Decision-MakingChapter 6 Working Capital ManagementChapter 7 Planning, Budgeting, and Controlling
Financing DecisionsChapter 8 Sources and Forms of FinancingChapter 9 Cost of Capital, Capital Structure and Financial Markets
Investing DecisionsChapter 10 Time Value of Money ConceptsChapter 11 Capital BudgetingChapter 12 Business Valuation
Organization of the Book Finance for Non-Financial Managers
Copyright © 2011 Nelson Education Limited
1. The Meaning of Financial ManagementStatement 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• Dividends 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 ObjectivesR.O.RR.O.AR.O.IR.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/TreasurerManagersEquity
• Share capital
• Retained earnings
Liabilities
• Long-term
• Short-term
Statement of IncomeRevenue
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).
