Introduction and Overview Flashcards
financial accounting
reporting financial position and performance to external users (developing financial statements)
Managerial accounting
focus on providing financial and non-financial data and information to assist managers (operations - short/long term)
data to assist managers
Financial management
focus on planning and controlling financial resources
Controlling resources
types of finance and what they are (4)
1, Finance - science of money management
- Corporate - focus on companies/corporations
- Managerial - focus on any typt of organization
- Public - role of Govt in economy
Four financial objectives
- Efficiency - how does your business leverage assets and investors money to make money?
- Liquidity - are you able to cover your short-term obligations
- Prosperity - how’s your growth of the business?
- Stability - how is your company funded? (Debt {borrowed} and Equity {invested})
Financing decisions - how to finance assets
Financing mix - what type?
Cost - what interest rate/weighted average cost of capital
Sources and forms - where does funding come from? what type?
Basic set of financial statements
- Statement of Financial Position - Balance sheet - snapshot of business’ value/wealth
- Statement of Income - business profit/wealth creating during given period
- Statement of changes in Equity - accumulated wealth retained by business
- Statement of ash Flow - sources/uses of funds (cash) during given period
think of 2-4 as record performances over time
Statement of cash flows
Focused on cash accounting - data regarding inflow/outflow of cash within company
Horizontal Analysis
Technique for Financial Statement Analysis - compares historical data over accounting periods (in $ or %)
Vertical Analysis
Technique for Financial Statement Analysis. Line items is listed as % of base figure w/in statement (used for all statements)
Income Statement
% of gross sales or revenue
Cash Flow Statement
each cash inflow/outflow as a percentage of the total cash inflows
Ratio Analysis
Measures liquidity, profitability, debt, operating performance and investment valuation
Break-even Analysis
Determines the point at which revenue received equals the costs associated with receiving the revenue
Operational Analysis
studies operational systems with the aim of identifying opportunities for improving operation of a company
Investing
- no risk, no reward – Risk and return (higher risk could = higher reward)
investments
- real assets - PPE, Vehicles, house, gold
- Financial assets - cash, stock, bonds
Evolution of Financial Management
Past
- focus on becoming large (eg mergers)
- Raising funds to support activities
- legal matters related to activities
Now (more focuses)
- internal operational activities
- Economy, efficiency and effectiveness
- Operational and financial matters
External Factors impacts
Changes in external environment
- Economic
- Political
- Global and open world economics
- Faster technological changes
- shorter product life cycle
- Pressure for innovation and quality
Role of Financial Management
Answering questions like:
- How are we doing
- How much cash do we have on hand
- how can we fun new products development
- where will the cash come from
- how will investors interest be protected
Triple Bottom Line
Aligning goals of the firm with ALL Stakeholders
Types of Business Decisions (3)
- Operating
- Financing
- Investing – comes after first two
Done by planning:
- Short-term – One year or less.
- Long-term – Beyond. (top two are Debt. Bottom two Equity)
Operating Decisions
have to do with the daily operations or functioning of the business.
- current assets and liabilities and some expenses and revenue from the income statement.
- Balance sheet
- Statement of Income
Investing Decisions
have to do with Non-Current Assets on the balance sheet.
- Research and Development
- Expansions
- New plants
- Modernization
- Acquisitions
Financing Decisions
how you finance your assets to support the operations of your business.
- Financing Mix – What type of financing should we take on?
- Cost – What is the interest rate or weighted average cost of capital?
- Sources and forms – Where does our funding come from and in what type of form?
