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PowerPoint Presentations for Finance for Non-Financial Managers: Seventh Edition

PowerPoint Presentations for Finance for Non-Financial Managers: Seventh Edition. Prepared by Pierre Bergeron University of Ottawa. Organization of Finance for Non-Financial Managers, 7e. CHAPTER 1. Overview of Financial Management. Learning Objectives.

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PowerPoint Presentations for Finance for Non-Financial Managers: Seventh Edition

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  1. PowerPoint Presentations for Finance for Non-Financial Managers: Seventh Edition Prepared by Pierre Bergeron University of Ottawa

  2. Organization of Finance for Non-Financial Managers, 7e

  3. CHAPTER 1 Overview of Financial Management

  4. Learning Objectives • Identify some of the external factors financial managers must consider to improve a company’s bottom line. • Discuss the role of financial management within a business. • Identify the people responsible for the finance function. • Explain the four financial objectives of a business. • Describe the three major types of business decisions. • Examine the issues related to corporate transparency and accountability.

  5. LO 1 External Environment How the external environment can impact on financial statements • Economic front • Political front • Global and open world economies • Technological changes • Product life cycle • Manufacturing side

  6. The Changing Role of Financial Management LO 1 The Statement of Financial Position Today Yesterday Internal activities • Working capital • Capital budgeting • Management information systems External activities • Mergers • Acquisitions • Reorganization • Recapitalization Focus • Economy • Efficiency • Effectiveness Focus • Raising funds Operating and financial matters Legal matters

  7. The Role of Financial Management LO 2 Statement of Financial Position Assets Return on assets Investors Cost of financing 10% 7% • 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?

  8. LO 3 People Responsible for Finance Management

  9. People Responsible for Finance Function LO 3 TREASURER CONTROLLER • 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

  10. Four Financial Objectives LO 4 Efficiency R.O.R R.O.A R.O.I R.O.E % (Incubation) Liquidity Current assets $ Less: current liabilities $ Net working capital $ (Cash shortage: must rely on credit) • Revenue • Working capital • Non-current assets • Profit for the year Growth (Financial insolvency = inaction) Stability Equity % Assets Debt % (Total insolvency: debt is out of proportion)

  11. Return on Revenue Objective LO 4 Non-current assets $3,000 or $0.03 Internal use (retained earnings) $5,000 or $0.05 Current assets $2,000 or $0.02 Return on revenue $8,000 or $0.08 Dividends $2,000 or $0.02 External use $3,000 or $0.03 Debt reduction $1,000 or $0.01

  12. Three Types of Business Decisions LO 5 Statement of Financial Position Investing decisions Operating decisions Financing decisions Managers Managers CEO/CFO/Treasurer 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 Non-current assets Current assets

  13. Operating Decisions Statement of Financial Position Working Capital Management • Inventories • Trade receivables • Trade and other payables • Cash Statement of Income • Demassing • Planned downsizing • Productivity indicators • Rewarding simplification • Cutting back useless activities • Rewarding quality work • Empowering workers • Zero-based budgeting LO 5

  14. LO 5 Financing Decisions • The matching principle • Sources and forms of financing • Cost of borrowed funds • Financing mix

  15. LO 5 Investing Decisions • Capital Assets • Research and development • Expansions • New plants • Modernizations • Acquisitions

  16. LO 6 Corporate Transparency and Accountability • Government Legislation • most recent Act, Sarbanes-Oxley (2002) • Corporate Governance • push towards transparency, integrity, and ethical behaviour • Corporate Culture • emphasis on shared values and beliefs • Global Accounting and Financial Statements • International Accounting Standards Committee (IASC), International Financial Reporting Interpretations Committee (IFRIC), and International Financial Reporting Standards (IFRS)

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