FINANCE & ACCOUNTING

1. FINANCE & ACCOUNTING Week 7Dr. Thomas Webb

2. Why should you listen to me on this? • I am not an accountant or a financial manager. • I have a doctoral area in finance, whatever good that is. • I am no expert in this stuff, BUT maybe that is good. • I have been a bookkeeper for a number of companies. • I have done financial analysis for companies. • I ask many of the right questions. • I was CEO/President of a business with $50 million in sales & COO of a major NYSE company. • I’ve read thousands of financial statements and still don’t understand most of what I read.

3. What can I hope to accomplish? • I have given you a good set of chapter notes and a number of great sources of information. That is one thing I have done that you will be able to use later in your life.. • I can’t teach you about what financial statement are, if you have had the finance course you know and if you haven’t you will learn – hopefully • I can give you some insights into what I have found to be important from someone who has used them to make decisions for many years.

4. WEBB’S TOP TEN [well OK 20] LESSONS IN FINANCE.Here are some of the lessons I have learned that generally are NOT covered in the finance course.Beta Version 1.001

5. Great Insights 1 to 5Well at least little insights! • Rich helps a lot ! • Get a really good accountant that knows your industry and a good financial advisor. • For small businesses the effective management of cash is THE SINGLE MOST IMPORTANT ELEMENT OF FINANCE. • For small businesses the lack of adequate capital is a major cause of failure. • You have to know enough to ask the right questions.

6. Great Insights 6-10Well at least little insights! • You have to spend time on the finances . • Know enough to smell a rat! • If you avoid the truth and on’t address the problems, you lose. • Cheap is good! • Sensitivity analysis tells you which number are most important

7. Great Insights 11-15Well at least little insights! • Trend Analysis is always important • Be particularly careful of bad decisions that will box you in. • Don’t forget about lying with numbers. Be very cautious of financial statements. Don’t take them at face value - EVER. • EVERY key executive whether HR, marketing or finance MUST understand the financial keys and status of the company. • If you can’t figure out a debit and a credit – get a cheat sheet!

8. Great Insights 16-20Well at least little insights! • Always do due diligence on everything and everyone. • The growth trap is important, if you don’t’ address it a very successful business will fail. • Remember who is paying the bills – The customers! • So in the end what do you need! • What would you add to make it an even 20?

9. Let’s Talk about the Statements • The Balance Sheet • Using the balance sheet data • Problems with the balance sheet • The Income Statement • Using the data • Problems with the income statement • The Cash Flow Statement • How to increase cash flow • Key importance and how compute

10. Some Random Terms to Contemplate • Gross profit vs. Marginal Contribution • Overhead • EBIT • Disaggregation • Good will • Amortization • Depreciation • Inventory turnover • Debit and Credit • Sunk Costs

11. Some more always important STUFF • Ratios and Analysis • They are just numbers, it is how you use them that counts. • Liquidity and Profitability • Efficiency and Capital Structure • Analysis Methods – just a few • Packback • Breakeven • Time Value of Money – DPV, IRR, NPV [If you understand compound interest then you understand this!] • Capital Budgeting

12. Some Examples • FinishLine • Gotham Building • Parker Mountain Products • Nathan Mower, Plumber • Should he buy the Saw [SM13.1] • Vermont Hills Coffee • Dalton Dalton Newport