FM

• Accomplished collection of financial statements

  • Balance Sheet
  • Income Statement
  • Annual Report
  • Statement of Change In Equity
  • Statement of Cash Flows
• Accounting

  The language of finance for the formal reports prepared by accountants
• Financial Statements

  The formal reports that present the consequence of business events or transactions, split and classified according to its financial nature
• Purpose of Financial Management

  • To minimize and maximize expenses
  • To determine the economic status
• Master Budget

  Indicator of how much capital is needed to open a business
• Roles of an Entrepreneur

  • Recognizing the needs of the community
  • Identifying the products and services that will satisfy their needs
  • To earn a profit
  • To increase the company's sales
• Money is considered the "lifeblood" of the business because money is everything
• Inflow of Money in a Firm

  • Cash Sales
  • Owner's Investment
  • Borrowed Funds
  • Collection of Accounts Receivable
• Assets

  Controlled Resources
• Current Assets

  • Convertible into cash in less than 1 year
  • Inventory (raw material, semi finished, finished goods)
• Non-Current Assets (Fixed)

  • Land
  • Equipment
  • Building
• Outflow of Money in a Firm

  • Purchase of fixed assets (Land, building)
  • Payment of Expenses (Utilities, rent)
  • Payment of dividends (stockholders, investors for stocks)
  • Purchase of inventory (raw materials)
• Functions of Financial Manager

  • Treasurership (provisions of funds, custody of funds, credit & collection, investments)
  • Comptrollership (ensuring funds are effectively and efficiently utilized, Head of Accountant)
• Financial Planning

  • Funds of the enterprise are limited
  • Course of obtaining and using the money needed to implement a goal
• Steps in Establishing a Goal

  1. Increase Sales

  2. Marketing Aspects

  3. What is your goal?
• Budgeting

  Properly allocating the money
• Identifying the sources of Funds

  Where to get the budget (Cash sales, Investments, Borrowing)
• Profit Maximization

  Acquire profit, promote the product, short term goal
• Wealth Maximization

  Long term goal, value of the business as a whole, business expansion, business growth
• Improving Market Share

  Capturing the market share, having the highest share in the market
• Valuation

  Wealth Maximization (business growth)
• Risk Management

  • Return on Investment
• Journalizing

  First phase of accounting cycle
• Income Statement

  Statement of Financial Position or Balance Sheet
• Income Statement

  Presents income and expenses
• Balance Sheet


  Financial statement showing the assets, liabilities, and capital
• Statement of Financial Position

  Presents the company's financial position at a given period, consisting of assets, liabilities, and equity
• Assets

  • Cash
  • Cash equivalents
  • Accounts receivable
  • Stock Inventory
  • Short-term investments
  • Building
  • Machinery
  • Computer Equipment
  • Tools
  • Furniture
  • Goodwill
  • Patents
  • Copyright
  • Trademark
  • Brand Recognition
  • Business Methodologies
• Liabilities

  • Notes Payable
  • Mortgage
• Shareholder's Equity

  • Share Capital
  • Reserves
  • Retained Earnings
• Accounting Equation

  Assets = Liabilities + Owner's Equity
• Elements of Income Statement

  • Revenue and Gains (Revenues or Sales from Primary Activities, Income or gains from secondary activities, Gains from non-recurring activities)
  • Expense and Losses (Expenses involved in primary activities, Interest on loans for funds used in the business, Expenses from secondary activities, Losses from non-recurring activities)
• Liquidity


  A measure of the extent to which a person or organization has cash to meet immediate and short-term obligations
• Liquid Assets


  Assets that can be easily converted to cash without significant loss of its original value
• Current Ratio

  Calculated as Current Assets / Current Liabilities
• James Teids Company current ratio of 3.6 is below the industry average of 4.1, indicating a somewhat weak liquidity position
• Quick Ratio

  Calculated as (Current Assets - Inventory) / Current Liabilities
• James Teid Company's quick ratio of 1.5 is low compared to the industry average of 2.1, suggesting a poor liquidity position
• Asset Management Ratios


  • Measure how effectively and efficiently the firm is managing its assets
• Inventory Turnover Ratio


  Calculated as COGS / Average Inventory