Presentation on theme: "FINANCE HIGHER BUSINESS MANAGEMENT UNIT 3. IMPORTANCE OF FINANCE Ensures that there are enough funds available to get the resources needed to meet objectives."— Presentation transcript:
IMPORTANCE OF FINANCE Ensures that there are enough funds available to get the resources needed to meet objectives. Ensures costs are controlled Ensures adequate cash flow Establish and control profitability levels.
ROLE OF THE FINANCE DEPARTMENT Provide financial information to help managers manage good decisions Ensure cash is available to meet objectives Prepare financial statements Monitor the funds of the business Ensure bills are paid Ensure the firm is controlling its credit well
CASH FLOW Looks at the liquidity of the business. This is having enough cash to meet everyday running costs.
Cash Coming InCash Going Out ProfitsLosses Sales of Fixed AssetsPurchasing Fixed Assets Sales of stockPurchase of stock Decrease in DebtorsIncrease in debtors New capital introducedDrawing of dividends Loans receivedLoans paid Increase in creditorsDecrease in creditors
FINANCIAL STATEMENTS 1. Balance Sheet Statement of things owned and owed by a company and how much the business is worth at a given period of time.
ELEMENTS OF THE BALANCE SHEET Fixed Assets – things that the company owns that will last more than a year. E.g. machinery, premises Current Assets – things that the company owns that will last less than a year. E.g. cash, stock, Debtors Current Liabilities – things that the company owes that will be repaid within a year. E.g. Creditors
Working Capital – the difference between Current Assets and Current Liabilities. Net Assets (Capital Employed) – Fixed Assets plus Working Capital. Issued Share Capital – the amount of shares that have been sold in the firm.
Reserves from Profit and Loss Account – retained profits from previous years. Long-term Liabilities – things that the company owes that will take longer than one year to repay. E.g. debentures
2. Trading, Profit and Loss Accounts This works out the profits the firm makes. Gross Profit – profit made on the buying and selling of their product. Sales less cost of goods sold Net Profit – overall profit after all expenses have been taken into consideration. Gross Profit less expenses