1. Essential Standard 4.00 Understanding the role of finance in business. 1

2. Objective 4.01 Understand financial management. 2

3. Topics 3  Financial planning  Business budgets  Financial records and statements  Financial performance ratios

4. Financial planning 4

5. Financial Planning 5  Why should a business do financial planning?  What are the phases of business financial planning?  Start-up  Operation  Expansion  What happens during each phase?

6. Financial Planning continued 6  What is the basic financial equation? Revenue – Expenses = Profit or Loss  In order to have a profit, which will be greater?  In order to have a loss, which will be greater?

7. Business budgets 7

8. Business Budgets 8 Types of business budgets:  Start-up budget  Operating budget  Cash budget

9. Business Budgets continued 9 Steps for preparing a business budget: 1. Prepare a list of income and expense items. 2. Gather accurate information from business records. 3. Create the budget. 4. Clearly communicate the budget to key employees in order to make sound business decisions.

10. Financial records and statements 10

11. Financial Records and Statements 11  What is the purpose of financial records?  Financial records used by businesses:  Asset records  Depreciation records  Inventory records  Records of accounts  Cash records  Payroll records  Tax records

12. Financial Records and Statements continued 12  What are assets?  Assets are what a company owns.  What are liabilities?  Liabilities are what a company owes.  What is owner’s equity?  Owner’s equity is the value of the owner’s investment in the business. Owner’s Equity = Assets – Liabilities. Another name for owner’s equity is stockholder’s equity.  What are financial statements?  Financial statements provide a picture of the financial performance of a business.  What is the difference between a balance sheet and an income statement?  A balance sheet includes assets, liabilities, and owner’s equity. An income statement includes sales, expenses, and net profit or loss.

13. Financial performance ratios 13

14. Financial Performance Ratios 14  What are financial performance ratios?  The four main types of financial ratios:  Current ratio  Debt to equity ratio  Return on equity ratio  Net income ratio

15. Financial Performance Ratios continued 15  Current ratio  How is current ratio calculated?  What does this ratio represent?  Which is more favorable, higher or lower?  Debt to equity ratio  How is debit to equity ratio calculated?  What does the ratio represent?  Which is more favorable, higher or lower?

16. Financial Performance Ratios continued 16  Return on equity ratio  How is current ratio calculated?  What does this ratio represent?  Which is more favorable, higher or lower?  Net income ratio  How is current ratio calculated?  What does this ratio represent?  Which is more favorable, higher or lower?