Copyright © 2014 Nelson Education Ltd. 1–1 PowerPoint Presentations for Finance for Non-Financial Managers: Seventh Edition Prepared by Pierre Bergeron University of Ottawa

Copyright © 2014 Nelson Education Ltd. 1–2 Organization of Finance for Non-Financial Managers, 7e

Copyright © 2014 Nelson Education Ltd. 1–3 CHAPTER 1 Overview of Financial Management

Copyright © 2014 Nelson Education Ltd. 1–4 1.Identify some of the external factors financial managers must consider to improve a company’s bottom line. 2.Discuss the role of financial management within a business. 3.Identify the people responsible for the finance function. 4.Explain the four financial objectives of a business. 5.Describe the three major types of business decisions. 6.Examine the issues related to corporate transparency and accountability. Learning Objectives

Copyright © 2014 Nelson Education Ltd. 1–5 External Environment 1.Economic front 2.Political front 3.Global and open world economies 4.Technological changes 5.Product life cycle 6.Manufacturing side How the external environment can impact on financial statements LO 1

Copyright © 2014 Nelson Education Ltd. 1–6 The Changing Role of Financial Management The Statement of Financial Position Today Yesterday Internal activities Working capital Capital budgeting Management information systems Focus Economy Efficiency Effectiveness External activities Mergers Acquisitions Reorganization Recapitalization Focus Raising funds Legal matters Operating and financial matters LO 1

Copyright © 2014 Nelson Education Ltd. 1–7 The Role of Financial Management Statement of Financial Position Assets Return on assets Investors Cost of financing 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? 10%7% LO 2

Copyright © 2014 Nelson Education Ltd. 1–8 People Responsible for Finance Managemet LO 3

Copyright © 2014 Nelson Education Ltd. 1–9 People Responsible for Finance Function 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 CONTROLLER TREASURER LO 3

Copyright © 2014 Nelson Education Ltd. 1–10 Four Financial Objectives R.O.R R.O.A R.O.I R.O.E Current assets $ Less: current liabilities $ Net working capital $ Revenue Working capital Non-current assets Profit for the year Equity % Assets Debt % % Efficiency Liquidity Growth Stability (Incubation) (Total insolvency: debt is out of proportion) (Financial insolvency = inaction) (Cash shortage: must rely on credit) LO 4

Copyright © 2014 Nelson Education Ltd. 1–11 Return on Revenue Objective Return on revenue $8,000 or $0.08 Internal use (retained earnings) $5,000 or $0.05 External use $3,000 or $0.03 Non-current assets $3,000 or $0.03 Current assets $2,000 or $0.02 Dividends $2,000 or $0.02 Debt reduction $1,000 or $0.01 LO 4

Copyright © 2014 Nelson Education Ltd. 1–12 Three Types of Business Decisions Investing decisions Operating decisions Financing decisions Non-current assets Current assets Statement of Financial Position Managers CEO/CFO/Treasurer Managers 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 LO 5

Copyright © 2014 Nelson Education Ltd. 1–13 Operating Decisions Working Capital Management Inventories Trade receivables Trade and other payables Cash Statement of Financial Position Demassing Planned downsizing Productivity indicators Rewarding simplification Cutting back useless activities Rewarding quality work Empowering workers Zero-based budgeting Statement of Income LO 5

Copyright © 2014 Nelson Education Ltd. 1–14 The matching principle Sources and forms of financing Cost of borrowed funds Financing mix Financing Decisions LO 5

Copyright © 2014 Nelson Education Ltd. 1–15 Capital Assets Research and development Expansions New plants Modernizations Acquisitions Investing Decisions LO 5

Copyright © 2014 Nelson Education Ltd. 1–16 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) LO 6