1 12 Financial Management 12-1 Financial Planning C H A P T E R12Financial Management12-1 Financial Planning12-2 Financial Records and Financial Statements12-3 Payroll Management12-4 Financial Decision-Making
2 CHAPTER 1212-1 Financial Planning4/7/2017Goal 1 Recognize important financial questions that must be answered in a business.Goal 2 List the steps in budget preparation.Goal 3 Describe three types of business budgets.
4 FINANCIAL PLANNING Beginning a business Ongoing operations Business expansion
5 BASIC FINANCIAL EQUATION Revenue – Expenses = Profit or LossProfitRevenue is greater than expensesRevenue > Expenses = ProfitLossRevenue is less than expensesRevenue < Expenses = Loss
6 Checkpoint What is the basic financial equation for businesses? The basic financial equation for businesses is revenue minus expenses equals profit or loss.
7 DEVELOPING BUSINESS BUDGETS Sources of budget informationBudget preparation
8 Checkpoint What are the four steps in preparing a business budget? Preparing a list of each type of income and expense that will be a part of the budgetGathering accurate information from business records and other information sources for each type of income and expenseCreating the budget by calculating each type of income, expense, and the amount of net income or lossExplaining the budget to people who need financial information
9 TYPES OF BUDGETSStart-up budgetOperating budgetCash budget
10 Checkpoint Identify and describe the three types of budgets needed by all businesses.Start-up budget — plans income and expenses from the beginning of a new business or a major business expansion until it becomes profitableOperating budget — describes the plan for ongoing operations for a specific periodCash budget — is an estimate of the actual money received and paid out for a specific period.
11 12-2 Financial Records and Financial Statements Goal 1 Identify several types of financial records needed by businesses.Goal 2 Describe the differences between an income statement and a balance sheet.
13 FINANCIAL RECORDS Types of records Maintaining financial records Asset recordsDepreciation recordsInventory recordsRecords of accountsCash recordsPayroll recordsTax recordsMaintaining financial records
14 Checkpoint How has the process of maintaining financial records been affected by technology?Most financial information is collected using point-of-production and point-of-sale technology and sent electronically to the people who prepare the financial records.Also, businesses use computerized financial systems that complete the necessary mathematical calculations and compare those records with budgets.The software can even complete what-if comparisons to help managers determine the impact of changes in budgets and financial performance.
15 FINANCIAL STATEMENTSThe balance sheetThe income statement
18 Checkpoint What is the difference between a balance sheet and an income statement?A balance sheet reports assets, liabilities, and owner’s equity as of a specific date.An income statement reports sales, expenses, and net profit or loss for a specified time period.
19 12-3 Payroll ManagementGoal 1 Describe the components of a business payroll system.Goal 2 Identify key information included in payroll records and paychecks.
21 PAYROLL SYSTEMS Income taxes Social Security and Medicare Unemployment taxes
22 Checkpoint What is the purpose of the payroll system? The purpose of the payroll system is to maintain information on each employee to be able to calculate the company’s payroll and make the necessary payments to each employee, taking the proper legal state and federal deductions from each paycheck.
23 PREPARING A PAYROLLPayroll recordsPreparing paychecks
24 SAMPLE EARNINGS REPORT AND DIRECT DEPOSIT RECEIPT
25 Checkpoint What is the difference between a payroll record and an earnings report?A payroll record is documentation used to process earnings payments and record each employee’s pay history.An earnings report contains information for the current pay period as well as the cumulative amounts for the year.
26 12-4 Financial Decision-Making Goal 1 Recognize important financial information managers use to make decisions.Goal 2 Identify the steps in making financial decisions in business.
28 USING FINANCIAL INFORMATION Important financial informationUnderstanding financial performance ratiosCurrent ratioDebt to equity ratioReturn on equity ratioNet income ratio
29 FINANCIAL PERFORMANCE RATIOS Current LiabilitiesCurrent Assets=Current RatioOwner’s EquityTotal Liabilities=Debt to Equity RatioNet Profit=Return on Equity RatioOwner’s EquityNet IncomeTotal Sales=Net Income Ratio
30 Checkpoint Identify four important financial performance ratios used by managers to determine how well the business is performing.Current ratioDebt to equity ratioReturn on equity ratioNet income ratio
31 MAKING FINANCIAL DECISIONS Prepare a budgetLook for discrepancies between actual and budgeted performanceMake needed adjustments
32 Checkpoint List the three steps in financial decision-making. Preparing a budget.Using the budget as a guide to the operation of the business.Making needed adjustments to bring performance in line with the budget.