Finance and Accounting for. Nonfinancial Managers

Transcription

1 Finance and Accounting for Nonfinancial Managers

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3 Finance and Accounting for Nonfinancial Managers Eliot H. Sherman AMERICAN MANAGEMENT ASSOCIATION

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5 Contents About This Course How to Take This Course xi xiii 1 Introduction to Finance 1 The Vocabulary of Finance The Elements of Finance Bookkeeping Accounting Planning Cash Management The Basic Financial Statements The Balance Sheet The Income Statement Statement of Cash Flows The Structure of Business and the Impact of Financial Statements Proprietorship Partnership Corporation Other Business Structures 2 Introduction to Accounting 21 The Purpose of Accounting The Accounting System Who Uses Accounting Information? Basic Terminology Financial Statements The Chart of Accounts v

6 vi FINANCE AND ACCOUNTING FOR NONFINANCIAL MANAGERS The Accounting Cycle Using Journal Entries to Record Transactions Closing Procedures More Financial Concepts Preparing Financial Statements The Key Financial Statements Trial Balance 3 Financial Analysis: Using Ratios 43 Analysis of Financial Information The Purpose of Business Who Performs Financial Analysis? The Power of Ratios Comparative Analysis Trend Analysis Trend Ratio Analysis Liquidity Ratios Activity Ratios Profitability Ratios Debt Management Ratios A Different Perspective Creating Other Ratios Conflicting Information 4 Managing Operating Performance 65 Making Your Information Useful The Key Financial Statements Ratios That Help Tell the Company s Story Effect Ratios Crossover Indicators and Causal Ratios 5 Managing Short-Term Assets 83 The Management of Cash Reasons for Holding Cash Techniques for Managing Cash The Management of Other Short-Term Assets Managing Marketable Securities

7 CONTENTS vii Managing Accounts Receivable Managing Inventory Prepaid Expenses Other Current Assets 6 Relating Risk and Return, Valuation, and Time Value of Money 97 Risk Defining Risk Risk Aversion Possibility of Loss Characteristics of Different Types of Risks The Determination of Interest Rates Types of Risk Default Risk Inflation Risk Maturity Risk Liquidity Risk Estimating Interest Rates Capital Asset Pricing Model Relating Risk and Return Extending the Theory Time Value of Money Valuation An Illustrative Example Assessing Investments Valuing an Investment 7 Capital Investment Decision Making 115 Calculating the Cost of Capital The WACC Model Initial Exercise in Estimating Financing Requirements Calculating the Cost of Capital Capital Budgeting Types of Capital Investment Projects Applying Cost of Capital Determining Investment Cost Determining the Cash Flows of a Project Determining the Terminal Cash Flows Evaluating Capital Investment Projects Payback Period

8 viii FINANCE AND ACCOUNTING FOR NONFINANCIAL MANAGERS Net Present Value Internal Rate of Return (IRR) 8 Managing Long-Term Assets 135 Considering Asset Classification The Investment in Fixed Assets Depreciation Fixed Asset Accounting Acquisition of Fixed Assets Other Long-Term Assets 9 Managing Liabilities 145 The Liabilities of the Business Short-Term or Current Liabilities Accounts Payable Notes Payable Taxes Payable Accruals Long-Term Debt Choosing a Bank Lending Officer The C s of Credit Character Capacity Capital Cash Flow Collateral Conditions Competition Credibility Competence Communications Banking Relationships Defining Debt Bank Structure Dictates Loan Interest Rates The Cost of Bank Funds Operating Expenses Loan Losses Profit Criteria Comparison to Traditional Business Cost Structure Bank Debt Pricing Loan Pricing Example

9 CONTENTS ix 10 The Equity in the Business 173 Equity and Business Structure Preferred Stock Common Stock Additional Paid-In Capital Retained Earnings The Investment Marketplace Accounting for Equity 11 Financial Planning 183 The Essence of Financial Planning Business Planning A Continuous Process Roles of the Key Players of the Financial Planning Process Planning Sequence Different Kinds of Plans Business Plan Strategic Plan The Operative Plan or Annual Budget Projecting the Financial Future Estimating Financial Requirements Capital Budgets Cash Budgets 12 Relating Departmental Performance to the Big Picture 201 The Inverted Triangle: Finance from Broad to Specific The Company Subsidiary Division Department Group Individuals The Relationship Between Budgets and Actuals

10 x FINANCE AND ACCOUNTING FOR NONFINANCIAL MANAGERS Appendix: Time Value of Money Tables 209 Glossary 215 The Final Exam 225 Index 235