Midterm Financial Management Chapter II

Chapter 1 AN INTRODUCTION TO FINANCIAL MANAGEMENT THE TIES THAT BIND
Foundations of Finance
Chapter2
Financial Statements, Taxes, and
Cash Flow
The Balance Sheet

Is a Financial
Statement showing
a firms accounting
value on a
particular date.
It is a snap shot of
the firm
1-2
A means of
organizing,
summarizing:
1. Assets what
the firm owns
2. Liabilities- what
a firm owes
3. Equity the
difference between
the two
Pearson Prentice Hall
Assets : The left hand side

Classification of Assets
1. Current Asset assets that have a
life of less than one year.
One that is converted to cash within
12 months.
Inventory
Cash
Accounts receivable
1-3
Assets: The left hand side

2. Fixed Assets One that has
relatively long life
Classification:
1. Tangible A truck or a house

2. Intangible-- a trademark or
patent
1-4
Liabilities & Owners Equity

The right hand side
1. Current Liabilities - have a life less

than one year.
Accounts payable
2. Long term Debt A de that is not due in

the coming year.
- A loan payable in five years
1-5
Owners Equity/ Shareholders

Equity/Common Equity
The difference between the total
value of assets and the total value of
liabilities
ASSETS = LIABILITIES + SHAREHOLDERS
EQUITY
1-6
Networking capital
The difference between the
firms current assets and
current liabilities
Positive working capital when
current assets exceed current
liabilities
1-7
Building the Balance Sheet

Example: Venice company has current
assets of P100, net fixed assets of
P500, short term debt of P70, and long
term debt of P200.
What does the balance sheet look
like? What is the shareholders equity?
What is net working capital?
1-8
ASSETS
Liabilities &
Owners Equity
Current Assets P100 Current Liabilities P 70
Net fixed Asset
500
Long term Debt
200
Shareholders Equity 330
Total Liabilities
& Shareholders
Total Asset
P600
Equity
P600
Net working Capital = P100 70 = P 30

1-9
LIQUIDITY
Refers to the speed and ease
with which an asset can be
converted to cash.
Example:
1 - 10
Gold is a liquid asset

Manufacturing facility is not.
2 dimensions of liquidity:
1. Ease of conversion
Foundations
of Finance
2. Loss of
value
DEBT VERSUS EQUITY

Equity holders are only entitled to the
residual value, that portion left after
creditors are paid.
SHAREHOLDERS EQUITY= Assets - Liabilities
Financial Leverage - The use of DEBT in a firms

Capital structure
It increases the potential reward to shareholders,
but also increases the potential for financial
distress and business failure.
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MARKET VALUE VS BOOK

VALUE
Market value - is the true value
of an asset(actual amount of
cash when sold)
Book Value the value of an
asset as shown in the balance
sheet (amount that owners paid
for the asset)
1 - 12
THE INCOME STATEMENT

A financial statement
summarizing a firms
performance over a period of
time. ( a quarter or a year)
Income statement equation:
Revenues Expenses= Income
1 - 13
Venice corporation
2011 income statement
1 - 14
Net Sales
P1,509
Cost of goods sold
750
Depreciation
65
Earnings before interest
And taxes
694
Interest paid
70
Taxable income
624
Taxes
212
Net Income
412
3 things to remember when

looking at Income Statement
1. GAAP Generally accepted
Accounting Principle
- shows revenue when it

accrues(Recognition Principle)
When earning process is
completed, value is
known/determined.
Revenue is recognized at time of
sale
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Expenses are based on the

matching principle(recognized
at the time they are incurred)
Therefore: Figures in the income
statement does not represent
actual cash inflows and
outflows.
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2. NON- CASH ITEMS

These are expenses charged
against revenues that do not
directly affect cash flow.
Example: Depreciation
An asset bought for P5000 , the

firm has 5000 cash outflow .
Depreciation = P5000/5yrs = P1,000
(1,000 is deducted as an expense
every year
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3.Time and Costs

1.short run and long run(time
periods)
2.Variable and fixed (cost)
Example :
Short time horizon some cost
are fixed (property taxes
Wages and payments to
suppliers are variable
1 - 18
Computing Taxable Income

Taxable Income
Gross income less tax deductible expenses, plus

interest income and dividend income
Gross Income
Dollar sales from a product or service less cost

of production or acquisition
Tax Deductible Expenses
Operating expenses (marketing, depreciation,

administrative expenses) and interest expense
Dividends paid are not deductible

1 - 19
Computing Taxable Income ($000s)
Sales
$50,000
Cost of Goods Sold
23,000
Gross Profit
$27,000
Operating Expenses
Administrative Expenses
$4,000
Depreciation Expense
1,500
Marketing Expenses
4,500
Total Operating Expenses
$10,000
Operating Income
$17,000
Other Income
0
Interest Expense
1,000
Taxable Income
$16,000
1 - 20
CASH FLOW
It is the difference between the number of

pesos that came in and the number that
went out.
Cash flow from assets = Cash flow to
creditors + Cash
flow
to stockholders
Cash flow from Assets (cash

flow to creditors &
stockholders)
Three components :
1. Operating cash flow refers to

the cash flow that results from the
firms day to day activities of
producing ans selling
2. Capital spending refers to the
net spending on fixed
assets(purchase of fixed assets
less sales of Fixed assets)
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3. Change in net working capital

is the amount spent on net
working capital.
Venice Corporation
Operating Cash flow 2011
1 - 23
Earnings before int. & exp P 694

+ depreciation
65
- taxes
212
Operating
cash flow
P 547
Operating cash flow tells us

whether or not a firms cash
inflows from its business
operations are sufficient to
cover its everyday cash
outflows.
1 - 24
Capital Spending
Net capital spending is the
money spent on fixed assets
less money received from the
sale of fixed asset.
1 - 25
FINANCIAL ANALYSIS
Analysis as defined by Webster
is a consideration of anything in
its separate parts and their
relation to each other.
The relationships arrived at are
interpreted by determining their
significance.
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Financial analysis
1 - 27
refers to examination of
financial data of an entity to
determine its profitability,
growth, solvency, stability and
effectiveness of its
management.
Relationships are interpreted
and significance are used as
guide in decision making
process
.Foundations of Finance
TOOLS AND TECHNIQUES

A. Short term Decision Making
(do not consider time value of
money)
1. Horizontal Analysis two or more

sets of financial statements are
used
a. comparative statements
b. Trend ratios
c. gross profit variation
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d. Analysis of change in net

income
2. Vertical Analysis only one set
of financial statements is used
a. common size statement
b. Financial ratios
B. Working Capital and cash flow
analysis
1 - 29
1 - 30
C. Cost-volume profit(breakeven
analysis)
FOR LONG TERM DECISION
MAKING (Time value of money
is needed)
A. Payback period
B. Discounted cash flow (DCF
method)
1. Internal rate of return Pearson Prentice Hall
b. Discounted payback period

c. Net present value
d. Profitability index
1 - 31
Standards in Financial
Statements Analysis
In analyzing and interpreting
financial statements of a
particular entity, the analyst
must have standards with which
he may compare the contents of
said statements. These
standards may be the figures,
ratios, or percentages,
1 - 32
`
Or changes indicated in
budgets, industry averages,
competitors financial
statements and the companys
own financial statements for
prior periods.
1 - 33
FUND MANAGEMENT
How well do you know Cash?

-Before a person can
manage cash, he/she should
have a sound knowledge of
what cash is all about.
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Types of cash
1. Cash on Hand This represents

the cash collection waiting to be
deposited the following banking day.
2. Cash in Bank this represents the
cash already deposited in the bank.
a. Savings Account this is an account
where the money deposited will earn
interest income for the meantime while
it is not in use.
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Types of Cash
1 - 36
This is evidenced by a passbook.

b. Demand Deposit sometimes called
checking account or current
account. Normally this does not earn
interest. This is evidenced by a
checkbook.
c. Combo Account This is a
combination of savings and current
account, but requires a bigger
compensation balance.
Compensating balances are

maintaining balances required
by bank whenever you open an
account.
3. Cash Fund this is a fund
maintained to comply with other
fund requirements of the
company.
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Cash Fund Classification

a. Petty Cash Fund- this is the fund
that will cater the small
expenditures of the company.It is
handled by a Petty Cash Fund
Custodian.
b. Change Fund The fund is used to
maintain loose change to address
the concern for small bills n coins. It
is handled by the company cashier.
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c. Dividend Fund A fund used to pay for the

dividends which the board of directors
have declared and payable in the future. It
is handled by the cashier.
4. Cash Equivalent a short term and highly
liquid investment ( those acquired 3mos
before maturity)are readily convertible to
cash.( cash placed in the bank, time
deposit which are short term and pre
terminable.
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Criteria for valuation of cash

equivalent
1 - 40
a. If term is three months or less,

such is classified as cash
equivalent.
b. If the term is more than three
months but within 1 year, such
is a short term or temporary
investment.
c. If term is more than 1 year,
such investment is non-current
Or long term investment.

Bank products:
1.
2.
3.
4.
Overnight placements
Weekly Time deposit
Monthly time deposit or 30day deposit
60day,90days,180days,one
year,2years,3years,
5. Trusts
1 - 41
Government Securities
1. Treasury
2. Treasury
3. Treasury
4. Treasury
1 - 42
Bills
Notes
Warrant
Bond
How do we Document Cash
Documenting cash is essential for

it is in this way that we are
assured that our cash is
properly documented with
evidence to support the
transactions as it is entered in
the book of accounts.
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1. Provisional Receipt
1 - 44
a. This receipt is issued by

collectors, whether cash or
check collection.must be
surrendered to the cashier
everyday.
b. This receipt will also be issued
by the office cashier in case of
check payments.because
checks require 3days clearing.
Provisional receipt must be in

triplicate
a. Original must be given to the
person paying
b. The duplicate must be given to
the cashier together with the
collectors remittance form
c. Triplicate is left in the booklet
for reference,audit purposes.
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2. Official Receipt
a. issued by the cashier incase
of cash payments
b. Issued when the collector
remits the cash collection to the
office cashier
c. Issued for check collections for
which a provisional receipt was
issued.
1 - 46
Official receipt is in triplicate

copy
a. original copy is given to the
person paying
b. duplicate must be given to the
accounting department for
recording.
C. triplicate is left in the booklet
for the cashiers copy.
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3. Sales Invoice
1 - 48
This is considered as cash sales

invoice or sales on account.
4. daily Collectors Remittance
form
This is the summary of the
collection made by a specified
collector for the day.this is
submitted to the office cashier
together with the duplicate copy
of the provisional receipt.Pearson Prentice Hall
Tips in formatting forms and

documentary evidence
1. What are the information
necessary:
a. Date
b. Serial number
c. Is it thru manual or mechanical
operation
d. Purpose
2. How big will the form be
1 - 49
3. Filing
4. Distribution
5. Responsible employee who will
handle it
* The bigger the cash the bigger the
risk and the more control
measures should be implemented.
1 - 50
How is Cash Handled?

Duties & responsibilities
Position: Collector
Duties:
1. Reviews account receivables
that are due for collection.
2. Follow ups thru phone
calls/email
3. Issues provisional receipts to
customers
1 - 51
1 - 52
4. Remits collections to the office

cashier together with daily
remittance form.
Responsibilities:
1.Early & on time collection
2. Report difficult to collect
customers
3. Reports feedback from
customers
Control Mechanisms for Cash

1. The VP for Finance should
establish the policy on cash
handling.
2. The head of the accounting
department should prepare the
procedure.
3. The implementation of the
procedure is subject to the
review and the audit by the
1 - 53
the internal audit group or

department so that continuous
improvement on the control
mechanism maybe done to
address the continuous and fast
changing technology.
1 - 54
Collectors collect the receivables

Of the company
Customers may pay directly

to the office
Cashier receives the money from

Collectors and customers
Junior accountant will

Journalize the receipt
transactions
Accounting supervisor will check
The entry and check the
Reconciliation statement
1 - 55
Depository
bank
General accountant will record
The transaction..Receives the
Bank statement & prepares
bank reconciliation
Policy on Cash Handling
1 - 56
1. The company should adopt

1.
the imprest system of
handling cash.
2. The company should
maintain the combo
account for easier
checking of banking
transaction
1 - 57
3. The company should place its

money in various banking
companies so as to distribute
the risk involved in banking.
4. The following bank signatories
will be observed:
a. If the amount of
disbursement is P50,000 and
below
1 - 58
the Comptroller or head of

accounting department to be
countersigned by the treasurer
or VP Finance
b. If the amount is more than
P50,000
The comptroller or head of
accounting department
countersigned by the president
or treasurer.
1 - 59
5. Official receipts can only be

used when cash is received.
Checks are covered by
provisional receipts.
6. All funds should be kept and
maintained by the office fund
custodian. For petty cash fund
the amount should be
replenished once the fund is
40%
used to avoid disruption of
operations due to insufficiency
Common misuses of Cash

1. LAPPING this is the case of
misappropriating a collection
from one customer and
concealing this defalcation by
applying a subsequent
collection made from another
customer.This involves
postponements of entries on
1 - 60
collection of a receivable and is

made possible because of poor
control.
2. KITING This happens when a
check drawn from one
depository bank and deposited
in another bank at the end of the
month or year.
1 - 61
There will be no entries made on

this drawing and depositing.As a
result the cash in the a
depository bank increases to
cover the shortage while on the
other depository bank , it has
not yet posted the check
deposited to the other bank.
1 - 62
3. FRAUDULENT documents and

evidence employees will make
documents and pieces of
evidence which are not really
true.
1 - 63
INVENTORY MANAGEMENT
CASH
Receivable
1 - 64
Inventory
What are Inventories

Assets which are held for sale in
the ordinary course of business,
in the process of production for
such sale or in the form of
materials or supplies to be
consumed in the production
process or in rendering of
services.
1 - 65
Forms of business
organization
1. Sole Proprietorship
2. Partnership
3. Corporation
TYPES of Organization
4. Service
5. Trading
6. Manufacturing
1 - 66
Inventory Accounts to
maintain
1 - 67
1. Supplies
2. Merchandise Inventory those
items that the company
purchased and intended for
sale to its customers
3. Raw materials inventory
materials which the company
purchased and is for use in the
production
4. Work in Process Inventory

these are the partially
finished products at the end
of the month
5. Finished Goods Inventorythese are products already

finished , ready to be sold to
customers.
1 - 68
Why do we manage
Inventory?
1. Under-stocking a serious
problem that could result to:
a. missed deliveries
b. lost sales
c. unsatisfied customers
d. production bottlenecks or
worst work stoppage
1 - 69
2. Overstocking
a. holding cost might be too high
b. Funds could have been used for
a more productive venture
2 Major concerns to address:
a. Timing of order
b. size of order
1 - 70
For effective Inventory

management
1 - 71
1. A system to keep track of the

inventory on hand and on order
2. A reliable forecast of demand
3. Knowledge of lead time
4. Reasonable estimates of
inventory holding cost, ordering
cost and shortage cost
5. Classification system for
inventory items
Beginning Inventory
1 - 72
The beginning inventory must be

enough until the next delivery of
the raw materials.
Estimate the lead time. The lead
time must be based on the past
experience of the company
relative to traffic condition,
supplier culture and
procedures.
2. Supplier
The accredited supplier of
choice must be objectively
selected by a committee so that
quality of raw materials can be
easily procured.
1 - 73
The Freight Charges

The contract that the company
have entered into in purchasing
the merchandise inventory.
1 - 74
1. FOB Destination this contract

says that the supplier will deliver
the merchandise inventory from
the suppliers warehouse free of
charge. Title is passed when
merchandise is delivered from
truck toFoundations
buyers
warehouse. Pearson Prentice Hall
of Finance
1 - 75
2. FOB Shipping Point this

contract says that the supplier
will deliver the merchandise
inventory from suppliers
warehouse to the shipping point
only. Which is the pier or airport.
Title passes when merchandise
is transferred to the boat or
plane.
CIF cost insurance freight

The buyer will pay the lump sum
amount of cost of goods sold,
insurance and freight charges.
FAS means free alongside. A
seller who ships FAS must bear
all expenses and risks involved
in delivering the goods to the
dock next to or alongside
1 - 76
The buyer will shoulder the cost

of loading expenses and
shipment as the buyer takes
possession of the merchandise.
Ex-ship A seller who delivers
the goods ex ship bears
expenses and risks of loss until
the goods are unloaded at the
time the title shall pass to the
buyer
1 - 77
Who handles Inventory

1. Purchaser the staff that
procures the inventory. It must
be at the cheapest price but
with quality.
2. Warehouseman- this is the
staff who receives and safekeep
at the warehouse and issues
whenever there is a need.
1 - 78
3. Stock card clerk This staff

usually is an accounting clerk,
who records the receipt and
issuance made by the
warehouseman.
Bookkeeper records the purchase
made by the purchaser 1 - 79
5. Auditor- the staff that checks

the inventory in the warehouse,
the documents that support the
purchases.
1 - 80
Three methods on how to

value material issuance
1. FIFO- First in First Out

materials that were received fist
should be the ones used first.
2. LIFO The last raw material
received by the warehouseman
are the first to be used
1 - 81
3. Weighted Average We get

the average cost of the
materials received and such
cost will be the basis for those
issued
1 - 82
RECEIVABLES
These are financial assets that

represent a contractual right to
receive cash or other financial
assets from another customer.
1 - 83
Examples of receivables
Traditional Receivables or
sometimes called trade debtors
or trade accounts. This is not
supported by a promissory note.
1. Trade receivables this is
normally supported by a a credit
invoice issued by the company and
has credit terms
1 - 84
2. Notes Receivable
This is supported by a formal
promise to pay in the form of a
note.
3. Loans Receivable this is a
receivable arising from banks
and other financial institution
1 - 85
DISCOUNTS
1. Trade Discount It is a
discount not recorded in the
books of account.
Example: this is the discount
given to a customer for bulk
order they made. Normally
expressed in percentages.
1 - 86
2. Cash Discount- this is the

discount that is recorded in the
books. This will encourage your
customers to pay early so they
get more discounts.
1 - 87
Materials Quantitative Models

Raw materials are not just
purchased anytime.
It is planned
Necessary blueprints, designs
and specifications should be
prepared.
1 - 88
Factors to consider in
Planning and controlling raw
materials
1. Forecast demand for next
month, quarter or year
2. Determine the lad time
3. Plan usage during the lead
time
4. Establish quantity on hand
5. place units in order
6. safety stock requirement
1 - 89
The Economic Order Quantity

It means the most economical
order of raw materials that the
company can make.
Factors affecting economic
purchase:
1. Annual required units
requirements for a specific raw
material.
1 - 90
2. Cost per Order the cost that

will be incurred if the company
will purchase raw materials
Example:
A. clerical cost of ordering the
raw materials
B. Handling and transportation
charges
1 - 91
3. Cost per unit of materials
This represents the unit price of

the raw materials
A. Unit price at gross(no discount)
B. Unit price at net (with discount)
4. Carrying Cost cost incurred for
maintaining inventory in the
warehouse.
Example: storage cost, property tax,
insurance interest on funds invested
in inventories
1 - 92
How to compute EOQ
E = 2QP
C
WHERE:
E
Q
P
C
1 - 93
= Economic Order Quantity

= annual quantity used
= Cost of placing an order
= Annual Carrying cost
Assuming Venice Company have the following

information relating to their purchase of raw
materials. Q = 5,000; P10/ order. C = P0.80
To compute for EOQ
E = 2(5000) (10)
0.80
E = 100,000
0.80
125,000
E = 353.55 0r 354 units
1 - 94
RECEIVABLES
These are financial assets that represent a
contractual right to receive cash or other financial
assets from an entity or customer.
Examples of receivables:
1. Traditional accounts receivable or sometimes
called trade debtors or trade accounts receivable.
These are not supported by promissory note.
Trade receivable this is normally supported by a credit

invoice issued by the company and has credit terms, which is
the basis of whether the account is due or past due.
1 - 95
2. Notes receivable this is supported by a formal

promise to pay in the form of a note.
3. Notes receivable - This is a receivable arising
from banks and other financial institution
The accounting elements affecting receivables
1. Trade Discount a discount that is not recorded in
the books of accounts. This is granted to customers
with bulk orders. these are expressed in percentages.
2. Cash discount this is recorded in the books. This
is the kind of discount that will encourage our
customers to pay on time.
1 - 96
RETURNS
1. Sales returns These are the goods, which the
customers have physically returned. This may be a
matter of wrong shipment or wrong deliveries. or
substandard merchandise were delivered.
2. Sales allowances these are the goods that were
delivered to customers but defective. This will make
the company agree to reduce the receivable
account from the customers by granting sales
allowance.
1 - 97
Collection Techniques
Cash management involves
collection of receivables as
quickly as possible. Customers
maybe paying their accounts
promptly but there maybe delays
in the conversion of their
payments to spendable form.
1 - 98
Collection techniques
1. Direct sends checks
received as part of collection
are sent directly to banks on
which they are drawn by
customers. this reduces the
clearing float for the said
checks.
1 - 99
2. Concentration Banking-Bank
accounts are maintained for
provincial outlets so they may
collect from customers and
deposit their collections with
the local banks. Provincial
banks may then be instructed to
transfer funds periodically to the
main office.
1 - 100
3. Lock-box System Customers

are instructed to send
remittances to a post office box
which is serviced by the
companys bank. The latter
opens payment envelopes,
deposits remittances received to
the account of the company
making the collection.
1 - 101
4. Direct Payments to
depository bank- special
arrangements are made with
banks to accept payments from
customers with collections
directly credited to the
collecting companys bank
account.
1 - 102
5. Direct deposits to a
Companys bank account- The
prevalence of computerized
systems in banking, customers
maybe allowed to make deposits
to the main office bank account
through the banks provincial
branches.
1 - 103
Sources of short term

Financing
Sources of short term financing

1. Unsecured or secured these
may include trade credits,
accruals, commercial papers,
bankers acceptances,
receivable financing and
inventory financing.
1 - 104
2. Spontaneous Sources of
Short term Financing This term
refers to those sources that
automatically arise from normal
operations of a business
firm.example are trade credits
and accruals.
1 - 105
Deliberate Sources of Short

term financing-
This refers to sources that can

be made use of by the
deliberate act, on the part of the
borrower, of negotiating for the
availment of the particular
source.
1 - 106
Advantages of short term

financing
Short term financing as

compared to long term financing
is easier to arrange, is less
expensive, and provides the
borrower more flexibility.
1 - 107
Factors to consider in
choosing Short term financing
1 - 108
1. Cost
2. Restrictions. Lenders often
require minimum level of
working capital and or minimum
account balances in bank
accounts
3. Flexibility-adjustments in the
amount borrowed
4. Reliability of lender as future
source of borrowing
Trade Credits
This refers to acquisition of
merchandise(or raw materials)
on open account that is (without
any formal note signed to
evidence the liability)which
gives rise to the current liability
accounts payable.
1 - 109
Credit terms(indicated on the

suppliers invoice)
1 - 110
2/10, N/30 2% discount if paid

within ten days from date of
invoice, account is due in 30
days.
2/10,1/20, N/30 2% discount if
paid within ten days from date
of invoice, 1% discount if paid
after ten days up to the
2oth,account is due in 30 days.
2/10, N/30 EOM 2% discount if

paid within ten days from end of
month, account is due in 30
days from end of month.
1 - 111
Foregoing discounts on
Purchases
1 - 112
Cost of foregoing discount- The

implicit cost of foregoing
discounts is computed taking
into account the percentage of
discount foregone based on the
discounted amount ,the number
of days by which payment is
postponed and the number of
times this postponement can be
made in one year.
Venice purchases merchandise

for 2000, 2/10,N/30
1 - 113
Discount = 2% of 2000 = P 40
Discounted amount =2000-40
-1,980
No. of days payment is
postponed= 20 days(or 30-10
days)
No.of times payment is
postponed in one year =360
days/20days
=18x
Cost of foregoing the

discount
=
discount
Discounted amt. X no. of times payment can be
postponed in one year
= P40/P1960
1 - 114
360/20
= 37%
Opportunity cost
This refers to the benefit or

profit that the company fails to
enjoy by availing of the discount
1 - 115
Cost of Bank Borrowing

This refers to the cost of
borrowed money from financial
institutions. If the prevailing
cost of borrowed money were
25%, this would be much lower
than the 37% implicit cost of
foregoing the discount. In this
case availing the discount is a
better choice.
1 - 116
Stretching accounts Payable

Scheduling payments for
accounts payable beyond their
due dates reduces the implicit
cost of foregoing discounts.
Bank Loans- a borrower must
have sufficient equity and good
liquidity to be eligible for bank
loans.
1 - 117
Forms of bank Financing

1. Single Payment note Granted
on the assumption that the
need for additional funds will
not continue.
2. Line of credit an agreement
between a bank and client . The
bank makes loans available to
the client.
1 - 118
3. Installment Loans This

requires periodic payments
1 - 119

Midterm Financial Management Chapter II

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Chapter 1 AN INTRODUCTION TO FINANCIAL MANAGEMENT THE TIES THAT BIND

Chapter 1 AN INTRODUCTION TO FINANCIAL MANAGEMENT THE TIES THAT BIND

The Balance Sheet

Chapter 1 AN INTRODUCTION TO FINANCIAL MANAGEMENT THE TIES THAT BIND

Assets : The left hand side

Pearson Prentice Hall

Chapter 1 AN INTRODUCTION TO FINANCIAL MANAGEMENT THE TIES THAT BIND

Assets: The left hand side

1. Tangible A truck or a house

Pearson Prentice Hall

Chapter 1 AN INTRODUCTION TO FINANCIAL MANAGEMENT THE TIES THAT BIND

Liabilities & Owners Equity

1. Current Liabilities - have a life less

2. Long term Debt A de that is not due in

Pearson Prentice Hall

Chapter 1 AN INTRODUCTION TO FINANCIAL MANAGEMENT THE TIES THAT BIND

Owners Equity/ Shareholders

Pearson Prentice Hall

Chapter 1 AN INTRODUCTION TO FINANCIAL MANAGEMENT THE TIES THAT BIND

Pearson Prentice Hall

Chapter 1 AN INTRODUCTION TO FINANCIAL MANAGEMENT THE TIES THAT BIND

Building the Balance Sheet

Pearson Prentice Hall

Chapter 1 AN INTRODUCTION TO FINANCIAL MANAGEMENT THE TIES THAT BIND

Net working Capital = P100 70 = P 30

Pearson Prentice Hall

Chapter 1 AN INTRODUCTION TO FINANCIAL MANAGEMENT THE TIES THAT BIND

Gold is a liquid asset

Chapter 1 AN INTRODUCTION TO FINANCIAL MANAGEMENT THE TIES THAT BIND

DEBT VERSUS EQUITY

Financial Leverage - The use of DEBT in a firms

Pearson Prentice Hall

Chapter 1 AN INTRODUCTION TO FINANCIAL MANAGEMENT THE TIES THAT BIND

MARKET VALUE VS BOOK

Pearson Prentice Hall

Chapter 1 AN INTRODUCTION TO FINANCIAL MANAGEMENT THE TIES THAT BIND

THE INCOME STATEMENT

Pearson Prentice Hall

Chapter 1 AN INTRODUCTION TO FINANCIAL MANAGEMENT THE TIES THAT BIND

Chapter 1 AN INTRODUCTION TO FINANCIAL MANAGEMENT THE TIES THAT BIND

3 things to remember when

- shows revenue when it

Pearson Prentice Hall

Chapter 1 AN INTRODUCTION TO FINANCIAL MANAGEMENT THE TIES THAT BIND

Expenses are based on the

Pearson Prentice Hall

Chapter 1 AN INTRODUCTION TO FINANCIAL MANAGEMENT THE TIES THAT BIND

2. NON- CASH ITEMS

An asset bought for P5000 , the

Pearson Prentice Hall

Chapter 1 AN INTRODUCTION TO FINANCIAL MANAGEMENT THE TIES THAT BIND

3.Time and Costs

Pearson Prentice Hall

Chapter 1 AN INTRODUCTION TO FINANCIAL MANAGEMENT THE TIES THAT BIND

Computing Taxable Income

Gross income less tax deductible expenses, plus

Dollar sales from a product or service less cost

Tax Deductible Expenses

Operating expenses (marketing, depreciation,

Dividends paid are not deductible

Pearson Prentice Hall

Chapter 1 AN INTRODUCTION TO FINANCIAL MANAGEMENT THE TIES THAT BIND