Finance/Accounting Issues

Central to Strategy Implementation –

– Acquiring needed capital

– Developing pro forma financial statements
– Preparing financial budgets
– Evaluating worth of a business

Ch 8-1
Fred R. David
Prentice Hall
Decisions Requiring Finance/Accounting Policies

Raise capital w/ short-term, long-term preferred or common stock

Lease or buy fixed assets

Determine an appropriate dividend payout ratio

Use LIFO, FIFO, or market-value accounting approach

Ch 8-2
Fred R. David
Prentice Hall
Decisions Requiring Finance/Accounting Policies

Extend time of accounts receivable

Establish percentage discount on accounts for terms

Determine the amount of cash kept on hand

Ch 8-3
Fred R. David
Prentice Hall
 Finance/Accounting Issues

Acquiring Capital to Implement Strategies –

• Basic sources of capital:

– Debt
– Equity

Ch 8-4
Fred R. David
Prentice Hall
 Finance/Accounting Issues

Debt vs. Equity Decisions –

• EPS/EBIT analysis
– Earnings per share/Earnings before interest
and taxes

Ch 8-5
Fred R. David
Prentice Hall
 Finance/Accounting Issues

Pro Forma Financial Statements -

• Allows an organization to examine the

expected results of various actions and
approaches

Ch 8-6
Fred R. David
Prentice Hall
 Finance/Accounting Issues

6 Steps in Pro Forma Financial Analysis

1. Prepare income statement before balance sheet

(forecast sales)
2. Use percentage-of-sales method to project CGS and
expenses
3. Calculate projected net income
4. Subtract dividends to be paid from Net Income and
add remaining to Retained Earnings
5. Project balance sheet times beginning with retained
earnings
6. List comments (remarks) on projected statements
Ch 8-7
Fred R. David
Prentice Hall
 Finance/Accounting Issues

Financial Budget –

Document that details how funds will be

obtained and spent for a specified
period of time.

Ch 8-8
Fred R. David
Prentice Hall
 Finance/Accounting Issues
Types of Budgets –

– Cash budgets
– Operating budgets
– Sales budgets
– Profit budgets
– Factory budgets
– Capital budgets
– Expense budgets
– Divisional budgets
– Variable budgets
– Flexible budgets
– Fixed budgets

Ch 8-9
Fred R. David
Prentice Hall
 Evaluating Worth of a Business

Central to strategy implementation as

integrative, intensive and diversification
strategies are often implement through
acquisitions of other firms.

Ch 8-10
Fred R. David
Prentice Hall
 Evaluating Worth of a Business

3 Basic approaches:

1. What a firm owns

2. What a firm earns
3. What a firm will bring in the market

Ch 8-11
Fred R. David
Prentice Hall