PowerPoint

Presentations for
Finance for
Non-Financial Managers:
Seventh Edition

Prepared by
Pierre Bergeron
University of Ottawa

Copyright © 2014 Nelson Education Ltd. 1–1

Organization of Finance for Non-Financial Managers, 7e

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 CHAPTER 1
Overview of
Financial Management

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 Learning Objectives
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.

Copyright © 2014 Nelson Education Ltd. 1–4

 LO 1
External Environment

How the external environment can impact

on financial statements
1. Economic front
2. Political front
3. Global and open world economies
4. Technological changes
5. Product life cycle
6. Manufacturing side

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The Changing Role of Financial Management LO 1
The Statement of Financial Position
Today Yesterday

Internal activities External activities

• Working capital • Mergers
• Capital budgeting • Acquisitions
• Management information • Reorganization
systems • Recapitalization

Focus Focus
• Economy
• Raising funds
• Efficiency
• Effectiveness

Operating and Legal matters

financial matters
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 LO 2
The Role of Financial Management
Statement of Financial Position
Assets Investors

Return on Cost of
assets financing
10% 7%

• 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?

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 LO 3
People Responsible for Finance Managemet

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 LO 3
People Responsible for Finance Function

CONTROLLER TREASURER
• General accounting
• Raising capital
• Cost accounting
• Investor relations
• Credit and collections
• Short-term borrowings
• Management information systems
• Dividends and interest payments
• Trade and other payables
• Insurance management
• Corporate accounting
• Analysis of investment securities
• Internal auditing
• Retirement funds
• Budgets and analysis
• Property funds
• Systems and procedures
• Property taxes
• Planning and controlling
• Investment portfolio
• Interpreting financial reports
• Cash flow requirements
• Evaluation and consultation
• Actuarial
• Preparing reports for government
agencies • Underwriting policy and manuals

• Reports on capital assets • Tax administration

All MANAGERS

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 LO 4
Four Financial Objectives
R.O.R
Efficiency
(Incubation)
R.O.A
R.O.I
R.O.E
%
Liquidity Current assets $
Less: current liabilities $
(Cash shortage: must
rely on credit)
Net working capital $

• Revenue
Growth • Working capital
(Financial insolvency = • Non-current assets
inaction) • Profit for the year

Stability Equity %
Assets
(Total insolvency: debt
is out of proportion) Debt %

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 LO 4
Return on Revenue Objective

Non-current assets
$3,000 or
Internal use
$0.03
(retained earnings)
$5,000 or
Current assets
$0.05
$2,000 or
Return on
revenue $0.02

$8,000 or
Dividends
$0.08
$2,000 or
External use $0.02
$3,000 or
$0.03
Debt reduction
$1,000 or
$0.01

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 LO 5
Three Types of Business Decisions
Statement of Financial Position
Investing Operating Financing
decisions decisions decisions
Managers Managers CEO/CFO/Treasurer
Non-current assets Statement of Income Equity
Revenue • Share capital
Current assets Cost of sales • Retained earnings
Gross profit
Operating expenses Liabilities
Profit before taxes • Long-term

Income tax expense • Short-term

Profit for the year

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 Operating Decisions LO 5

Statement Working Capital Management

of Financial
• Inventories
Position
• Trade receivables
• Trade and other payables
• Cash

Statement of • Demassing
Income • Planned downsizing
• Productivity indicators
• Rewarding simplification
• Cutting back useless activities
• Rewarding quality work
• Empowering workers
• Zero-based budgeting
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 LO 5
Financing Decisions

• The matching principle

• Sources and forms of financing
• Cost of borrowed funds
• Financing mix

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 LO 5
Investing Decisions

• Capital Assets
• Research and development
• Expansions
• New plants
• Modernizations
• Acquisitions

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 LO 6
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)

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