Chapter 14 Integrating Accounting, Finance, Marketing and Economics Accounting and Finance for...
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![Page 1: Chapter 14 Integrating Accounting, Finance, Marketing and Economics Accounting and Finance for Entrepreneurs EBD-301 Dr. David P. Echevarria Slide 1 All.](https://reader036.fdocuments.us/reader036/viewer/2022083005/56649f125503460f94c259da/html5/thumbnails/1.jpg)
Chapter 14Integrating Accounting, Finance, Marketing and
Economics
Accounting and Finance for Entrepreneurs
EBD-301
Dr. David P. Echevarria Slide 1All Rights Reserved
![Page 2: Chapter 14 Integrating Accounting, Finance, Marketing and Economics Accounting and Finance for Entrepreneurs EBD-301 Dr. David P. Echevarria Slide 1 All.](https://reader036.fdocuments.us/reader036/viewer/2022083005/56649f125503460f94c259da/html5/thumbnails/2.jpg)
Dr. David P. Echevarria All Rights Reserved
THE IMPORTANCE OF ECONOMICS
• Essential Elements of Macroeconomics– Supply and Demand
• Supply from perspective of producer• Demand from perspective of consumer
– Equilibrium: market clearing price• S = D
– Competition• Perfect• Monopoly
Slide 2
![Page 3: Chapter 14 Integrating Accounting, Finance, Marketing and Economics Accounting and Finance for Entrepreneurs EBD-301 Dr. David P. Echevarria Slide 1 All.](https://reader036.fdocuments.us/reader036/viewer/2022083005/56649f125503460f94c259da/html5/thumbnails/3.jpg)
: Supply vs Demand, and Equilibrium
• What causes a change in Equilibrium?
– Disruption in supply– Lower production costs– Decrease in demand– Increase in demand
Dr. David P. Echevarria Slide 3All Rights Reserved
![Page 4: Chapter 14 Integrating Accounting, Finance, Marketing and Economics Accounting and Finance for Entrepreneurs EBD-301 Dr. David P. Echevarria Slide 1 All.](https://reader036.fdocuments.us/reader036/viewer/2022083005/56649f125503460f94c259da/html5/thumbnails/4.jpg)
Dr. David P. Echevarria All Rights Reserved
THE IMPORTANCE OF ECONOMICS
• Essential Elements of Microeconomics– Efficient Scale of Plant
• Right size >>> lowest cost of production• Capacity vs Utilization
– Production Function• Mix of Labor and Capital used in producing goods
and/or services• Labor vs Capital intensive production function
Slide 4
![Page 5: Chapter 14 Integrating Accounting, Finance, Marketing and Economics Accounting and Finance for Entrepreneurs EBD-301 Dr. David P. Echevarria Slide 1 All.](https://reader036.fdocuments.us/reader036/viewer/2022083005/56649f125503460f94c259da/html5/thumbnails/5.jpg)
Dr. David P. Echevarria All Rights Reserved
THE IMPORTANCE OF MARKETING
• Consumer Behavior– Decision making process– Decision making criteria
• Construction the Marketing message– Communication the bundle of benefits– Importance of market research
• Getting the message out
Slide 5
![Page 6: Chapter 14 Integrating Accounting, Finance, Marketing and Economics Accounting and Finance for Entrepreneurs EBD-301 Dr. David P. Echevarria Slide 1 All.](https://reader036.fdocuments.us/reader036/viewer/2022083005/56649f125503460f94c259da/html5/thumbnails/6.jpg)
Dr. David P. Echevarria All Rights Reserved
ESSENTIAL ELEMENTS OF FINANCIAL ANALYSIS
• Generally Accepted Accounting Principles– Rules by which transaction events are
• measured• recorded• reported
– GAAP Standards permit• orderly presentation• uniformity across all companies (US)• reliability (at least in theory)
Slide 6
![Page 7: Chapter 14 Integrating Accounting, Finance, Marketing and Economics Accounting and Finance for Entrepreneurs EBD-301 Dr. David P. Echevarria Slide 1 All.](https://reader036.fdocuments.us/reader036/viewer/2022083005/56649f125503460f94c259da/html5/thumbnails/7.jpg)
Dr. David P. Echevarria All Rights Reserved
ESSENTIAL ELEMENTS OF FINANCIAL ANALYSIS
• Balance Sheet– Assets
• Current (Cash, A/R, INV, PPE)• Fixed (property and equipment)
– Liabilities• Current (A/P, N/P, Accruals)• Long-Term (mortgage debt, deferred taxes payable)
– Owner’s Equity• Capital• Retained Earnings (profits reinvested in the business)
Slide 7
![Page 8: Chapter 14 Integrating Accounting, Finance, Marketing and Economics Accounting and Finance for Entrepreneurs EBD-301 Dr. David P. Echevarria Slide 1 All.](https://reader036.fdocuments.us/reader036/viewer/2022083005/56649f125503460f94c259da/html5/thumbnails/8.jpg)
Dr. David P. Echevarria All Rights Reserved Slide 8
INCOME STATEMENT
• Revenues - Net Sales• Expenses
– Direct Expenses• Labor• Materials
– Indirect Expenses• Selling, General and Administrative
![Page 9: Chapter 14 Integrating Accounting, Finance, Marketing and Economics Accounting and Finance for Entrepreneurs EBD-301 Dr. David P. Echevarria Slide 1 All.](https://reader036.fdocuments.us/reader036/viewer/2022083005/56649f125503460f94c259da/html5/thumbnails/9.jpg)
Dr. David P. Echevarria All Rights Reserved Slide 9
INCOME STATEMENT
• Non-cash Expenses– Depreciation– Amortization
• Non-Operating Income and Expenses– Interest paid on amounts borrowed– Interest income on short-term investments
![Page 10: Chapter 14 Integrating Accounting, Finance, Marketing and Economics Accounting and Finance for Entrepreneurs EBD-301 Dr. David P. Echevarria Slide 1 All.](https://reader036.fdocuments.us/reader036/viewer/2022083005/56649f125503460f94c259da/html5/thumbnails/10.jpg)
Dr. David P. Echevarria All Rights Reserved Slide 10
INCOME STATEMENT
• Taxes– Federal– State
• Distributions to equity capital providers– Cash dividends– Stock dividends (if incorporated)
• Earnings reinvested in business (retained)
![Page 11: Chapter 14 Integrating Accounting, Finance, Marketing and Economics Accounting and Finance for Entrepreneurs EBD-301 Dr. David P. Echevarria Slide 1 All.](https://reader036.fdocuments.us/reader036/viewer/2022083005/56649f125503460f94c259da/html5/thumbnails/11.jpg)
Dr. David P. Echevarria All Rights Reserved Slide 11
STATEMENT OF CASH FLOWS
• Purpose– Reconcile changes in cash balance at the
beginning of the fiscal year with the cash balance at the end of the fiscal year.
– Identify where the cash came from and how it was utilized.
– Three distinct activities are examined:• Operations, Investing and Financing
![Page 12: Chapter 14 Integrating Accounting, Finance, Marketing and Economics Accounting and Finance for Entrepreneurs EBD-301 Dr. David P. Echevarria Slide 1 All.](https://reader036.fdocuments.us/reader036/viewer/2022083005/56649f125503460f94c259da/html5/thumbnails/12.jpg)
Dr. David P. Echevarria All Rights Reserved Slide 12
STATEMENT OF CASH FLOWS
• Operating Sources and Uses of Cash– Uses of cash
• investing in inventory and accounts receivable• paying amounts owed
– Sources of cash• collecting accounts receivable• accruing wages and salaries payable, taxes payable• Depreciation and amortization• Deferred income taxes
![Page 13: Chapter 14 Integrating Accounting, Finance, Marketing and Economics Accounting and Finance for Entrepreneurs EBD-301 Dr. David P. Echevarria Slide 1 All.](https://reader036.fdocuments.us/reader036/viewer/2022083005/56649f125503460f94c259da/html5/thumbnails/13.jpg)
Dr. David P. Echevarria All Rights Reserved Slide 13
STATEMENT OF CASH FLOWS
• Investing Sources and Uses of Cash– Uses of cash
• purchases of property and equipment• making short-term investments
– Sources of cash• sales of property and equipment• selling short-term investments for cash
![Page 14: Chapter 14 Integrating Accounting, Finance, Marketing and Economics Accounting and Finance for Entrepreneurs EBD-301 Dr. David P. Echevarria Slide 1 All.](https://reader036.fdocuments.us/reader036/viewer/2022083005/56649f125503460f94c259da/html5/thumbnails/14.jpg)
Dr. David P. Echevarria All Rights Reserved Slide 14
STATEMENT OF CASH FLOWS
• Financing Sources and Uses of Cash– Uses of cash
• repayment of debt• capital servicing (paying interest and dividends)
– Sources of cash• Bank borrowing• Other sources of loans• selling stock (equity)
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Dr. David P. Echevarria All Rights Reserved Slide 15
ECONOMIC AND ACCOUNTING PROFITS
• Accounting profits do not consider the opportunity costs of invested capital.
• Opportunity cost is defined as the returns that could be earned in a different investment with similar risk.
• Economic profits = accounting profits minus opportunity cost of capital. Also termed residual income: see Eq. (3.2)