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Finance LAP 7
A
B
Describe the role of finance in a business organization.
Discuss capital investment decisions and working capital
management.
Role of Finance
Money Matters
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Closely interrelated and may overlap
Key differences:
Finance—investment and money management decisions
Accounting—recordkeeping activities
Finance and Accounting
• Focus
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Key differences:
Finance—boost growth, reduce risks
Accounting—provide accurate and timely information
Finance and Accounting
• Ultimate purpose
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Administration of assets (investment decisions)
Acquisition of funds (financing decisions)
Finance Activities
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Helps set goals for the future
Plans and controls company spending
Ensures sufficient financing
Invests company money wisely
Decides whether to pay dividends
Importance of Finance
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Controls spending for production and marketing
Responsible for capital budgeting (collaborates with accounting)
Helps plan new projects and strategies
Relationships With Other Business Activities
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Which projects to invest in—capital budgeting
How to finance—capital
• Issuing stock
• Getting a loan
Capital Investment Decisions
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Whether or not to pay dividends
• When?
• How much?
• Cash or stock?
Capital Investment Decisions
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What Is Accounting? What Is Accounting?
• The process of creating the following financial records:The process of creating the following financial records:
• Income statement: Shows the profit or lossIncome statement: Shows the profit or loss
• Balance sheet: Balances the accounting equation Balance sheet: Balances the accounting equation (assets = liabilities + owner’s equity)(assets = liabilities + owner’s equity)
• Maintaining the following:Maintaining the following:
• Accounts _________: Money owed to othersAccounts _________: Money owed to others
• Accounts ________: Money owed to the companyAccounts ________: Money owed to the company
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What Do Businesses Track with What Do Businesses Track with Accounting Information? Accounting Information?
• The value of the things they own (assets)The value of the things they own (assets)
• How much money they owe (liabilities)How much money they owe (liabilities)
• The company’s net worth (owner’s equity)The company’s net worth (owner’s equity)
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Why Is AccountingWhy Is AccountingImportant to Businesses? Important to Businesses?
• Enables them to maintain control of their moneyEnables them to maintain control of their money
• Is used to make good financial decisions Is used to make good financial decisions
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How Does Accounting Maintain How Does Accounting Maintain Financial Control? Financial Control?
• Tracking the business’s spending
• Planning for the future
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Chris—financial manager
• Working on a budget
• Friend in marketing wants more money
What should he do?
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Acknowledgments
Original Developers:
Kerry Winfrey andLelia Ventling, MBAResearch
Version 2.0
Copyright © 2014MBA Research and Curriculum Center
Acknowledgments
Original Developers:
Kerry Winfrey andLelia Ventling, MBAResearch
Version 2.0
Copyright © 2014MBA Research and Curriculum Center
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Digital-based photography sources:
ThinkStock Photography
Various images used in this presentation are ©2014 Thinkstockphotos. All rights reserved www.thinkstockphotos.com
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Copyright:All photographic digital images on this CD are owned by the aforementioned photographic resources or their licensors and are protected by the United States copyright laws, international treaty provisions, and applicable laws. No title to or intellectual property rights to the images on this CD are transferred to you. These sources retain all rights and are not to be used, digitally copied, transferred, or manipulated in any way. To do so is a violation of federal copyright laws.
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