Finance for non-Financial Managers

[Audio] Finance for non-Financial Managers By Dr. Mohammed Shaban Montasir.

[Audio] Financial Accounting What is financial accounting? Financial accounting is the field of accounting concerned with the summary, analysis and reporting of financial transactions related to a business. This involves the preparation of financial statements available for public use..

[Audio] Definition of Financial Terms 1. Accounts Payable: is a business term means your business obligations to pay debts owed to lenders, suppliers, and creditors. Sometimes referred to as A/P or AP for short, accounts payable can be short or long-term depending upon the type of credit provided to the business by the lender. 2. Accounts Receivable: is a business term that means the money owed to your business by others for goods or services provided. These accounts are labeled as assets because they represent a legal obligation for the customer to pay you cash for their short-term debt..

[Audio] Definition of Financial Terms 3. Accruals: When a firm delivers a good or service before receiving cash. 4. Deferral: When a firm received a cash before delivers a good or service in sometimes also known as unearned revenue. Unearned revenue: is money received by an individual or company for a service or product that has yet to be provided or delivered..

[Audio] Definition of Financial Terms . 5. The cost of goods sold (COGS): is the sum of all direct costs associated with making a product. It appears on an income statement and typically includes money mainly spent on raw materials and labour. It does not include costs associated with marketing, sales or distribution. 6. Expense: is the cost of operations that a company incurs to generate revenue. It is simply defined as the cost one is required to spend on obtaining something. As the popular saying goes, “it costs money to make money. Common expenses include payments to suppliers, employee wages, factory leases, and equipment depreciation..

[Audio] Definition of Financial Terms 7. Accounting period: is a period of time that covers certain accounting functions, which can be either a calendar or fiscal year, but also a week, month, or quarter, etc. Accounting periods are created for reporting and analyzing purposes. 8. Asset: is anything that has value whether tangible or intangible and is owned by the business is considered an asset. Typical items listed as business assets are cash on hand, accounts receivable, buildings, equipment, inventory, and anything else that can be turned into cash..

[Audio] Definition of Financial Terms 9. Intangible Asset: A business asset that is non-physical is considered intangible. These assets can be items like patents, goodwill, and intellectual property. 10. Fixed Asset: A tangible, long-term asset used for the business and not expected to be sold or otherwise converted into cash during the current or upcoming fiscal year is called a fixed asset. Fixed assets are items like furniture, computer equipment and equipment's..

[Audio] Definition of Financial Terms 11. Capital: Refers to the overall wealth of a business as demonstrated by its cash accounts, assets, and investments. Often called “fixed capital,” it refers to the long-term worth of the business. Capital can be tangible, like durable goods, buildings, and equipment, or intangible such as intellectual property. 12. Working Capital: Not to be confused with fixed capital, working capital is another business term. It consists of the financial resources necessary for maintaining the day-to-day operation of the business. Working capital, by definition, is the business’s cash on hand or instruments that you can convert to cash quickly..

[Audio] Definition of Financial Terms 13. Owner’s Equity: is defined as the proportion of the total value of a company’s assets that can be claimed by its owners (sole proprietorship or partnership) and by its shareholders (if it is a corporation) 14. Owner’s Drawing: An owner’s draw is when a business owner draws money out of their company to use as they wish.

[Audio] Definition of Financial Terms 15. Credit: is a contractual agreement in which a borrower receives a sum of money or something else of value and commits to repaying the lender later, 16. Debt: is something, usually money, owed by one party to another. Debt is used by many individuals and companies to make large purchases that they could not afford under other circumstances. Unless a debt is forgiven by the lender, it must be paid back,.

[Audio] Definition of Financial Terms 17. Cash Flow: Every business needs cash to operate. The business finance term and definition cash flow refers to the amount of operating cash that “flows” through the business and affects the business’s liquidity. Cash flow reports reflect activity for a specified period of time, usually one accounting period. 18. Annual Percentage Rate: The business finance term and definition APR represents the yearly real cost of a loan including all interest and fees..

[Audio] Definition of Financial Terms 19. Liabilities: Are considered either current (payable within one year or less) or long-term (payable after one year) and are listed on a business’s balance sheet. A business’s accounts payable, wages and taxes, are all considered liabilities. 20. Depreciation: The value of any asset can be said to depreciate when it loses some of that value over time. Various methods of depreciation are used by businesses to decrease the recorded value of assets..

[Audio] 21. Amortization: is the practice of spreading an intangible asset's cost over that asset's useful life. Intangible assets are not physical assets, Examples of intangible assets that are expensed through amortization might include: Patents and trademarks, Franchise agreements Proprietary processes, such as copyrights cost of issuing bonds to raise capital and Organizational costs 22. Gross Profit: This business finance term and definition can be calculated as total sales (income) less the costs (expenses) directly related to those sales. Raw materials, manufacturing expenses, labor costs, marketing, and transportation of goods are all included in expenses..

[Audio] Definition of Financial Terms 23. Net profit: Is the gross profit (revenue minus COGS) minus operating expenses and all other expenses, such as taxes and interest paid on debt. Although it may appear more complicated, net profit is calculated for us and provided on the income statement as net income. 24. Bankruptcy: This federal law is used as a tool for businesses or individuals who are having severe financial challenges..

[Audio] Definition of Financial Terms 25. Dividends: is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a proportion of the profit as a dividend to shareholders. 26. Retained Earnings: Just like it sounds, this term represents any profits earned that are retained in the business..

[Audio] Definition of Financial Terms Financial Statements 27. Balance Sheet: It reports financial health of your business, the balance sheet is essential information that gives a “snapshot” of the company’s net worth at any given time. The report is a summary of the business assets and liabilities. 28. Income Statement (P&L): Important reports for lenders and investors want to see when evaluating your business. It is also called a profit and loss statement, reporting how much the business has earned and spent over a given period of time. The result will be either a net gain or a net loss..

[Audio] Definition of Financial Terms Financial Statements 29. Statement of Cash Flow: It shows a summary of the actual collection of revenue and payment of expenses for your business. The statement of cash flow should reflect activity in the areas of operating, investing, and financing and should be an integral part of your financial statement package. 30. Statement of Shareholders’ Equity: Owner's equity represents the owner's investment in the business minus the owner's draws or withdrawals from the business plus the net income (or minus the net loss) since the business began..

[Audio] Purpose of a Business Purpose of business: Provide goods or services to make a profit. Simple Business Model 1- Obtain the resources needed to start and run a business (HR, Money ..Etc) 2- Add value (Ex. Manufacturing) 3- Sell to customers.

[Audio] Simple Business Model Product Cash from Capital, Financing, Property, Plant, Equipment, Raw Materials, Labor, Inventory, Goods & Services Value-added conversion OR Service.

[Audio] Purpose and Organization of a Business Firms’ from Profitability point of view: 1- Profit firms 2- Not profit firms Purpose For Profit firms: Make profits for investors and increasing the value of the company For Not Profit Firms: Provide goods and services to people and use profits to provide more goods and services to people and increasing the value of the company.

[Audio] Nature of Business Operations Firms from Operations point of view: Service : 1- Provide services for customers 2- Financial Services deal in services related to money. Sales : 3- Merchandising—buys goods and resells them to other businesses (wholesale) or to final customers (retail). 4- Manufacturing—makes a product and sells it to other businesses (wholesale) or to final consumers (retail).

[Audio] Ownership Structure of Businesses Firms from Structure point of view: 1- Sole proprietorships (single owner) 2- Partnerships (multiple owners) 3- Corporations (widespread ownership) Characteristics of Different Forms of Business 1- Personal liability 2- Taxation 3- Transfer of ownership 4- Ability to raise capital 5- Government regulation 6- Financial Statements declaration.

[Audio] Sole Proprietorship 1- Personal responsibility and liability 2- Income reported on individual’s tax return 3- Owned by one individual 4- Difficult to acquire capital 5- Minimal government regulation 6- Financial Statements declaration (Owner Only).

[Audio] Partnerships 1- Partners share personal responsibility and liability 2- Income is reported on each partner’s individual tax return 3- Partners usually create an agreement that describes how much work each will do and how the profit and loss will be divided. 4- Difficult to acquire capital 5- Minimal government regulation 6- Financial Statements declaration (Partners Only).

[Audio] Corporations 1- Provides stockholders with limited liability. 2- Double taxation (Corporate and Individuals taxes) 3- Allows for easy transfer of ownership. 4- Easy to acquire capital from stock market, Individuals can purchase small amounts of stock. 5- Much government regulation 6- Financial Statements declaration (For public in news paper).

[Audio] Disadvantages of Different Structures Sole Proprietorship and Partnership: 1- Personal Liability 2- Difficulty to raise capital Corporation: 1- Conflict of interest between management and owners, 2- Double taxation.

[Audio] New Hybrid Forms of Business Structure 1- LLP  Limited Liability Partnership 2- LLC  Limited Liability Corporation Have characteristics of both corporations and partnerships 1- Limited Liability of a corporation 2- Tax advantages of a partnership Mostly used by law, medical, and accounting profession.