FINANCAL PLANNING and FINANCAL PLANNING and MANAGEMENTMANAGEMENT

Role of financial planningRole of financial planning Financial markets relevant to business financial Financial markets relevant to business financial

needsneeds Management of fundsManagement of funds Using financial informationUsing financial information Effective financial managementEffective financial management Effective financial planning Effective financial planning Ethical and legal aspectsEthical and legal aspects

THE ROLE OF FINANCIAL THE ROLE OF FINANCIAL PLANNINGPLANNING

STRATEGIC ROLESTRATEGIC ROLE Organisational goals and objectivesOrganisational goals and objectives Strategic PlansStrategic Plans Managing financial resourcesManaging financial resources

OBJECTIVES OF OBJECTIVES OF FINANCIAL FINANCIAL

MANAGEMENTMANAGEMENT

OBJECTIVEOBJECTIVE DEFINITIONDEFINITION DATADATA

ProfitabilityProfitability Earnings after Earnings after expenses have expenses have been paidbeen paid

Gross profitGross profitNet profitNet profit

EfficiencyEfficiency Ability of the Ability of the business to business to minimise costs and minimise costs and maximise profitsmaximise profits

ExpensesExpenses

GrowthGrowth Ability to increase Ability to increase in size in the in size in the longer termlonger term

Market shareMarket shareNumber of outletsNumber of outlets

Return on Return on capitalcapital

Financial return to Financial return to owners as a owners as a percentage of their percentage of their contributioncontribution

Net profitNet profitOwners’ equityOwners’ equity

LiquidityLiquidity Ability to pay debts Ability to pay debts as they fall dueas they fall due

Current assets Current assets and current and current liabilitiesliabilities

THE PLANNIN G CYCLETHE PLANNIN G CYCLE

1.1. Address present financial position.Address present financial position.

2.2. Determine financial elements of business Determine financial elements of business plan.plan.

3.3. Develop budgetsDevelop budgets

a)a) Operating-Operating-

b)b) ProjectProject

c)c) FinancialFinancial

THE PLANNING CYCLETHE PLANNING CYCLE

4.4. Predict cash flowsPredict cash flows

5.5. Prepare financial reportsPrepare financial reports

6.6. Interpret financial reportsInterpret financial reports

7.7. Plan financial controlsPlan financial controls

8.8. Minimise financial risks and losses.Minimise financial risks and losses.

FINANCIAL MARKETSFINANCIAL MARKETS

MAJOR PARTICIPANTSMAJOR PARTICIPANTS BanksBanks Finance and insurance companiesFinance and insurance companies Superannuation fundsSuperannuation funds CompaniesCompanies GovernmentGovernment ASXASX

FINANCIAL MARKETSFINANCIAL MARKETS

TRENDSTRENDS DeregulationDeregulation Interest ratesInterest rates GlobalisationGlobalisation

MANAGEMENT OF MANAGEMENT OF FUNDSFUNDS

SOURCES OF FUNDSSOURCES OF FUNDS

SOURCES OF FUNDSSOURCES OF FUNDS

INTERNALINTERNAL

(EQUITY)(EQUITY)

o Owners’ personal Owners’ personal fundsfunds

o Retained earningsRetained earnings

EXTERNALEXTERNAL(DEBT)(DEBT)

SHORT TERMSHORT TERMo Bank overdraftBank overdrafto Bank billsBank billso Trade creditTrade credito FactoringFactoring

LONG TERMLONG TERMo MortgageMortgageo DebenturesDebentureso LeasingLeasing

SOURCES OF FUNDSSOURCES OF FUNDS

Matching sources with purposeMatching sources with purpose Consider: Consider: o Set up costsSet up costso Interest costsInterest costso Availability of fundsAvailability of fundso Flexibility of fundsFlexibility of fundso Level of external controlLevel of external control

SOURCES OF FUNDSSOURCES OF FUNDS

DEBT versus EQUITYDEBT versus EQUITY

Gearing/ leverage.Gearing/ leverage.

FINANCIAL INFORMATIONFINANCIAL INFORMATION

1.1. REVENUE/INCOME/ PROFIT and LOSS STATEMENT. Shows REVENUE/INCOME/ PROFIT and LOSS STATEMENT. Shows revenue earned, expenses incurred over the accounting period revenue earned, expenses incurred over the accounting period and the resultant profit or loss.and the resultant profit or loss.

Gross Profit =Gross Profit = COGS =COGS = Net Profit =Net Profit =

1.1. BALANCE SHEET. Shows assets and liabilities at a particular BALANCE SHEET. Shows assets and liabilities at a particular period of time, represents the net worth of the business.period of time, represents the net worth of the business.

Assets = Liabilities + Owners’ EquityAssets = Liabilities + Owners’ Equity

FINANCIAL INFORMATIONFINANCIAL INFORMATION

ANALYSISANALYSIS

Ratios compared Ratios compared vertically, horizontally vertically, horizontally or trend analysisor trend analysis

INTERPRETATIONINTERPRETATION

Make judgements using Make judgements using the data gathered the data gathered from the analysis.from the analysis.

FINANCIAL RATIOSFINANCIAL RATIOS

LIQUIDITYLIQUIDITY

Current ratio=Current Assets/Current Current ratio=Current Assets/Current liabilitiesliabilities

SOLVENCYSOLVENCY

Debt to equity ratio= Total liabilities/ Owners’ Debt to equity ratio= Total liabilities/ Owners’ equityequity

FINANCIAL RATIOSFINANCIAL RATIOS

PROFITABLITYPROFITABLITY

Gross profit ratio=Gross profit/SalesGross profit ratio=Gross profit/Sales

Net profit ratio= Net profit /SalesNet profit ratio= Net profit /Sales

Return on owners’ equity=Net profit / Return on owners’ equity=Net profit / Owners’equityOwners’equity

FINANCIAL RATIOSFINANCIAL RATIOS

EFFICIENCYEFFICIENCY

Expense Ratio= Expenses/SalesExpense Ratio= Expenses/Sales

Accounts Receivable Turnover= Accounts Receivable Turnover= Sales/Accounts ReceivableSales/Accounts Receivable

WORKING CAPITAL WORKING CAPITAL MANAGEMENTMANAGEMENT

Control of current assetsControl of current assets CashCash ReceivablesReceivables InventoriesInventories Control of current liabilitiesControl of current liabilities PayablesPayables LoansLoans OverdraftsOverdrafts

WORKING CAPITAL MANAGEMENTWORKING CAPITAL MANAGEMENT

StrategiesStrategies

LeasingLeasing

FactoringFactoring

Sale and lease backSale and lease back

PROFITABILITY MANAGEMENTPROFITABILITY MANAGEMENT

Cost ControlCost Control

Fixed costsFixed costs

Variable costsVariable costs

Revenue ControlsRevenue Controls