FINANCAL PLANNING and MANAGEMENT Role of financial planning Financial markets relevant to business...
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Transcript of FINANCAL PLANNING and MANAGEMENT Role of financial planning Financial markets relevant to business...
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