finance and accoutning for engineers

Finance and Accoutningfor

EngineersMT 251

Vanderbilt UniversitySchool of Engineering

David A. Berezov, CPA MBA

Adjunct Professor of Management of Technology

Saber Industries, Inc.

David A. Berezov

President

SABER C-250

SABER C-250

SABER C-550

SABER C-550

SABER C-550

SABER C-1200

SABER C-1200

SABER C-2200

SABER C-800TT

SABER C-1200TT

SABER C-1200TT

SABER C-1200TT

SABER C-1200TT

SABER RB-550

SABER WIDE BELT C-1200

SABER WIDE BELT

SABER WIDE BELT

SABER CVF-1200

SABER WIDE MACHINE

SABER WIDE MACHINE

SABER WIDE BELT C-1200

Finance and Accoutningfor

EngineersMT 251

Vanderbilt UniversitySchool of Engineering

David A. Berezov, CPA MBA

Adjunct Professor of Management of Technology

Course Description

Topics are studied from the perspective of Engineering Professionals working in

business organizations

Topics Covered

• Time Value of Money

• Capital Budgeting

• Capital Formation

• Financial Accounting and Reporting

• Performance Measurements

• Working Capital Management

Course Objectives

• Develop an understanding of what is required for an otherwise successful engineering project to be considered a financial success.

• Develop an understanding of what is required for business enterprises undertaking such projects to be considered financially successful.

The Problem

• Why do some finance and accounting managers say, “ The Engineers just don’t get it” ?

• Why do some engineers refer to business skills as “Soft Skills”?

A Question of Context ?

• The Value “111”, is it “one hundred eleven”, “seven” or “two hundred seventy three”

• (decimal, binary or hex)

We shipped $12,000 product this month and collected payments of $8,000, What are our “Sales” for the month, $12,000 or $8,000 ?

(“accrual” method or “cash” method )

Even the hand calculators are loaded with different functions

• Engineering calculators; Sin, Cos, Tan, Pi, Log, Deg, Rad

• Financial Calculators:• PV – Present Value• FV – future value• IRR – Internal rate of return• PMT – Payment• I – Interest rate

Finance and Accounting for Engineers views individual projects and businesses as

though they were machines.

SimpleBusiness Machines

Projects are viewed as machines fueled by capital, operated over time and producing a measurable output. We start with the time value of money as applied to simple cash flows including future sums, annuities and perpetuities. We then investigate the more complex cash flows engineered in the capital budgeting process, and introduce the element of risk.

What’s the FV of an initial $100 after 3 years if i = 10%?

FV = ?

0 1 2 310%

Finding FVs (moving to the righton a time line) is called compounding.

100

After 1 year:

FV1 = PV + INT1 = PV + PV (i)= PV(1 + i)= $100(1.10)= $110.00.

After 2 years:

FV2 = PV(1 + i)2

= $100(1.10)2

= $121.00.

After 3 years:

FV3 = PV(1 + i)3

= $100(1.10)3

= $133.10.

In general,

FVn = PV(1 + i)n.

Complex Machines

• Simple cash flows are expanded to complex business enterprises. We review the basics of financial accounting and reporting with the goal of teaching the engineer the language of the financial community. With the terminology in hand, we look at inventory and its relation to product development activities

Performance Measurements

We then look at performance measurements for business enterprises; with the goal of learning what is normal, extraordinary and troublesome for various types of businesses.

Capital Fuel For Financial Machines

• Debt Capital

• Equity Capital

• Cost of Capital

• Financial Leverage

Financings

• Corporate Bond issues

• Municipal Bond Issues

• Preferred Stock Issues

• Common Stock Loans

• IPO’s

• Construction Loans

• Working Capital Loans

Working Capital

We examine the day to day aspects of working capital management. The objective is to understand how business growth and contraction affect the firm’s cash position.

Taxation

• Federal Corporate Income Taxation

• Federal Personal Income Taxation

• Federal Estate and Gift Taxation

• State Income Taxation

• Local and State Business Taxes– Sales taxes– Property taxes– Personalty Taxes

Informed Interviewees

• Information on firms interviewing students

Annual Reports

SEC From 10K

Proxy Statements

StatisticsEmployer Firms

# Employees

Total <500 500+

# Firms 5.6M 5.6M 16.7K # Emp. 110.7M 55.7M 55.0MReceipts $18.2T $7.5T $10.7T