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

Closely interrelated and may overlap

Key differences:

Finance—investment and money management decisions

Accounting—recordkeeping activities

Finance and Accounting

• Focus

Key differences:

Finance—boost growth, reduce risks

Accounting—provide accurate and timely information

Finance and Accounting

• Ultimate purpose

Administration of assets (investment decisions)

Acquisition of funds (financing decisions)

Finance Activities

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

Controls spending for production and marketing

Responsible for capital budgeting (collaborates with accounting)

Helps plan new projects and strategies

Relationships With Other Business Activities

Which projects to invest in—capital budgeting

How to finance—capital

• Issuing stock

• Getting a loan

Capital Investment Decisions

Whether or not to pay dividends

• When?

• How much?

• Cash or stock?

Capital Investment Decisions

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

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)

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

How Does Accounting Maintain How Does Accounting Maintain Financial Control? Financial Control?

• Tracking the business’s spending

• Planning for the future

Chris—financial manager

• Working on a budget

• Friend in marketing wants more money

What should he do?

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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