6.00 Understand Financial Analysis

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Presentation transcript:

6.00 Understand Financial Analysis NC CTE 6.02: Acquire a foundational knowledge of finance to understand its nature and scope.

Explain the role of finance in business Distinguish between accounting and finance Accounting - The process of keeping and interpreting financial records. Finance - The process of obtaining funds and using them to achieve the goals of the business Financial management deals with the study of procuring funds and its effective and judicious utilization, in terms of the overall objectives of the firm, and expectations of the providers of funds. Financial management is concerned with optimum utilization of resources. Understanding the universality and importance of finance, finance manager is associated, in modern business, in all activities as no activity can exist without funds. Financial Decisions or Finance Functions are closely inter-connected

Explain the role of finance in business Discuss the primary finance activities Making investment decisions - Investment decisions relate to the total amount of assets to be held and their composition in the form of fixed and current assets. Capital Investment Decisions - Decisions that determine which projects a business will invest in, how the investment(s) will be financed, and whether or not to pay dividends to shareholders. Working Capital Management - Management of a firm’s current balance of assets and liabilities; involves accounts payable and receivable, inventory and cash. Cash Conversion Cycle of Working Capital Management - Ratio that refers to the number of days between a company’s paying for raw materials and receiving cash from selling the products made from those raw materials. Return on Capital - A measure of how well a business generates cash flow in relation to the capital it has already invested in itself.

Explain the role of finance in business Discuss the primary finance activities Making financing decisions Finance decision is concerned with the mix or composition of the sources of raising the funds required by the firm. In other words, it is related to the pattern of financing. Many firms have failed, not because of inefficiency of production, inability in marketing or non-availability of funds but due to the absence of competent finance manager. I