Basics of financial management Week 1

Today Introduction Goals for today Some basics Understanding the difference between finance, financial accounting and management accounting Understanding the difference between balance sheet, income statement and cash flow statement Exercises to prepare for next class

Introduction (1/2) Introduce yourself Examination Combination of multiple choice / open style / true or false questions No mandatory presence required, but experience tells me to follow classes especially for the exercises 6 classes in total Check blackboard for presentations Chapters Additional slides Answers to exercises

Introduction (2/2) Programme across the several weeks: Class 1: ch1, 2, 3, 4 Class 2: ch5, 9, exercises class 1 Class 3: ch11, 12, 14, exercises class 2 Class 4: ch15, 16, 17, exercises class 3 Class 5: exercises class 4, Short recap Class 6: mock examination Examination

Business Production organization striving for profit Transformation of production resources into end products Collaboration of participants Sales revenues > Costs of resources

Production process Production process Raw materials Fixed assets Labour End products Procurement market Sales market Cash

Efficiency and effectiveness in the production process Input Trans-formation process Output realization of objectives Efficiency Cost per unit Effectiveness Sales

Aspects of the choice of a legal form Management and ownership Financing possibilities Continuity Liability Tax consequences Disclosure of financial information

Merger in the production chain: vertical integration

Merger in the production chain: horizontal integration

Merger in the production chain: conglomerate acquisition

Forms of association Merger/ takeover Formerly independent companies are joint together Legal Franchising Independent entrepreneurs affiliate with a chain in order to get access to certain facilities Cartelization Independent companies draw up agreements that are designed to restrict competition Illegal

Financial Management disciplines Corporate Finance Management accounting Financial accounting

Corporate Finance Investments --- Assessment criteria Finance --- Choice of source of capital

(Financial) reporting Management accounting Internal Future oriented No regulations No tendency to creative accounting Financial accounting External Past oriented Regulations Tendency to creative accounting

The balance sheet Balance sheet Serve the business for more than one year Fixed assets Equity * Owners * Unlimited period * Reward depends on profit * Risk-bearing Time between purchase and use is shorter than one year Current assets Liabilities * Creditors * Temporary * Fixed reward * Risk-avoiding

Profit determination Balance sheet at start of period Increase of Equity = Profit (Except for private contributions and private drawings) Balance sheet at end of period Profit and loss account specifies the composition of profit

Receipts/expenditure vs. Revenue/costs Difference on balance sheet Sales Receipt Payment by cystomer Revenue Activities for customer Receivables Fixed assets Expenditure Purchase Depreciation Book value Loans/Credit Amount Repayment Interest Liabilities --- Provisions Increase provision

Depreciation

Direct changes in equity Private contribution Profit and loss account No influence Balance sheet Equity increase Private withdrawal Equity decrease Equity 31/12 Equity 1/1 Change in equity Private contribution Private withdrawal Profit Substract: Add:

For next class Exercises E1.4 E3.4 Warm-up questions 2.2 3.4