Fred R. David Prentice Hall Ch 8-1 Finance/Accounting Issues Central to Strategy Implementation – –Acquiring needed capital –Developing pro forma financial statements –Preparing financial budgets –Evaluating worth of a business

Fred R. David Prentice Hall Ch 8-2 Decisions Requiring Finance/Accounting Policies Raise capital w/ short-term, long-term preferred or common stock Lease or buy fixed assets Determine an appropriate dividend payout ratio Use LIFO, FIFO, or market-value accounting approach

Fred R. David Prentice Hall Ch 8-3 Decisions Requiring Finance/Accounting Policies Extend time of accounts receivable Establish percentage discount on accounts for terms Determine the amount of cash kept on hand

Fred R. David Prentice Hall Ch 8-4 Finance/Accounting Issues Acquiring Capital to Implement Strategies – Basic sources of capital:Basic sources of capital: –Debt –Equity

Fred R. David Prentice Hall Ch 8-5 Finance/Accounting Issues Debt vs. Equity Decisions – EPS/EBIT analysisEPS/EBIT analysis –Earnings per share/Earnings before interest and taxes

Fred R. David Prentice Hall Ch 8-6 Finance/Accounting Issues Pro Forma Financial Statements - Allows an organization to examine the expected results of various actions and approachesAllows an organization to examine the expected results of various actions and approaches

Fred R. David Prentice Hall Ch 8-7 Finance/Accounting Issues 6 Steps in Pro Forma Financial Analysis 1.Prepare income statement before balance sheet (forecast sales) 2.Use percentage-of-sales method to project CGS and expenses 3.Calculate projected net income 4.Subtract dividends to be paid from Net Income and add remaining to Retained Earnings 5.Project balance sheet times beginning with retained earnings 6.List comments (remarks) on projected statements

Fred R. David Prentice Hall Ch 8-8 Finance/Accounting Issues Financial Budget – Document that details how funds will be obtained and spent for a specified period of time.

Fred R. David Prentice Hall Ch 8-9 Finance/Accounting Issues Types of Budgets – –Cash budgets –Operating budgets –Sales budgets –Profit budgets –Factory budgets –Capital budgets –Expense budgets –Divisional budgets –Variable budgets –Flexible budgets –Fixed budgets

Fred R. David Prentice Hall Ch 8-10 Evaluating Worth of a Business Central to strategy implementation as integrative, intensive and diversification strategies are often implement through acquisitions of other firms.

Fred R. David Prentice Hall Ch 8-11 Evaluating Worth of a Business 3 Basic approaches: 1.What a firm owns 2.What a firm earns 3.What a firm will bring in the market