1. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 1 12-1 12-1Financial Planning 12-2 12-2Financial Records and Financial Statements 12-3 12-3Payroll Management 12-4 12-4Financial Decision-Making 12 C H A P T E R Financial Management

2. © 2012 Cengage Learning. All Rights Reserved. SLIDE 2 12-1 Financial Planning Goal 1Recognize important financial questions that must be answered in a business. Goal 2List the steps in budget preparation. Goal 3Describe three types of business budgets.

3. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 3 KEY TERMS ●revenue ●expenses ●budget ●start-up budget ●operating budget ●cash budget

4. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 4 FINANCIAL PLANNING ●Beginning a business ●Crucial to determine amount and sources of income, expenses to start, and when to pay ●Ongoing operations ●Will revenue be enough to cover expenses and still make a profit?Will revenue be enough to cover expenses and still make a profit? ●Good and bad ways to cut costs ●Business expansion ●Is it worth it? ●Make sure expected profit gain will exceed expense

5. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 5 BASIC FINANCIAL EQUATION ●Revenue – Expenses = Profit or Loss ●Profit ●Revenue is greater than expenses ●Revenue > Expenses = Profit ●Loss ●Revenue is less than expenses ●Revenue < Expenses = Loss

6. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: All income that a business receives over...

7. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: What is the basic financial equation for...

8. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 8 Checkpoint ●What is the basic financial equation for businesses? ●The basic financial equation for businesses is revenue minus expenses equals profit or loss.

9. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 9 DEVELOPING BUSINESS BUDGETS ●Reasons for budgets: ●Anticipate sources/amounts of income ●Predict types/amounts of expenses ●Sources of budget information ●Can use past financial records ●New business – SBA, S&P, WSJ, bank, etc.

10. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 BUDGET PREPARATION ●Like a roadmap: compare where you want to go with where you actually are ●Budgeting Process: 1.Prepare list of each type of income/expense 2.Gather info from records (or other sources) for each type 3.Create budget: Calculate each type, determine net income/loss 4.Explain to decision-makers SLIDE 10

11. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: The main source of financial information...

12. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: What are the four steps in preparing a b...

13. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 13 Checkpoint ●What are the four steps in preparing a business budget? ●Preparing a list of each type of income and expense that will be a part of the budget ●Gathering accurate information from business records and other information sources for each type of income and expense ●Creating the budget by calculating each type of income, expense, and the amount of net income or loss ●Explaining the budget to people who need financial information

14. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 14 TYPES OF BUDGETS ●Departmental/specialized budgets ●Start-up budget (new or expanding bus.) ●Includes expenses for building, licensing, supplies, employees, etc. ●Should measure up to point of profitability ●Operating budget – tracks income/ expenses for several months to a year ●Cash budget – will there be enough cash to pay expenses as they’re due?

15. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: Budgeting is much easier for a new busin...

16. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: Identify and describe the three types of...

17. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 17 Checkpoint ●Identify and describe the three types of budgets needed by all businesses. ●Start-up budget — plans income and expenses from the beginning of a new business or a major business expansion until it becomes profitable ●Operating budget — describes the plan for ongoing operations for a specific period ●Cash budget — is an estimate of the actual money received and paid out for a specific period.

18. © 2012 Cengage Learning. All Rights Reserved. SLIDE 18 12-2 Financial Records and Financial Statements Goal 1Identify several types of financial records needed by businesses. Goal 2Describe the differences between an income statement and a balance sheet.

19. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 19 KEY TERMS ●financial records ●assets ●liabilities ●owner’s equity ●balance sheet ●income statement

20. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 20 FINANCIAL RECORDS ●Types of records ●Asset records ●Depreciation records ●Inventory records ●Records of accounts ●Cash records ●Payroll records ●Tax records ●Maintaining financial records

21. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: Records of accounts identify all purchas...

22. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: What identifies the companies from which...

23. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: Give at least two examples of how the pr...

24. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 24 Checkpoint ●Give at least two examples of how the process of maintaining financial records has been affected by technology: ●Most financial information is collected using point-of- production and point-of-sale technology and sent electronically to the people who prepare the financial records. ●Also, businesses use computerized financial systems that complete the necessary mathematical calculations and compare those records with budgets. ●The software can even complete what-if comparisons to help managers determine the impact of changes in budgets and financial performance.

25. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: Records that name the buildings and equi...

26. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: Records that contain information on all...

27. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 27 FINANCIAL STATEMENTS ●The balance sheet ●Reports assets, liabilities, and owner’s equity on a specific date ●Current vs. fixed (long-term) assets/liabilities ●The income statement ●Shows revenue and expenses and calculates net income (or loss) for a period of time ●Compare to previous time periods

28. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 28 BALANCE SHEET

29. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 29 INCOME STATEMENT

30. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: All of the following are fixed assets EX...

31. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: What is the difference between a balance...

32. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 32 Checkpoint ●What is the difference between a balance sheet and an income statement? ●A balance sheet reports assets, liabilities, and owner’s equity as of a specific date. ●An income statement reports sales, expenses, and net profit or loss for a specified time period.

33. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: Cash and items that can readily be conve...

34. © 2012 Cengage Learning. All Rights Reserved. SLIDE 34 12-3 Payroll Management Goal 1Describe the components of a business payroll system. Goal 2Identify key information included in payroll records and paychecks.

35. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 35 KEY TERMS ●payroll ●payroll record ●direct deposit

36. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 36 PAYROLL SYSTEMS ●Income taxes ●Social Security and Medicare (FICA)Social Security FICA ●Unemployment taxes

37. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: ____________________ refers to income ta...

38. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: Which of the following payroll deduction...

39. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: What is the purpose of the payroll syste...

40. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 40 Checkpoint ●What is the purpose of the payroll system? ●The purpose of the payroll system is to maintain information on each employee to be able to calculate the company’s payroll and make the necessary payments to each employee, taking the proper legal state and federal deductions from each paycheck.

41. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 41 PREPARING A PAYROLL ●Payroll records ●Preparing paychecks

42. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 42 SAMPLE EARNINGS REPORT AND DIRECT DEPOSIT RECEIPT

43. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: The documentation used to track each emp...

44. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: An earnings report includes

45. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: What is the difference between a payroll...

46. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 46 Checkpoint ●What is the difference between a payroll record and an earnings report? ●A payroll record is documentation used to process earnings payments and record each employee’s pay history. ●An earnings report contains information for the current pay period as well as the cumulative amounts for the year.

47. © 2012 Cengage Learning. All Rights Reserved. SLIDE 47 12-4 Financial Decision-Making Goal 1Recognize important financial information managers use to make decisions. Goal 2 Identify the steps in making financial decisions in business.

48. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 48 KEY TERMS ●financial performance ratios ●discrepancies

49. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 49 USING FINANCIAL INFORMATION ●Important financial information ●Understanding financial performance ratios ●Current ratio (assets vs. liabilities) ●Debt to equity ratio (reliance on debt to run company) ●Return on equity ratio (money made on investment) ●Net income ratio (profit per $1 of revenue)

50. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 50 FINANCIAL PERFORMANCE RATIOS Current Liabilities Current Assets =Current Ratio Owner’s Equity Total Liabilities =Debt to Equity Ratio Net Profit =Return on Equity Ratio Owner’s EquityNet Income Total Sales =Net Income Ratio

51. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: ________________________________________...

52. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: Identify four important financial perfor...

53. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 53 Checkpoint ●Identify four important financial performance ratios used by managers to determine how well the business is performing. ●Current ratio ●Debt to equity ratio ●Return on equity ratio ●Net income ratio

54. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: Ratio that tells you how much the busine...

55. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: The net income ratio will show the rate...

56. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 56 MAKING FINANCIAL DECISIONS ●Prepare a budget ●Look for discrepancies between actual and budgeted performance ●Make needed adjustments ●Adjustments to revenue and/or expenses ●Last resort: change budget to match actual amounts

57. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: List the three steps in financial decisi...

58. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 58 Checkpoint ●List the three steps in financial decision- making. ●Preparing a budget. ●Using the budget as a guide to the operation of the business. ●Making needed adjustments to bring performance in line with the budget.

59. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: Discrepancies are differences between __...

60. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 Don’t forget: You can copy- paste this slide into other presentations, and move or resize the poll. Poll: If a budget contains several discrepanci...

61. © 2012 Cengage Learning. All Rights Reserved. 12-4 Assessment: 1-4, 6&7HOMEWORK SLIDE 61