 INTRODUCTION

 The Role of Finance in an Enterprise.

Accounting and Bookkeeping

It is very important to measure, identify and record all the
financial information of the organization. What goes in,
what comes out? Financial management comprises of an
effective accounting system that provides the overall
financial picture of the organization.
Reporting
There are several stakeholders that rely on
the company’s financial report to make key
decisions. For example, shareholders of the
business are shared with frequent reports of
the financial progress of the business.
Payables and Receivables
Managing the cash flow of business – what you
owe to your suppliers and what do your
customers owe you? It is important to maintain
a clear track record of this so that you can stay
liquid with the right amount of cash on hand at
all times.
Investment Opportunities
Finance gives you the power to invest in the
right opportunities at the right time. Only by
considering the financial health of the business
and determining its ability to invest, the
company can leverage on the right
opportunities.
Risk
A healthy financial management system is a pre-
requisite to minimize unforeseen risks and
counteract liabilities. An effective finance system
should include adequate insurance for important
elements of the organization, budgeting for working
capital, controlling debt and maximizing operational
flexibility if the business experiences cash flow
problems.
Function of a Financial manager

• Estimating the Amount of Capital Required

• Determining Capital Structure
• Choice of Sources of Funds
• Procurement of Funds
• Utilization of Funds
• Disposal of Profits or Surplus
• Management of Cash
• Financial Control.
 Uses and Sources of Funds
A sources and uses statement simply shows where all the
sources of funds for a project come from, and where all those
funds are used in a project.
 The Rules of Sound Financing
• Interest
• Education
• Skills
• Experience
• References
• Education
• Activities
• Likes
• Work Experience
 Working capital management - involves the
relationship between a firm's short-term assets and its
short-term liabilities
The goal of working capital management is to ensure
that a firm is able to continue its operations and that
it has sufficient ability to satisfy both maturing
short-term debt and upcoming operational expenses.
The management of working capital involves
managing inventories, accounts receivable and
payable, and cash
 Financial Records and Reports - is a formalrecord of
the financial activities and position of a business, person,
or other entity. Relevant financial information is
presented in a structured manner and in a form easy to
understand.

 Financial Records Keeping – The maintenance of

a history of one's activities, as financial dealings, by entering
data in ledgers or journals, putting documents in files, etc.
 BOOKS OF ACCOUNTING
• Manual Books: The most basic among the three are manual books of
account, which are also known as journals, ledgers, or columnar books.
You enter transactions manually into the book, making it ideal for
smaller ventures, which need to record only few transactions.
• Loose-leaf Books: Loose-leaf books strike the balance between the ease
of using manual books and the efficiency of computerized books. You
can use any spreadsheet account such as Microsoft Excel or Google
Sheets to record your transactions, which you should then print and
bind.
• Computerized Books: For even larger transactions and more complex
computations, you can use an accounting software to do the job for
you. This is more suited to larger enterprises and even multi-site
businesses as there are software that allow you to collate data from
different sites or branches.
Chart of Accounts – Account titles used by the business with
corresponding account number for easier reference of book-keeper in
recording of transaction are called Chart of Accounts. It is classified according
to the nature of accounts.
Assets Liabilities Equity Revenue Expenses
111 Cash 211 Accounts Payable 311 Capital 411 Service Revenue 511 Wages Expense
112 Accounts Receivable 212 Notes Payable 312 Drawings 512 Rent Expense
113 Notes Receivable 213 Taxes Payable 313 Income Summary 513 Advertising Expense
113a Allowance for Bad Depts 214 Salaries Payable 514 Freight Out
114 Office Supplies 215 Utilities Payable 515 Depreciation Expense
115 Prepaid Rent 516 Utilities Expense
116 Furniture and Fixtures 517 Taxes and Licensure Expense
116a Accumulated Depreciation- Furn 518 Miscellaneous Expense
117 Equipment
117a Accumulated Depreciation- Equipment
118 Land
119 Building
120 Accumulated Depreciation - Building
Financial Statement- Are written records that convey the financial
activities and conditions of business or entity and consist of major
components.

• Balance Sheet
• Income Statement
• Statement of changes in equity
• Cash flow statement
• Notes of financial Statement
Balance Sheet – Is a report showing financial position of a company on a
particular date. The three elements are, Assets, Liabilities and Equity.

Balance sheet classification

Assets - An asset is any resource owned by the business . Anything tangible
or intangible that can be owned or controlled to produce value and that is
held by a company to produce positive economic value is an asset.
Liabilities – Liability is defined as a company's legal financial debts
or obligations that arise during the course of business operations.
Liabilities are settled over time through the transfer of economic
benefits including money, goods or services.
Equity – Is a report that summarize the changes to equity in a
given period of time.
Valuing Assets - Asset valuation is the process of determining the fair
market or present value of assets, using book values, absolute valuation
models like discounted cash flow analysis, option pricing models or
comparables.
• Accounting Treatment of Depreciation - Depreciation is an accounting method of
allocating the cost of a tangible asset over its useful life and is used to account for declines in value.
• Asset life or Estimated useful life - Useful life is the estimated lifespan of a depreciable
fixed asset, during which it can be expected to contribute to company operations.
• Land Valuation - Land value is the value of a piece of property including both the value of
the land itself as well as any improvements that have been made to it.
• Accounting for Appreciation of Assets - Appreciation is an increase in the value of
an asset over time. The most common asset that appreciates is Land.
• Cash Flow Statement – Is the report that shows the cash inflow and cash outflow which
resulted from three business activities; Operating investing and financing activities during the
period.
 Income Statement - is one of the three primary financial
statements used to assess a company’s performance and financial
position (the two others being the balance sheet and the cash flow
statement). The income statement summarizes the revenues and
expenses generated by the company over the entire reporting
period.

 Financing cost - (FC), also known as the cost of finances (COF),

is the cost, interest, and other charges involved in the borrowing
of money to build or purchase assets.
 Financial ratio analysis - is performed by comparing two
items in the financial statements. The resulting ratio can
be interpreted in a way that is not possible when
interpreting the items separately.

 Financial ratios - can be classified into ratios that

measure: profitability, liquidity, management
efficiency, leverage, and valuation & growth.
 List of Financial Ratios
• Gross Profit Rate = Gross Profit ÷ Net Sales
Evaluates how much gross profit is generated from sales. Gross profit is
equal to net sales (sales minus sales returns, discounts, and allowances)
minus cost of sales.

• Return on Sales = Net Income ÷ Net Sales

Also known as "net profit margin" or "net profit rate", it measures the
percentage of income derived from dollar sales. Generally, the higher the
ROS the better.
• Return on Assets = Net Income ÷ Average Total
Assets
In financial analysis, it is the measure of the return on investment. ROA is used
in evaluating management's efficiency in using assets to generate income.

• Return on Stockholders' Equity = Net Income ÷ Average

Stockholders' Equity
Measures the percentage of income derived for every dollar of owners'
equity
 Common Size Income Statement
A common size income statement is an income statement in which each
account is expressed as a percentage of the value of sales. It is used
for vertical analysis, in which each line item in a financial statement is listed as
a percentage of a base figure within the statement, to make comparisons
easier.

 Break-even Analysis
A break-even analysis is a calculation of the point at which revenues equal
expenses. In securities trading, the break-even point is the point at
which gains equal losses.
 CLASSIFICATION OF COSTS

EXAMPLES:
• ADMINISTRATION COSTS\
• SELLING COSTS
• DISTRIBUTION COSTS
• RESEARCH AND DEVELOPMENT COSTS
 Budgeting - is the process of creating a plan to spend your money.
This spending plan is called a budget. Creating this spending plan allows
you to determine in advance whether you will have enough money to do
the things you need to do or would like to do.

 Budgeting - is simply balancing your expenses with your income.

 Cash Management - Cash management is the
corporate process of collecting and managing cash, as
well as using it for short-term investing. It is a key
component of a company's financial stability
and solvency. Corporate treasurers or business
managers are frequently responsible for overall cash
management and related responsibilities to remain
solvent.
Provision of Adequate Cash to meet the Needs of the
Business
 Planning Cash Requirements
• Cash planning - is a technique to plan and control the use of cash. A
projected cash flow statement prepared based on
expected cash receipts and payments, is the anticipation of the
financial condition of the firm. Cash planning may be prepared on the
daily, weekly, monthly or quarterly basis.

 Cash budget
• A cash budget is a forecast of estimated cash receipts, estimated cash
payments and the resultant cash position for a certain period of time
 Dealing with cash shortages
• May faced due to company does have not sufficient cash available to
pay
• Missing the tax payment can result in the company being charged
penalties and interest
• Missing the loan payment could jeopardize the company's
relationship with a lender
• Prepare your company for a cash flow shortage is to build a capital
reserve
 Dealing with excess cash
• Pay out bonuses - Excess cash is a sign of a successful business, which means
that your employees are probably doing a great job. The best way to hold on to
these employees is to make sure they're rewarded for their excellent work. Cash
bonuses are great, and contributions to build loyalty
• Invest In Growth - You might earn reliable interest on your cash, or even a
higher return if you put it in stocks and bonds. Holding onto that cash still carries
an opportunity cost, as you're sacrificing the potential cash flows from investing it
into your business.
• Give Yourself A Raise - Hey, you've earned it. You built this highly successful
business, so why not reap some of the rewards. As an entrepreneur, you should
pay yourself what you are worth. If your business has so much excess cash, you
might just be worth more than you originally thought.
 Monitoring and Controlling Budgets

• All departments are required to regularly monitor actual

activity to planned activity and control their expenditure to
ensure that it is in line with available funds. If required,
appropriate corrective action should be taken to resolve
significant differences between actual and planned activity.
 Safeguarding cash from loss
• Since cash is the most liquid of all assets, a business cannot survive and
prosper if it does not have adequate control over its cash. Cash is the
asset that has the greatest chance of “going missing” and this is why we
must ensure that we have strong internal controls build around the cash
process. To control and manage its cash, a company should:
• Account for all cash transactions accurately so that correct information is
available regarding cash flows and balances.
• Make certain that enough cash is available to pay bills as they come due.
• Avoid holding too much idle cash because excess cash could be invested to
generate income, such as interest.
• Prevent loss of cash due to theft or fraud.
 Why do companies go broke

• A company generally files for bankruptcy if it can no

longer pay its debts as they generally become due.
Common causes of bankruptcy are: Incompetent or
inexperienced management that made a series of poor
decisions leading up to thecompany's inability to pay
its creditors.
 What makes a successful firm?

• For successful companies, culture is about attracting and

hiring the people who would be most successful in that
specific organization. And it's about driving the behavior
that makes the company successful. Customer service.
Simply defined, customer service means taking care of
your customers.