How to Understand Business Finance

by Cinnamon, Robert

• ISBN13: 9780749460419
• ISBN10: 0749460415
• Edition: 2nd
• Format: Paperback
• Copyright: 2010-05-28
• Publisher: Kogan Page Ltd

Summary

The modern marketplace is increasingly unpredictable and there is an ever-greater need for non-financial managers to understand the financial and management accounting process.How to Understand Business Financeis not written by an accountant and actually relates to running a business in a real market. It describes a business as it proceeds from initial set-up through its first year of trading, providing a quick course on business finance as it relates to business growth. As well as learning how to understand the balance sheet and profit and loss account, readers will also grasp the principles of: market dynamics; budgeting and forecasting; fixed and variable costs; break-even analysis; the difference between profit and cash; financial ratios for measuring business performance; investment appraisal; stock market ratios; shareholder value; financial measures for improving business performance, and much more.

Author Biography

Robert Cinnamon is a director of the international training and consultancy firm, INSIGHT Marketing and People.  He runs a popular master class and in-company training program Demystifying Financial Management.

Brian Helweg-Larsen is a global educator and director of Profitability Business Solutions.

Table of Contents

Acknowledgements	p. viii
Introduction	p. 1
So why do you want to know more about finance?	p. 3
Learning	p. 5
A tale of two languages	p. 5
The business cycle	p. 9
Setting up a company	p. 9
The Moving Balance Sheet	p. 12
Creating value	p. 18
Cash and profit	p. 20
Setting up and running the business - the opening month	p. 25
Profit and loss (P&L) account	p. 30
The balance sheet	p. 33
Month 2 business cycle	p. 34
Going to the bank	p. 39
Doing the books	p. 41
Where do all the business functions fit in?	p. 45
Sales	p. 45
Marketing	p. 49
Manufacturing	p. 50
Supply chain management	p. 51
Human resources	p. 52
IT, maintenance and engineering	p. 52
Research and development	p. 53
Finance	p. 54
Financial planning - the budgets	p. 57
Budgeting	p. 57
Cash flow forecast	p. 58
Avoiding bankruptcy: how to generate cash	p. 59
Measuring business performance - financial ratios	p. 63
Size	p. 65
P&L account (income statement) analysis	p. 66
Balance sheet analysis	p. 69
Getting finance from the bank	p. 75
Introduction	p. 75
Your relationship with the bank	p. 77
Purpose of bank finance	p. 78
Is your request viable?	p. 78
Categories of finance	p. 80
Securing your bank finance	p. 81
Costs of borrowing	p. 83
Sources of help and support	p. 84
When should you apply for bank, finance?	p. 84
Maintaining the dialogue	p. 85
Refinancing	p. 86
Summary	p. 87
How our investors see us - stock market ratios	p. 89
What accounts do our investors want to see?	p. 89
Shares	p. 90
Valuing a company	p. 95
Asset value	p. 95
Multipliers	p. 97
Market capitalisation	p. 98
Balanced Scorecard	p. 99
Cash flows	p. 100
Shareholder value and economic profit	p. 103
Earnings before interest, tax, depreciation and amortisation (EBITDA)	p. 103
Economic profit	p. 104
Total shareholder return (TSR)	p. 106
The hidden costs - depreciation, amortisation and tax	p. 109
Depreciation	p. 110
Goodwill	p. 113
Intangible assets	p. 114
Capitalising costs	p. 114
Taxation	p. 115
What must we sell to make a profit?	p. 119
Variable costs	p. 119
Fixed costs	p. 121
Break-even point	p. 122
Tools for evaluating projects	p. 127
Payback	p. 128
Discounted cash flow (DCF)	p. 128
Net present value (NPV)	p. 129
Internal rate of return (IRR)	p. 129
Terminal values	p. 130
Economic profit	p. 130
Pitfalls	p. 131
Other factors	p. 131
Where is all our cash? Managing working capital	p. 133
Stock (inventories)	p. 133
Debtors	p. 135
Creditors	p. 136
Write-offs	p. 137
Cash flow implications of working capital	p. 138
Glossary of financial terms	p. 141
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