Financial Management

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Financial Management
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Financial Planning

• Revenue all income that a business receives
  over time
• Expenses the costs of operating a business
• Revenue Expenses Profit or Loss

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Developing a Budget

• Budget Detailed plans for the financial needs
  of individuals, families, or businesses
• The most important step in financial planning is
  developing a budget

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Business Budgets

• A business budget has the following goals
• Determine the sources and amounts of income
• Identify the types of expenses and predict their
  costs
• Determine how income will be distributed to cover
  those expenses
• Reward investors if there is a profit

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Types of Budgets

• Start-Up Budget plans income and expenses for a
  new business from the beginning until it becomes
  profitable
• Operating Budget describes the financial plan
  for ongoing operations of the business
• Cash Budget estimate of the actual money
  received and paid out

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Financial Records

• Asset records name the buildings and equipment
  owned by a business, their original current value
  and the amount owed if the money was borrowed to
  purchase the asset
• Depreciation records identify the amount assets
  have decreased in value due to their age and use

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Financial Records

• Inventory records identify the type and number
  of products on hand for sale
• Records of accounts identify all purchases made
  using credit
• Accounts payable records identifies the
  companies from which credit purchases were made
  and the amount purchased, paid and owed

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Financial Records

• Accounts receivable records identify customers
  that made purchases using credit and the status
  of each account
• Cash records list all cash received and spent
• Payroll records information on all employees,
  and their compensation and benefits
• Tax records show all taxes collected, owed, and
  paid

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Financial Statements

• Assets what a company owns
• Liabilities what a company owes
• Owners Equity the value of the owners
  investment in the business
• Reports that sum up the financial performance of
  a business are called financial statements.

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Balance Sheet

• Used to report a companys assets, liabilities,
  and owners equity
• Usually prepared every six months or once a year
• Left side lists assets
• Two categories Current and Long-Term
• Right side lists liabilities
• Two categories Current and Long-Term

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Income Statement

• Used to report the revenue, expenses, and net
  income or loss from operations for a period of
  time
• Revenue includes all sources of income sales or
  products or services, interest earned from
  investments
• Expenses cost of operating business rent,
  supplies, inventory, payroll, utilities

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Income Statement Income Sale of Crop
Products 50,000 Sale of Livestock
Products 25,000 Government
Payments 10,000 Total Income
85,000 Expenses Seed 10,000
Fertilizer 20,000 Feed 10,000
Processing 10,000 Marketing 5,000
Depreciation 10,000 Total
Expenses 60,000 Net Income 25,000
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Financial Performance Ratios
Current Assets Current Liabilities

• Current Ratio
• Debt to Equity Ratio
• Return on Equity Ratio

Total Liabilities Owners Equity
Net Profit Owners Equity