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• Module overview
• 1. Introduction to budgets
  • 1.1 Introduction to the Budget Process
  • 1.2 Budget types
    • 1.2.1 The Budget Guidelines
    • 1.2.2 The Sales Budget
    • 1.2.3 Budget for Operating Expenses
    • 1.2.4 Profit Budget
    • 1.2.5 Cash-Flow Budget
    • 1.2.6 The Financial Position Budget
    • 1.2.7 Additional Types of Budgets
    • 1.2.8 Additional Budgeting Techniques
  • 1.3 The budget process and its objectives
  • 1.4 Budgets for performance management
    • 1.4.1 Master budget

• 2. Planning the budget

  • 2.1 Planning the Budget
    • 2.1.1 Business income
    • 2.1.2 Visual representation of sales and budgets
    • 2.1.3 The break-even point
    • 2.1.4 Contribution margin

• 3. Controlling the budget

  • 3.1 Controlling budgets
    • 3.1.1 Variance analysis
    • 3.1.2 Taking action to achieve the objectives of the budget
    • 3.1.3 Resource acquisition and usage

• 4. Introduction to Financial Management

  • 4.1 Business Objectives
    • 4.1.1 Maximising profit
    • 4.1.2 Maximising wealth
  • 4.2 Ethics and conflicts in business
    • 4.2.1 The dilemma of ethics in finance, investment and accounting
  • 4.3 Financial Managers
    • 4.3.1 Financial information and objectives
    • 4.3.2 Accounting, the financial information system
  • 4.4 The finance function
    • 4.4.1 Business and financial calculations

• 5. Elements of Business and Financial Management

  • 5.1 Business Structures
    • 5.1.1 Sole proprietors
    • 5.1.2 Partnerships
    • 5.1.3 Corporations and companies
  • 5.2 Reporting financial data and information
  • 5.3 Financial reports
    • 5.3.1 Statement of financial performance (profit and loss statement)
  • 5.4 Capital Markets
    • 5.4.1 Capital Markets
  • 5.5 Regulation and financial institutions
    • 5.5.1 Interest rates, supply and demand and market efficiency
  • 5.6 An overview of taxation implications

• 6. Obtaining Funds: Sources of Long Term and Short Term Finance

  • 6.1 Finance from external sources
    • 6.1.1 Equity finance
  • 6.2 Debt
  • 6.3 Long-term debt
    • 6.3.1 Debentures and unsecured notes (bonds)
    • 6.3.2 Mortgage loans
  • 6.4 Hybrids of debt and equity
  • 6.5 Leasing
    • 6.5.1 Operating Lease
    • 6.5.2 Financial Lease
    • 6.5.3 Distinguishing between an operating lease and a financial lease
    • 6.5.4 Sale and Leaseback
    • 6.5.5 The issue of gearing
  • 6.6 Short-term debt
    • 6.6.1 Bank Overdrafts
    • 6.6.2 Fully drawn advance
  • 6.7 Retained Earnings, internal funds and depreciation

• 7. Managing Working Capital

  • 7.1 Managing current assets and current liabilities
    • 7.1.1 Appropriate level of working capital
  • 7.2 Managing inventories
    • 7.2.1 Reasons for holding inventories
    • 7.2.2 The economic order quantity (EOQ)
    • 7.2.3 Re-order point (ROP)
    • 7.3.4 Safety stock (SS)
    • 7.2.5 Quantity discounts
  • 7.3 Managing trade debtors (accounts receivable)
    • 7.3.1 Credit policies
    • 7.3.2 Collection period
    • 7.3.3 Managing cash and near-cash assets
    • 7.3.4 Managing trade creditors (accounts payable)

• 8. Job Costing

  • 8.1 Accounting information about product, service and project costs
    • 8.1.1 Full costing
    • 8.1.2 Single product/service line
    • 8.1.3 Multi product/service
    • 8.1.4 Direct and indirect costs
  • 8.2 How costs behave
    • 8.2.1 Allocating Overheads
  • 8.4 Cost drivers
    • 8.4.1 ABC and the service industry
  • 8.5 Conclusion

Why are we in Business?:
An Introduction to Financial Management

Overview

This chapter represents the first in the second major section of our study in this chapter on financial management.

A traditional view of business entities in free enterprise economies is that they exist primarily to making profits, and consequently maximise the wealth of their owners. While this is broadly true, the activities of businesses, especially companies, are highly regulated by all levels of government and the profit and wealth motives of owners and managers are increasingly subject to ethical considerations. Atrill et al hint at these ethical considerations in their first chapter.

The owners of small businesses and the managers of large companies use funds in a variety of forms. In their roles as financial managers they choose the mix of funds deliberately to find a balance between the, often competing, outcomes of maximising profits, reducing risks and ensuring that their organization continues to exist.

The owners and managers responsible for managing the wealth and funds of a business face a number of competing and conflicting goals. Two of these are the maximisation of profit and the maximisation of shareholder/owner wealth. Surprisingly, they are not always the same!

In general, wealth maximisation is the most attractive financial goal because it deals effectively with the complexities of the operating environment, such as risk and the timing of returns on investments. Risk and return involve forecasts and, sometimes sophisticated, mathematical calculations, which are a part of financial management.

Learning objectives

After completing the work for this chapter you should be able to:

• Explain why the objective of maximizing wealth is preferred over the simpler objective of maximizing profit
• Outline the influence that ethical standards should have on economic goals
• Describe the function of financial management and explain why it is often crucial to the very survival of a business
• Explain the role and function of accounting and accounting reports for managers
• Outline the finance function and its importance to the firm
• Calculate percentages, discounts and interest
• Define the new terms and concepts identified in this chapter.

Select topics

• 4.1 Business Objectives
  • 4.1.1 Maximising profit
  • 4.1.2 Maximising wealth
• 4.2 Ethics and conflicts in business
  • 4.2.1 The dilemma of ethics in finance, investment and accounting
• 4.3 Financial Managers
  • 4.3.1 Financial information and objectives
  • 4.3.2 Accounting, the financial information system
• 4.4 The finance function
  • 4.4.1 Business and financial calculations

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