CHAPTER 5 Small Business and the Entrepreneur

CHAPTER 5 Small Business and the Entrepreneur

15 chapter Financing and Tracking Business Operations Better Business 4th Edition Solomon Poatsy Martin 2016 Pearson Education, Inc.

15-1 Learning Objectives 1. 2. 3. 4. 5. 6. 7.

8. What is financial management, and how do financial managers fulfill their responsibilities? How do companies finance their short-term business needs? What kinds of loans and grants are available to finance short-term business needs? What is the purpose of each type of long-term financing? What are the pros and cons of debt and equity financing? What are the functions of the different types of accounting? How is double entry bookkeeping used to maintain the balance of the

fundamental accounting equation? What is the function of balance sheets, income statements, and statement of cash flows? 2016 Pearson Education, Inc. 15-2 Financial Management 2016 Pearson Education, Inc.

15-3 Planning for Financial Needs 2016 Pearson Education, Inc. 15-4 Addressing Cash Flow and the Budget

2016 Pearson Education, Inc. 15-5 Short-Term Financing Options

Self-financing, family, and friends Credit cards Trade credit Factoring 2016 Pearson Education, Inc. 15-6 Short-Term Loans and Grants

Commercial banks Nonbank lenders Microloans Grants Peer-to-peer lending

Crowdfunding 2016 Pearson Education, Inc. 15-7 Financing Long-Term Business Needs Debt financing - Loans - Secured bonds

- Unsecured bonds Equity - Retained earnings - Issuing stock - Venture capitalists 2016 Pearson Education, Inc. 15-8 Choosing Between

Debt and Equity Financing 2016 Pearson Education, Inc. 15-9 Long-Term Financing with Bonds 2016 Pearson Education, Inc. 15-10

Long-Term Financing with Equity Retained earnings Public issues of stock Venture capital 2016 Pearson Education, Inc. 15-11 What Is Accounting?

The language of business Tracking income and expenses Preparing financial reports 2016 Pearson Education, Inc. 15-12

Types of Accounting 2016 Pearson Education, Inc. 15-13 Accounting Standards and Processes Generally acceptable accounting principles (GAAP) Sarbanes-Oxley Act International Financial Reporting

Standards (IFRS) 2016 Pearson Education, Inc. 15-14 The Accounting Equation 2016 Pearson Education, Inc. 15-15

Examples of the Accounting Equation 2016 Pearson Education, Inc. 15-16 Financial Statements 2016 Pearson Education, Inc.

15-17 Balance Sheet A snapshot of a businesss financial condition at a specific moment in time Based on the accounting equation Assets Liabilities Current assets Short-term liabilities

Fixed assets Long-term liabilities Intangible assets Total Liabilities Owners Equity Total Assets Total Liabilities and Owners Equity 2016 Pearson Education, Inc. 15-18

Balance Sheet 2016 Pearson Education, Inc. 15-19 Analyzing a Balance Sheet Working Capital = Current Assets Current Liabilities Current Ratio = Current Assets Current Liabilities Debt-to-Equity Ratio = Total Liabilities Owners Equity

2016 Pearson Education, Inc. 15-20 Income Statement

Revenue Cost of Goods Sold Gross Profit Operating Expenses Operating Income Interest Expense Taxes Net Income 2016 Pearson Education, Inc.

15-21 Income Statement 2016 Pearson Education, Inc. 15-22 Analyzing Income Statements Gross Profit Margin = (Revenue COGS) / Revenue

Operating Profit Margin = (Gross Profit Operating Expenses) / Revenue Earnings Per Share = Net Income / Outstanding Shares 2016 Pearson Education, Inc. 15-23 Statement of Cash Flows

2016 Pearson Education, Inc. 15-24 Statement of Cash Flows 2016 Pearson Education, Inc. 15-25 Chapter Summary

1. 2. 3. 4. 5. 6. 7. 8. What is financial management, and how do financial managers fulfill their responsibilities?

How do companies finance their short-term business needs? What kinds of loans and grants are available to finance short-term business needs? What is the purpose of each type of long-term financing? What are the pros and cons of debt and equity financing? What are the functions of the different types of accounting? How is double entry bookkeeping used to maintain the balance of the fundamental accounting equation? What is the function of balance sheets, income statements, and statement of cash flows?

2016 Pearson Education, Inc. 15-26 2016 Pearson Education, Inc. 15-27

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