finance 101, finance overview, basics, and best practices

finance 101, finance overview, basics, and best practices


it turns out that numbers are everywhere you might say that you want a numbers person but that statement does not make numbers go away whether you are in marketing HR supply chain or strategy numbers are a key element of all discussions relating to productivity and performance people who understand the numbers and appreciate how they are used within an organization have a leg up on those who just dismiss numbers is not being important or understandable our objective with this course is to help you understand the two most common areas involving numbers within a company accounting and Finance you will find that the numbers are just a way to quantify your intuition numbers help us to be systematic in our analysis numbers impose a discipline on us that helps us to consider and quantify all factors relevant to a decision the numbers assist us with our decision making it is important to always remember that we don’t work for the numbers the numbers work for us the numbers are just a tool to help us make better decisions and that is what we all want to do make better decisions rather than fear the numbers or dismiss the numbers or cop out and say you’re not a numbers person together let us get comfortable understanding and using the numbers let’s see how we can increase our skill set by getting comfortable with the disciplines and terms associated with these numbers we will begin with a discussion of Finance what is finance let’s start with a broad definition finance when we’re thinking about organizations individuals families companies governments is first about identifying what things I need second how do I get the money to buy those things and third how do I manage those things efficiently once I have them now let’s drill down inside a company first how do I decide what things I need well there are long term decisions that I need to make do I need to buy some land do I need to buy a building do I need to buy machines that decision making process is part of Finance then there are short term decision how much cash do I need how much inventory should I have on hand making those decisions as part of Finance other operating items how about my level of staffing do I have a research and development department what about my marketing budget all of these issues are issues of Finance and they all require money so that leads into the second area of financing how do I get that money do I borrow it do I ask shareholders or partners to pull their personal savings and put it into the company so that we can use that to buy the things we need or do I use internally generated profits and third once I have all those things that I’ve paid for them how do I manage them that’s an issue of timing scheduling budgets interface with my outside suppliers my staff and I also need to decide how to protect the things inside my company I need to have controls and procedures in place inside my company to effectively manage the things that I have now that’s a broad description and definition of finance but when most people say finance they have a more narrow set of issues in mind they are only focusing on one of the three broad issues how do I get the money to buy the things I need how does the company get the money should they borrow it should they seek it from investors they have to get the money from somebody outside of the company so those Outsiders do they want to invest in this company or do they want to invest in that company and there are third parties involved financial institutions that put these parties together a company needs to borrow money you want to lend money somebody’s got to put the two of you together so when most people talk about finance realize they’re just focusing on this one narrow sliver of finance finance broadly defined involves deciding what you need to buy how you’re going to get the money to buy those items and then how to manage those things once they’re inside your company now let’s think about what’s going on outside of companies with regard to finance let’s think about all the economic activity in the world as a sea an ocean with three kinds of players swimming around in that ocean first there are the entrepreneurs the creators the doers organizations with ideas objectives these are the companies looking for funding they’re swimming around out there there are also investors swimming around out there these are the entities individuals companies who have saved money in the past and are now ready to lend it or invest it in somebody else finally there are facilitators swimming around out there specialized institutions that will match up the entrepreneurs who have ideas but don’t have money with the investors who’ve got the money that’s the economic environment that we’re talking about so we’ve got the entrepreneurs who are running companies we’ve already talked about what goes on inside companies with regard to finance entrepreneurs need to decide what to buy how to get the money to buy it and how to manage it once they have it so let’s think about what goes on outside the company in the rest of the economic sea what about those investors and savers what are they thinking about they’re looking at their investment opportunities under what conditions under what circumstances should they provide money to entrepreneurs should they lend the money should they invest the money what about their portfolio of investments they don’t want to invest everything in one company so what different things should they invest in then there are the facilitators there are all kinds of them out there there are banks there are mutual funds there are private equity funds there are insurance companies there are investment banks who put deals together there are all kinds of entities swimming around out there trying to match those who need money with those who have money finance allows us to look at each one of these entities and how they interact one with another finance is identifying the necessary resources for an organization determining how to get the money to buy those resources and then how to manage those resources efficiently once you have them that’s the broad definition of finance when we talk about finance we’re usually talking about just the middle one determining the best way to get the money to buy the needed resources should I borrow the money should it be invested if I’m an outside investor under what circumstances under what conditions should I provide that capital and then finally what about those financial institutions that bring savers and entrepreneurs together how these three groups work together is a narrow definition of finance but it’s probably the most common but keep in mind that within a company finance is much bigger than just obtaining funding determining if funding is needed the amount of funding needed and how to manage the resources associated with that funding is also part of Finance now let’s turn our attention to accounting what is accounting first accounting is quantitative you knew that it’s numbers second accounting is financial in nature that means money numbers about money third accounting is meant to be useful it’s a very practical field of study well useful for what that’s the fourth aspect of accounting useful in making decisions accounting helps you use the past right now in the present to change the future accounting is quantitative numbers about money to help people you and me make better decisions that’s accounting now there are four different types of accounting first the most fundamental type of accounting is bookkeeping just the routine gathering of the information making sure that everything gets recorded because if it doesn’t get recorded we’ll never know about it so bookkeeping is the systematic gathering of financial information the second flavor of accounting is called financial accounting this is reporting to people outside your organization just summary reports not the details financial accounting is for people who want periodic reports as to a firm’s performance so you prepare and provide them with a report of the economic resources you have and the economic obligations you’ve incurred you report as to whether you made money last year did you lose money last year just summary reports to people outside of your company who might be thinking of loaning you money or might be thinking of investing in your company that’s called financial accounting reporting to outsiders now the third field of accounting is managerial accounting this type of accounting involves the details within a company those are the detailed proprietary data that individuals use inside their organizations to make decisions detailed decisions decisions such as should I raise my prices should I stop selling shirts and start selling shoes should I build my factory in Wyoming or should I build it in Alabama those detailed decisions that business people and people running organizations make every day and this is information that is known only to those inside a company they don’t reveal this to outsiders it’s confidential information that’s called managerial accounting and finally the fourth kind of accounting is income taxes this is the accounting that makes sure that you’re in compliance with the tax laws well those are the four types of accounting bookkeeping financial accounting manager early accounting and income taxes both accounting and finance deal with using numbers to make better more informed decisions the numbers certainly do not drive the decisions but they provide a significant input into the decision making process accounting involves gathering and compiling information for decision makers both within the company and outside of the company this information is often used by those in the field of finance to determine what resources are needed and how best to acquire and utilize those resources accounting and Finance do not involve magic they involve understanding our objective here is to help you gain some of that understanding not so that you can become accountants but rather so that you can understand and appreciate where those numbers come from and what those numbers are used for who knows perhaps you’ll find that numbers can become your friends we’ve talked about how accounting and finance involved compiling and using quantitative information and making decisions how’s that information conveyed how do users see and digest that information well within a company quantitative information can take on many shapes and sizes there are no rules as to how information is used within a company a company can use information that it develops within a firm in whatever way helps that company to make the best decisions but once you step outside of a firm there are rules information used by potential investors and creditors is governed by rules so that information can be compared across time for the same company and across companies at the same point in time now we won’t get bogged down in how those rules are created suffice it to say that there is a formal rulemaking process to ensure that the information given by firms to those outside of the firm is relevant and reliable financial statements are a method in which the effects of lots of transactions are summarized and reported in a manner that is useful to users of financial statements who are standing outside the company the three most common financial statements are the balance sheet the income statement and the statement of cash flows we will look at these three statements in a bit of detail as they are quite common if you are evaluating a competitor’s financial position if you are evaluating a suppliers long-term viability if you are a member of a labor union negotiating with a company if you’re assessing a customer’s ability to pay you will use these three financial statements as part of your assessment let’s take a look at each of these in turn we will start with the mother all financial statements the balance sheet the balance sheet embodies the accounting equation one of the greatest inventions of the human mind invented in Italy over 500 years ago a listing of things we own assets is easy anybody can list assets but the insight from the accounting equation is to then also list where did we get the money to buy those assets the liabilities and the equities now assets they’re valuable resources they are the items that will provide us benefit in the future cash for example is the asset that we can all quickly identify if you look for example at the balance sheet of Apple you’ll see that Apple had on September 27 2014 13.8 billion dollars in cash now that’s a lot of money but that’s not even close to being Apple’s biggest asset accounts receivable that’s money that’s owed by other people to a company that’s another common asset continuing the Apple example at the end of September 2014 customers old Apple almost seventeen point five billion dollars Apple also had inventory all those iPods iPads IMAX and iphones at the end of September 2014 Apple had inventory totaling over two billion dollars another asset land buildings equipment all of these are resources that a company uses in accomplishing and subjective Apple had twenty point six billion dollars in property plant equipment but apples biggest asset as of September 27 2014 was long-term marketable securities these are the stocks and bonds of other companies that Apple has purchased that amount totaled over one hundred and thirty billion dollars apples total assets at the end of September 2014 totaled almost two hundred and thirty two billion dollars Wow again assets are resources available to a company that will benefit that company in the future now how does it company finance its assets how did Apple finance that two hundred and thirty two billion dollars in assets if a company has assets then that same company also has to have sources of financing to buy those assets what are these sources well one possible source are liabilities liabilities are obligations to repay money or to provide a service in the future consider for example Walmart where does Walmart get most of its inventory that’s the things that Walmart has on its shelf to sell the you and me while suppliers finance it suppliers say you can pay us later we call those accounts payable other liabilities Disney has borrowed money on a long-term basis sometimes very long term a hundred years would you loan money to somebody for a hundred years well maybe not everybody but you’d loan money to Disney to pay you back in a hundred years United Airlines has a very interesting liability when you and I fly on United Airlines we pay first and fly later in the interim United Airlines owes us a ride on a plane that’s an obligation turns out that’s a liability that’s listed on United Airlines balance sheet at the end of 2014 that obligation to provide airplane rides to people who had already paid totaled over 3.7 billion dollars so let’s go back to Apple their biggest liability was accounts payable companies that they’d purchased assets from but hadn’t yet paid for the amount of their accounts payable was thirty point two billion dollars their second largest liability was long-term debt totaling about thirty billion dollars now you might ask why would a company with almost 14 billion in cash and 130 billion in marketable securities be borrowing money but that’s a discussion for another day suffice it to say that Apple’s liabilities as of the end of September 2014 total to 120 billion dollars now the second source of financing to buy assets is owner’s equity money provided to the company by owners owners can do this in two general ways they can take money out of their pocket and invest it in the business we call this paid in capital that’s the first way that owners invest in their company a second way that owners invest in the company is by leaving profits of the company in the business we call these retained earnings the profits of a business belong to the owners the owners can take the profits out and use them to buy groceries or to buy a boat or whatever else they want to do or the owners can say let’s put those profits back into the business we call those retained earnings paid in capital and retained earnings are the amount of money that are provided to the company by the owners to then buy assets in the case of Apple owners have invested about twenty three point three billion dollars into the business that’s paid in capital and they have elected to leave in the business since the business was started about eighty nine billion dollars to review remember that Apple had assets of two hundred thirty two billion dollars well how did they finance those assets a hundred and twenty billion dollars worth were funded through liabilities and the remainder were financed by owners to the tune of about a hundred and twelve million dollars now the first thing to note is that they call this financial statement a balance sheet for a reason it balances the accounting equation requires assets to equal liabilities plus owner’s equity it has to balance by definition the accounting equation always holds always we can look at a couple of other companies to show how their balance sheet balances consider the following these three companies United Airlines General Motors in Google vary in size and they vary in the degree to which they finance their assets with liabilities but they all have one thing in common their assets exactly equal their liabilities plus their owner’s equity even though these are sophisticated companies selling products that are quite innovative and technologically advanced they still follow that same accounting equation that was invented by the Italians over 500 years ago assets equal liabilities plus equity check it for each one and you’ll see that they add up they always add up the second primary financial statement is the income statement the income statement tells us revenues minus expenses and that equals net income we use the term revenues and expenses all the time so let’s make sure we know what these words mean in an accounting context revenue means the amount of assets generated in doing business and different companies generate assets in different ways Walmart for example generates assets by putting things on shelves that you and I buy we pay Walmart more for the inventory than they themselves paid for it that’s how Walmart creates assets Microsoft creates assets by creating software and hardware that you and I then buy and we pay Microsoft for those things Disney has a consumer products they have cruises they have theme parks we pay to use those things or to buy those products and that’s how Disney generates assets revenue is the amount of assets generated in doing business hopefully the assets generated are less than the assets consumed expenses are the amount of assets consumed in doing business for example Microsoft consumes assets by paying programmers and by paying for equipment Walmart consumes assets by buying the inventory that they then sell the you and me and then paying rent by having buildings depreciate by paying its employees McDonald’s consumes resources by buying food buying paper by renting facilities in each case the revenues hopefully are more than the expenses that are consumed in generating business all of this is put together in the income statement net income equals revenues minus expenses now net income is a very sophisticated economic measure it’s the net amount of assets generated by a business through its business operations this is the income statement now let’s look at the income statement for some companies of which you’ve heard Facebook Google Microsoft and Apple all of these companies have income statements that they released to the public on a regular basis now take a look at these first of all you see a difference in scale Apple is so much larger than Facebook in fact Facebook is the smallest company on this list and terms of Revenue yet we talk about Facebook so much this illustrates an important point the financial statements are only one measure of a company’s performance a very important measure but only one measure now why do we talk about Facebook so often because for Facebook its operations now are only a small fraction of what we think they’re going to be in the future Facebook is expected to grow substantially in the future so we talk a lot about them now the point with the income statement is this a company increases its net assets through profitable operations you can see that for each of these four companies they’ve all been very profitable as a result their net assets increase year after year the third primary financial statement is the statement of cash flows conceptually the statement of cash flows is quite simple cash in cash out the inside of accountants is to separate those cash flows into three categories operating activities investing activities and financing activities those three categories of cash flows are what are reported in the statement of cash flows now operating activities are what companies do every single day they collect cash from customers they pay cash to buy inventory they pay cash to employees for rent for advertising for research and development all of those things are operating activities think of operating activities as the things that their business does every single day and hopefully a company would generate cash from its operating activities you would hope that a business would be collecting more cash than it spends on a daily basis the second category in the statement of cash flows is investing activities investing means investing in the productive capacity of the business buying machines buying land buying buildings those are investing activities in contrast to operating activities which happen every single day investing activities happen occasionally you don’t buy land and buildings every single day you do that on occasion operating activities are things that a business does every day investing activities investing in the productive capacity of the business happen occasionally the third category in the statement of cash flows is financing activities and that is exactly what it sounds like financing borrowing money repaying those loans getting cash or investors paying dividends to investors getting the capital or financing to buy the assets that a business needs now a way to think of the statement of cash flows is with financing activities on getting the financing that is the capital to buy the assets the investing activities to then conduct the operations the operating activities these are the things that our business does the statement of cash flows is built around operating investing and financing activities let’s look at examples of the statement of cash flows for three companies about which you may have heard coca-cola Exxon mo and Walmart first thing I want you to look at is well look at the statement of cash flows for ExxonMobil particularly look at their investing activities billions upon billions of dollars of investing activities investing in the productive capacity of these businesses this business needs larger machines and buildings and equipment and lots of land and you see that reflected in the investing cash outflows of ExxonMobil these are often called capital expenditures or capex now I want you to look at the statement of cash flows for coca-cola and Walmart we call these cash cows the reason we call them cash cows is their operations generate more than enough cash to pay for all of their investing activities with cash leftover they’re generating a lot of cash wouldn’t you like to be a personal cash cow where your daily cash flows were enough to pay for all your cars and your houses and your land and everything else you needed to buy in cash that’s coca-cola that’s Walmart and that’s ExxonMobil now let’s step back and remind ourselves why an understanding of these three financial statements is important if you are ever in a position of negotiating with another company and find yourself wondering about the company’s long-term viability you will want to know a little something about their financial position well their financial position is summarized quite nicely with using these three financial statements these three financial statements may not tell you everything about a company’s future but they do tell you a lot in this section we will discuss how common external financial reports are used by those who are standing on the outside of a company and trying to assess the financial viability on the inside of a company of course it would be preferable if we could just get inside the company to do our analysis but companies do not like outsiders poking around on the inside of their company there’s just too much proprietary information that they do not want exposed to outsiders things like cost structures pricing margins and R&D efforts to name a few we must make do with the information that is available another point to keep in mind is that the analysis techniques that we will practice on the external financial statements can be developed and applied within a firm using proprietary firm specific information in other words we will practice the techniques on commonly available information and you can develop unique techniques within your company for analyzing firm specific information so let’s begin first of all let’s ask the question what is financial ratio analysis we’ll begin our discussions by looking at a company most of us are familiar with Ford Motor Company the car company in 2014 they reported income of 3.2 billion dollars is that a lot at December 31st 2014 they reported total assets of 208 point five billion dollars is that a lot and what they do with those assets at the end of December 2014 they had liabilities of a hundred and eighty three point three billion dollars is that a lot and what did they use that money for to answer these and other questions we’ll need to carefully analyze Ford’s financial statements that brings us to financial ratio analysis which is simply the examination of relationships among financial statement numbers we’re going to do a lot of dividing one number by another to draw our conclusions when it comes to ratio analysis we’re going to do two types one we’re going to compare the same company across time to see how the company is performed over time and secondly at the same point in time we’re going to compare across companies for example let’s continue with Ford in 2014 they had return on sales of 2.2 percent return on sales is simply net income divided by sales which is a measure of how much profit they earned per dollar in 2014 2.2 percent in 2013 they had a return on sales of four point nine percent the obvious question why how did that happen now comparing forward to General Motors during 2014 General Motors had a return on sales of 2.6 percent Ford again 2.2 percent again why what has happened to Ford’s profitability from 2013 to 2014 and during 2014 why is General Motors more profitable than Ford those are good questions and we’re going to answer them now when it comes to financial ratio analysis I like to borrow a quote from Winston Churchill he said the following the further backward you look the further forward you can see we analyzed financial statements to tell us if a company has done well or poorly in the past and to help us see how the company might do in the future when it comes to financial ratio analysis there’s a four step process in this course we’re going to introduce you to step one the DuPont framework to breakdown return on equity into its component parts so let’s do that next return equity is a general overall measure of how well a firm is doing the DuPont framework brakes return on equity down into three parts profitability efficiency and leverage let’s use an example to illustrate we have uncertain balance sheet and their income statement what can we conclude by looking at this for starters we can see that they had total assets of fourteen thousand five hundred dollars sales of twenty thousand dollars and income of seven hundred dollars is that good is that bad it’s hard to tell so let’s compare them with benchmark company what can we conclude by looking at benchmark and uncertain side by side well the first thing we notice is benchmark is bigger and if we do a little mental math we can conclude well it looks like their net incomes higher relative to their sales but just a raw comparison of benchmarks financial statements with uncertain spine an shil statements that’s tough to do there has got to be a way to compare these two different companies of different sizes so we’re going to begin with our first financial ratio my favorite and most people’s favorite return on equity return on equity is computed by dividing net income by stockholders equity it’s a measure of the amount of profit earned per dollar of investment and it’s affectionately known as our OE return on equity our OE now let’s compare uncertain and benchmarks our OE as you can see the return on equity for uncertain was nine point three percent compare that with benchmark at twenty point three percent what does that nine point three percent mean well it means for every $100 that’s been invested by uncertain Zoners those owners earned a return of nine dollars and 30 cents in the most recent year is that good is that bad well it’s certainly not as good as benchmark but nine point three percent by itself what does that tell us well in general with respect to return on equity or our OE greater than twenty percent is very good less than 10 percent nuts are good and typically companies are between ten and twenty percent between 10 and 20 percent is normal so in the case of uncertain that 9.3% well that’s not good as an example let’s take a look at some companies with which we’re all familiar it’s no surprise that Apple and Microsoft have very good return on equities no surprises at all in the case of GAAP a retail clothing chain their return on equity in 2014 was a stunning forty two point three percent above both Apple and Microsoft Walmart at 19 percent finds itself in the normal range and you can see for both Ford and General Motors that they are at twelve point nine percent and 11.1% respectively at the lower end of the normal range when it comes to return on equity it is a general overall measure of a company’s performance for a given period of time and it is the foundation for one of the most amazing creations in accounting history the DuPont framework okay as we saw uncertain how to return on equity of 9.3 percent not good benchmark had a return on equity of 20.3% very good now anybody can see that benchmark is higher than uncertain when it comes to return on equity turns out we can now either be a problem pointer or a problem solver anybody can see that uncertain has a problem what we want to know is why do they have a problem and that brings us in all its glory to the DuPont framework now the DuPont framework has three components profitability efficiency and leverage let’s start with leverage because that’s the thing we do first when it comes to leverage that’s an indication of how much money have we borrowed to purchase assets and why do we purchase assets we purchase assets in hopes of generating sales the leverage measure tells us of our assets how many were acquired with the equity that’s been put into the company we’ve borrowed to buy it gives us a measure of how much we’ve borrowed to buy assets and why do we buy assets to generate sales that’s what the efficiency ratio is measuring we buy assets to generate sales the more sales we can generate per dollar of assets the better and why do we want sales that leads us to our profitability measure the more sales we have the higher our income is going to be so first of all we borrow money to buy assets we buy assets to generate sales we generate sales to generate income our return on equity measure tells us how much income would did we generate given a fixed amount of stockholders equity that’s been invested by the owners in the firm now with that framework let’s take a look at uncertain vs. benchmark and use the DuPont framework to identify not only how uncertain is done but why they have performed poorly relative to benchmark so we can see the two company’s return on equity and the DuPont framework ratios here uncertain with 9.3 percent return on equity benchmark with 20 point three percent and we can also see the profitability measures the efficiency measures and the leverage measures for uncertain and benchmark to review we look at leverage efficiency and profitability for uncertain and benchmark and the first thing we notice is that leverage is the same for both companies so in explaining the difference in return on equity between uncertain and benchmarks it can’t be attributed to leverage so then we look at efficiency and we find out that uncertain generates a dollar and 38 cents in sales for every dollars worth of assets it has compared to benchmark which generates a dollar and 70 cents in sales for every dollars worth of assets they have then we look at profitability when it comes to profitability uncertain is generating 3 dollars and 50 cents in profit for every hundred dollars in sales compared to benchmark which is generating 6 dollars and 20 cents in profit for every hundred dollars worth of sales so why is benchmarks return on equity so much higher than uncertain profitability and efficiency benchmark is much better at generating sales with its assets and generating earnings with the sales that it has so now do we have any other questions well when it comes to efficiency which specific assets are being used inefficiently by uncertain which expenses are too high which would account for their lower profitability we want to know the answer to those questions and we would do further analysis to get there okay we’ve now completed step one using the DuPont framework to break down return on equity into its component parts now what well it turns out that the numbers can tell you what has happened additional analysis can shed light on why things happen the numbers as we’re going to find sell them provide the answers to questions the numbers point you in the direction of the next question and eventually we’re going to end up talking to an individual so to review the DuPont framework analysis is the first step we do that first we take return on equity and break it down into a profitability efficiency and leverage the second step in our analysis would be to prepare common sized financial statements common size financial statements allow us to compare companies of different sizes both across time or at the same point in time across companies step two would be common size financial statements based on that analysis we then have additional ratios we could use we have profitability ratios we have efficiency ratios and we have leverage ratios as we saw with Ford versus General Motors we had differences relating to efficiency GM was more efficient at using assets to generate sales well we can then go and analyze individual assets to see which assets are generating more sales and which assets are not in addition we saw that with Ford and GM GM was more profitable there are ratios that allow us to drill down to find out specifically where we might be missing on profitability where’s the difference between Ford and General Motors when it comes to profitability with a little further analysis we could answer that question the first three steps are simply doing analysis with available information to lead us to the next clue we drill down a little more and a little more for example we didn’t need to drill down with leverage because we saw that Ford was much more highly leveraged than with General Motors we don’t have additional questions there but if we did there are ratios related to leverage that we could look at all of this analysis eventually leads us to the right person who can tell us why we are different from our competitor or why we were different from last year we do this analysis to get us to the right person to ask the right question that’s where we’re headed with all this now as I said before the objective with this course is not to run through the entire menu of financial ratio tools that one can use to analyze the numbers if you want more of that go visit our course on understanding financial ratios our primary objective here was to show that a careful analysis of the numbers can allow us to draw certain conclusions about the operations of a business we have used publicly available information to do that but you can do a similar analysis within the firm that is available only to you the point is this a careful analysis of numbers across time can allow us to identify issues that deserve further attention you do not need to be a numbers person to do that everyone numbers person or not knows that cash is the lifeblood of a business without cash you will not be in business for very long you can have a great marketing plan you can have a great location you can have a great product or service but if you don’t turn your cash into more cash you will not be in business for very long to begin we’ll talk first about a company’s operating cycle how long it takes from when a company buys inventory and then turns that inventory into a receivable and then returns that receivable into cash if the operating cycle is too long things get pretty tough pretty quick for a company in other words if my cash is tied up in other assets receivables in inventory that it’s not available for me to utilize in the business remember when we are talking about finance we are talking about identifying those resources that we need determining the best way to get the money to buy those resources and then managing those resources effectively to do that I need detailed timely information in this section we’re going to talk about short-term financial management we are going to illustrate that using the operating cycle of a wholesale building supply company you will notice in this diagram that we’ve got various points on the clock we begin with cash we take that cash and we have to purchase inventory so we have to have relationships with our suppliers we have got to have suppliers that we can count on to get us what we need when we need it once we’ve purchased that inventory we now have to manage our inventory the last thing we want is not enough inventory the worst thing that can happen to a business is to run out of inventory when a contractor comes in and needs sheetrock we’ve got to have it we don’t want to ever run out of inventory but then we don’t want too much inventory we’ve got to have what they need when they need it then we will have customers come in to make the purchase they will want to buy stuff from us well we’ve got to manage relationships with our customers we will have large customers we will have small customers we will have customers we like and we will have customers that just are our favorites we’ve got to ensure that we have a system to manage those relationships you will note that once we make the sale then we end up with a receivable we have got to manage our receivables as well to ensure that we have prompt collections we may provide our contractors with terms but if we don’t send them a bill they’re just not going to magically pay us we have got to manage our receivables to ensure that this operating cycle this conversion from inventory to receivables to cash works and that we eventually get our cash in a timely fashion we are going to have to manage this operating cycle continuously and we will need information to do that in this chapter we are going to talk about managing our cash numbers person or not we need to watch cash flow the objective of a business is not to have a lot of inventory the objective of a business is not to have a lot of people owe us money the objective is to manage our inventory and our receivables so that we convert our inventory into cash as quickly as is reasonably possible so let’s begin by talking about cash management how to manage the cash we have why should we have any cash at all as we know cash is a low yielding asset you don’t make a lot of return on cash so you don’t want to have too much but then you don’t want to have too little either well why have cash at all well it turns out that bills have to be paid in cash employees have to be paid in cash rent has to be paid in cash insurance has to be paid in cash we’ve got to manage our cash to ensure that we have it when we need it that requires computers that require staff that requires sophisticated projections to ensure that we can forecast are we going to have enough cash when we need it a cash shortfall would be inconvenient and potentially costly for example if payroll is due on Friday and it turns out that you don’t have the cash there the consequences are going to be tragic so we have to make sure we have sufficient cash why not have a lot well as I said earlier cash is a low yielding asset to have cash sitting in your savings account you’re not to going to get a very large return on that the opportunity cost of holding cash can be very high so to ensure we have not too much and not too little there are tools that we have to manage our cash one common tool is a cash budget we can carefully plan and solve cashflow problems in advance it turns out over time we can predict with some degree of certainty when will our customers pay us we can predict with some degree of certainty when are we going to have to pay our suppliers and what we want to do is identify well in advance when are we going to need cash we don’t need to guess we can determine ahead of time by making a cash budget so a cash budget allows us to determine when are we going to have shortfalls of cash and when are we going to have excesses in cash and then we can have strategies to ensure we’re ready for both of these eventualities okay we just talked about cash management now let’s talk about receivables management recall that receivables are the amounts of money owed to us by customers we want to manage our receivables to ensure that they turn into cash but let’s ask the question why would anybody have receivables in the first place why not just sell for cash well it turns out credit sales are a marketing technique it turns out if we will offer credit we will get more sales if I’m offering you a product and you have to pay cash here and my competitor down the road is allowing you to pay in 30 days for the same product you’ll go down there although the things being equal now if credit sales increase sales why not have for credit to everyone well it turns out if you offer credit to anyone and everyone there will be a lot of people who won’t pay you you’ll have bad debts associated with that and so it’s a trade-off I’ll increase my sales but I’ll have people who won’t pay me I’ve got to measure that trade-off to ensure that those increased sales are worth it I’ve got to be careful who I extend credit to in addition if you’re going to get into the credit business you got to keep track of that very rarely will someone come in and say I know how are your money but I don’t know how much will you tell me and will you take my money they will send you money when you send them a bill so you’ve got to keep track of who owes you and how much they owe and you’ve got to send them a bill to ensure that they pay you in addition by tying up money into receivables that is an opportunity lost it turns out if you had had that cash instead you can invest it so there’s another part of the trade off for example Boeing in 2014 had accountable of seven point seven billion dollars that is customers owed them seven point seven billion dollars at year-end if they had that seven point seven they could have invested it and earned a return on it but I’m sure they’ve done the calculation that offering credit increased their sales and more than makes up for any implicit interest cost that they’ve lost now when it comes to determining who do we offer credit to companies have to manage what their standards are going to be many companies are careful who they offer credit to to ensure that they receive payment and reduce their bad debts how long are you going to offer credit are people going to pay you in 30 days 60 days 90 days if they pay early will you offer a discount if they pay late will you charge interest those are decisions when it comes to managing receivables that have to be made and if they don’t pay you what do your practice is going to be to ensure that eventually you do collect your receivables all of those things have to be determined when you’re managing receivables now what starts this off inventory we buy inventory and we turn it into a receivable that receivable is eventually turned into cash when it comes to inventory how are we going to manage our inventory to ensure that we have the right amount of inventory well why have inventory at all well it turns out if somebody walks into your store and you don’t have the product they will go somewhere else and they may not come back companies carry inventory to ensure that when a customer needs inventory they can find it at your store well then why not just have a lot of inventory why not make sure we never run out of inventory well it turns out there are costs associated with inventory as well if our money is tied up in inventory it’s not available to be tied up anywhere else we can’t do anything with that money if we’ve already got it tied up in inventory we can’t buy equipment we can’t expand our building if our money’s tied up in inventory so we don’t want to have too much when it comes to inventory we’ve got to implement the Goldilocks principle not too much and not too little when it comes to inventory we want to make sure it’s just right so again why is this important to you regardless of your position in an organization cash is still King decisions that you make perhaps far away from the front lines of a business can push cash further away or draw closer to collection virtually every decision in a business has cashflow implications and remember that cash is the lifeblood of a business those who can see beyond their own area of responsibility and recognize the cash flow implications to the business of decisions that they make are more valuable than those who don’t again you don’t have to become a numbers person but it is helpful to the business and to you if you can appreciate the effect of your decisions on the numbers of the business particularly the cash flow numbers what can be so hard about pricing a product don’t you just figure out what your costs are and then add some sort of markup for profit oh that it were that easy if your price is too high regardless of your cost someone in the market will underpriced you assuming that the quality of product or service is similar in many cases you will be a price taker and you will have to manage your costs so that you can earn a profit given a certain price is determined by the market now let me say that again in most instances you don’t price your product to cover your costs instead you determine if given a certain market price your cost structure is such that you can earn a profit the biggest mistake small business owners make in product pricing is not considering and covering all of their costs when entering a market now it is true that when you are initially trying to penetrate a market you may be willing to lose a little money to gain market share but that strategy is not sustainable over time over the long term you must cover all your cost all your costs now let’s consider a really simple example to illustrate a very complex point it’s summer time and I’m going into the snow cone business you know finely crushed ice that is flavored perfect for those hot summer days I have figured that on average the paper cone costs about 3 cents per snow cone the ice and the snow cone costs about 2 cents per snow cone that’s 5 cents per cone oh and let’s not forget about the flavoring I estimate that on average those flavors will cost about 45 cents per cone so the cost of a snow cone is about 50 cents each and I figure that on those hot summer days I can sell a snow cone for $2 each after all that’s the going rate at other snow cone shacks that means I will make a dollar fifty per snow cone that sounds like a money machine to me but not so fast to this point I have only considered my variable cost those costs that vary depending on the number of cones I produce another way to think about it is that these costs stay the same for each cone they vary in direct proportion to the number of cones I sell the more cones sold the higher the cost of cups the cost of ice and the cost of flavoring but what about my fixed cost those costs that are fixed whether I sell one snow cone or a thousand costs like the machine to crush the ice the snow cone shack to house my equipment the bottle is holding the flavors and then there are my employees they get paid whether I have one customer or a hundred customers these costs are incurred regardless of the number of customers in other words these costs are fixed and these fixed costs have to be covered so the dollar fifty that I initially thought of as profit is actually a term called contribution margin contribution margin is the difference between the selling price $2 per snow cone in this example and my variable costs 50 cents the contribution margin contributes to cover my fixed costs once my fixed costs are covered then each subsequent sale is contributing a dollar 50 towards profits but until my fixed costs are covered by the cumulative contribution margin I’m not making any profits these fixed costs are often considered overhead costs and overhead costs must be covered now why are they called overhead costs well look up many of those costs are the costs over your head the building the lights the other utilities and they all have to be covered have you ever taken your car and to get the oil changed you get 4 quarts of oil and a new oil filter and someone takes 15 minutes to drain your oil and replace it and it costs you 50 bucks for quarts of oil at about $3 per quart and a new oil filter for five dollars and fifteen minutes of someone’s time and you get charged $50 someone is making some money there but wait what about the mechanics equipment the building the computer system to process payments and track your car’s history the other overhead items all those costs have to be covered and if they are not all covered then this business is not going to be in business for very long now back to the snow cone business if I am not making enough money on the sno-cones I’m selling then I will just raise the price remember there are snow cone shacks all over if your price gets too high then your customers become someone else’s customers they will vote with their feet often you cannot just set your price and assume people will pay what you are asking it is a competitive environment out there whether you are selling snow cones changing oil and cars or selling software on the Internet it is very rare that one can simply ignore market forces in charge what they want the market is too competitive for that more often than not companies are price takers you must take the price that the market is offering and then determine if your cost structure is competitive and when you are considering your cost structure you have to consider all of your costs in the previous video we talked about the necessity of considering all your costs when trying to determine if you can compete in a market okay so now the big question can we be profitable given a market price of two dollars per snowcone that’s a tough question to answer and it’s also the wrong question to ask but if we’re determined to remain a not numbers person our entire life those are the types of questions we will be asking the wrong questions the right question to ask is how many people must come for us to be profitable clearly if a million people stop by and buy snow cones we will be profitable if only ten people stop by then we will have a problem and it turns out we can calculate how many people will need to stop by for us to what is called breakeven we can compute our break-even point that is the point at which we exactly cover our fixed costs in other words we haven’t made money and we haven’t lost money we’ve broken even so how do we do that well we now need to track our fixed costs recall that we need machinery to crush the ice we need containers for our flavors we need a structure to house our business and store our ice and we need to pay employees for simplicity’s sake we will assume that these are all of our fixed costs let’s assume that these fixed costs totaled $3,000 per month recall that our contribution margin per sale was a dollar fifty if we divide our contribution margin into our fixed costs we are able to compute our break-even point we are able to compute the number of sno-cones we will need to sell to break-even in this instance we divide $3,000 by a dollar fifty with the result being two thousand sno-cones we need to sell two thousand snow cones to exactly cover our fixed costs rather than ask the question can we be profitable selling snow cones at $2 each a better question is at $2 per snow cone will we be able to sell 2,000 each month two thousand snow cones per month means we will need to sell on average 67 snow cones each day assuming 30 days in a month that we are open every day assuming we are open eight hours per day will we be able to sell on average about 8.4 sno-cones each and every hour we are open some hours we may sell more and some hours we may sell less but on average can we sell 8.4 sno-cones per hour that is a nice number to know before you decide to get into the snowcone business now you can go sit across the street from your nearest competitor and watch how many customers they have each hour if you observe that they have 20 customers per hour then this might be a business you want to get into if they service on average about five customers per hour you might want to rethink this business opportunity and isn’t it nice to know this information before you rent the building and the machine to crush the ice and before you buy the flavor containers and hire employees can this business be profitable well that depends on how many customers you can expect and we can compute the number of customers we will need through a careful analysis of our fixed and variable costs but wait no business is started with the objective of simply breaking even you don’t open the doors of a new business hoping that you make nothing you start a new business hoping to make a profit can we build a target profit into our computations we sure can let’s assume we’re getting into the business with the intent of generating a profit of $2,000 per month you simply treat that number similar to a fixed cost in other words now our contribution margin needs to cover our fixed costs of $3,000 per month and a desired profit of $2,000 per month for a total of $5,000 per month we divide this $5,000 by our contribution margin of a dollar fifty per sno-cone and the result is 3333 in other words to generate a target profit of $2,000 we will need to sell 3333 sno-cones each and every month or a hundred and eleven per day or given an eight-hour day about fourteen sno-cones on average per hour can we start this business and generate a profit of $2,000 per month numbers person would say I hope so I think so probably but with a little effort and using a few numbers we can quantify our costs and ask a better question can we sell an average of 14 snow cones each hour if the answer to that is yes then you are well on your way to running a profitable business nobody likes to talk about budgeting especially individuals who consider themselves non numbers people budgeting is for the accounts to do and to worry about let the people who are good with the numbers worry about the numbers let them worry about budgeting well that’s one way to think about it another way to think about it is this those who demonstrate that they are good stewards over a few things will typically be given the opportunity to grow and develop to become good stewards over many things as we said in a previous module cash is the lifeblood of a business individuals who are good stewards over the lifeblood of the business are valuable and will generally be given more responsible opportunities so let’s talk about budgeting step one when it comes to budgeting is to write your budget down another way to think about a budget is just to think of it as a plan a map and the plan needs to be in writing how will you know if you achieved your plan if it’s not written down now there are various types of budgets some budgets involve inflows and outflows for example a budget for an entire company will involve cash collections and cash expenditures a budget for a department within a company may only involve expenditures step 2 when it comes to budgeting is to identify those areas for which you are responsible and which you control responsibility accounting generally holds individuals accountable only for those inflows and outflows over which they have control let’s use a simple example to illustrate the effective use of budgeting let’s suppose that I am the purchasing agent for a company that manufactures wood tables my job is to purchase the wood that goes into the table tops what then would I be responsible for well it makes sense to me that I should be responsible for the price paid for the wood as well as for the quality of the wood that is purchased if poor quality wood is purchased and that wood cannot be used in the production of the tables that is my fault and I should be held accountable in addition it is my job to negotiate the best possible price on the quality wood purchases those are the two items that ought to be considered as I prepare my budget the price of the wood purchased and the amount of waste and spoilage relating to poor quality wood step three in the budgeting process is to quantify expected results that is to forecast or budget quantities for the budget period let’s say a month in this case the production forecast for the upcoming month indicates that the company will produce 500 tables the company’s standard is that 15 board feet going to a table and that the price is $4 per board foot doing the math indicates that I will need to acquire 7500 board feet of wood at a cost of $30,000 to keep things simple let’s assume that I have no beginning or ending inventory of wood I just buy what I need for that month’s production my budget is as simple as that you will note that my budget doesn’t just deal with dollars in this case I am responsible for materials usage as well this is a quantitative number that tells me something about the efficiency with which assets are used in this case wood the fourth step in budgeting is to compare actual results to the budget let’s assume that production forecast was right on and that exactly 500 tables were produced you can see here that we actually purchased 7700 board feet to produce those 500 tables at a cost of 4 dollars and 25 cents per board foot from this analysis it looks like I overspent by two thousand seven hundred twenty-five dollars for the month and I should be responsible for explaining how that two thousand seven hundred twenty-five dollars came about and that leads us to the fifth step we need to ask questions to determine why the deviations from the plan occurred did we need two hundred more board feet because I purchased lower quality wood or was it because those involved in the production process were inefficient I want to know the answer to that question was this my problem or was the overage the result of someone else’s doing also I paid 25 cents more per board foot than I had planned what happened there was it poor planning on my part or have prices increased to the point where the new normal is now going to be four dollars and 25 cents per board foot I want to know the answer to that question you can see with this simple example that I can now use the numbers to ask questions that need to be answered and I can only ask these questions because I had a plan I made a budget a budget allows us to take a look into the future and make our best guess and when we get into the future we can then look back and see how our actual results compared to what we had planned once we identify the differences we can then start asking questions but without a plan without a budget all we can do is wonder what happened let’s review the steps associated with a simple budgeting process step 1 write your budget down I like the quote a goal unwritten is just a wish if our budget isn’t in writing we might as well just cross our fingers close our eyes and hope for the best step 2 identify those areas for which you are responsible in which you control it’s not fair and that means generally that it’s not good business to have someone be accountable and answerable for something over which they have no control step 3 is to quantify expected results this is the budget or the plan those quantities may be in dollars as was the case with the price per board foot in our example or they may be in units as was the case with the number of board feet to be purchased a budget is not necessarily about money it is about responsibility if you are responsible for the money then your budget should reflect the money if you are responsible for quantities then your budget should reflect those quantities step 4 is to compare actual results to the budget you should be able to identify deviations from the budget those are the items of interest we need to know more about those deviations and that leads us to the final step in the budgeting process step 5 ask questions to determine why the deviations from the plan occurred there may be legitimate reasons for variances from the plan and then again those deviations may be the result of poor planning or poor execution this final step in the budgeting process highlights a point we have made throughout this course the numbers often don’t provide the answers instead they identify where we need to go to ask the next question the numbers assist us in getting to the bottom of things but the numbers aren’t the bottom of things people are at the bottom of things it’s the people who make things happen the numbers just help us get to the right people even numbers people can be scared of income taxes taxes make us nervous because we’re not sure we understand all the tax implications of our business decisions it is of critical importance to engage a professional when in doubt but with that said an overview of the purpose of the income tax system can take some of the edge off so what is an income tax and income tax is a required payment to a government based on the amount of a person’s income or a company’s profit now that seems like such a simple statement but there’s so much controversy and intrigue right there in that simple statement for example to what government the government where I live the government wire and the money or the government of which I’m a citizen so that needs to be decided in income tax accounting income taxes are based on what based on a straight percentage of taxable income based on an increasing percentage that leads us to the next obvious question what is taxable income how is income or profit defined are there allowable expenses that can be subtracted in the computation of that income now income taxes are an important tax but not the only tax but computing our income taxes is what makes most of us especially nervous why because the income tax code regulations interpretations and legislative history in the United States occupy seventy three thousand nine hundred and fifty four pages as of the end of 2013 so we will spend a little time talking about income tax terms and concepts now we don’t all need to be tax experts but we should all be familiar with basic income tax issues tax brackets tax rates and the difference between tax deductions and tax credits to name a few again our objective here is not to make you tax experts but to provide information to make you a more informed decision maker now we’re going to talk about a simple income tax system we’re going to use a lot of terms for example we’re going to go through and define each one of these a tax rate and a tax bracket what’s the difference between those two we’re going to talk about these terms and illustrate these terms using a simple tax system now in this simple tax system we have the following criteria for income from 0 to $50 you’re not going to pay any tax no income tax at all for all income above $50 the income tax rate is 50% so in this simple tax system how much income tax would you pay if you made $50 or 51 dollars or $100 now for all income over $50 you’ve got to pay a rate of 50% so this is going to make our calculation very simple again this has all the elements of the tax systems of the United States and the European Union and Hong Kong and China and everywhere else we’ll use this to represent the tax systems around the world we’ll answer these questions under this tax system how much would you pay if you made $50 what if you made $51 what if you made $100 let’s do the computation in each one of these three cases first of all if you make $50 you don’t pay any income tax under this system the first $50 is tax free so that’s a pretty easy computation to do all right but what if you make $51 okay again for the first $50 you still pay no taxes that 50 first dollar you’re going to pay at a tax rate of 50% so your total tax that you’re going to pay is 50 cents this illustrates the important notion of the tax bracket you’ll sometimes hear people complain I got a raise so now I’m in the next tax bracket well that’s kind of a naive comment and I’ll show you why the first tax bracket in this case is from 0 to $50 and the rate on this first $50 is always zero no matter how much you make ever so when you make the 51st dollar you go up into that next tax bracket where your income is taxed at a rate of 50% that rate is not applied retroactively li you don’t have to go back and pay 50 percent on the first $50 the first fifty dollars is never taxed and the rate is always zero that’s the first tax bracket the second tax bracket in this simple example is everything over $50 and at the second tax bracket yes the tax rate is 50 percent but let’s think should we be sad that we got a raise in this case we went from making $50 to $51 has that cost us any money well no it does not cost us because when I make $50 I have the $50 and I don’t pay any tax if I make $51 yes it’s true that I now have to pay half of that 51st dollar in tax so I have to pay 50 cents in tax but I get to keep half of the 51st dollar so that I now have 50 dollars and 50 cents going to the next tax bracket doesn’t cost you any money it just means that you have to pay a different tax rate on the extra income that you’re going to make so don’t be afraid of making more money and going into the next tax bracket that is a cause for celebration okay we’ve talked about tax brackets now let’s talk about tax rates under this simple tax system how much tax do you pay if you make $100 well again the first $50 is never taxed at all so the tax that you pay on that is 0 the second $50 is taxed at the rate of 50% so you’re going to pay a total of $25 in tax if your taxable income is a hundred this allows us to discuss two important concepts the average tax rate and the marginal tax rate the average tax rate is simply the tax that you owe 25 dollars in this case divided by how much you’ve made $100 in this case 25 dollars divided by a hundred dollars that’s 25 percent that’s the average tax rate and it’s a very intuitive notion what’s the average tax rate for all taxpayers in the United States it’s somewhere between 17 percent and 20 percent that’s the average tax rate the tax that they have to pay / the amount that they make in this case it’s 25% that’s the average tax rate if you make $100 economists say that the more important rate than the average tax rate is the marginal tax rate the marginal tax rate is the rate I’m going to pay on the next dollar that I make in this case if you make $100 your average tax rate is 25% your marginal tax rate is 50% that is if I work a little harder and make another dollar fifty percent of that is going to pay for income taxes tax brackets tax rates these and other factors influence individuals and businesses when making financial decisions we should always consider the tax implications of those decisions so let me ask you a question which would you prefer a tax deduction or a tax credit well by the end of this chapter hopefully you’ll be able to answer that question now recall in our previous example we took our taxable income and multiplied it by our tax rate to determine how much in tax we owed well what’s the impact of a tax deduction in our simple tax system let’s again assume we made $100 remember the first $50 is never taxed the second $50 would be taxed at the 50% rate so you’re going to pay 25 dollars in tax total now let’s say of that hundred dollars you decide to spend ten dollars in a way that the government favors perhaps you spend that ten dollars as a charitable contribution or you spend that ten dollars paying mortgage interest on your home so the government says yep we want to encourage that behavior that’s a good way to spend 10 dollars then you’re going to get a tax deduction for that ten dollars so how does that tax deduction enter into your payment of taxes well now you have to compute your taxable income you’ve made $100 but ten dollars of that was spent in a special way which is tax deductible so your taxable income is only $90 the first 50 dollars is still tax-free now the second $40 is taxed at the 50 percent rate so you’re only going to pay twenty dollars in tax so you see here that the tax deduction of ten dollars reduces your income tax from $25 to $20 after you subtract the tax deduction the effect is that tax deductions reduce your taxable income again what are tax deductions their expenditures by individuals that the government favors and wants to encourage now if I have a business and I make $100 but I then use ten dollars of that to pay wages to my employees or pay electricity on my building or pay property taxes these are tax deductions any legitimate business expense is going to qualify as a tax deduction and reduce my taxable income and as a result reduce my taxes now let’s contrast deduction with a tax credit in the case of a tax deduction remember that that reduced our taxable income what’s the difference between a tax deduction and a tax credit well a tax credit directly reduces your taxes let’s go back to our same example you make $100 in our system the first $50 you pay no tax the second $50 you pay the rate of 50% so you’re going to end up again paying $25 in taxes that’s great now let’s say that you pay 10 of those dollars in a very favored way according to the government maybe you spend the $10 increasing the energy efficiency of your home you put solar panels on the roof you did something that the government really wants to encourage in this case they’re not going to give you a tax deduction they’re going to give you a tax credit so how does the tax credit differ from a tax deduction when you compute your tax remember we pay no tax on the first $50 on the second $50 our tax rate is 50% so you’re going to owe 50% of that $50 or $25 but if the government says we’re going to give you a tax credit on that $10 expenditure what they’re going to allow you to do is to reduce your $25 in taxes down to $15 a tax credit directly reduces the amount of taxes you owe so which is better the tax deduction or the tax credit well we see that the $10 tax credit reduced my income taxes from $25 down to $15 if it was a tax deduction it reduced my taxes from $25 down to $20 the tax deduction reduces my taxes by $5 so if somebody gave you your choice if you want a $10 tax deduction or a $10 tax credit you show them how wise you are you take the tax credit when it comes to income taxes they can make even the status of Hearts a little nervous so if you’re not a numbers person you’re not alone when it comes to income taxes but truth be told the basic concepts behind income taxes are easy to understand different tax rates different tax that’s the difference between a tax deduction and a tax credit we can understand those ideas when it comes to the details of completing a tax return that can get tough but our objective here has been to help us become comfortable with terms and concepts hopefully we were able to do exactly that you well we made it we’ve been introduced to some of the basics of accounting and Finance and we’ve lived to tell about it so what should you do next first appreciate that numbers are tools they are not to be feared they’re to be used numbers can assist you in becoming a better manager in whatever area of the business you function you can use numbers to your advantage and supply-chain Human Resources strategy or wherever you find yourself in a business second have the courage to use numbers in your job there are ways to apply the concepts we’ve talked about you just need to think about the appropriate application third don’t think too big moderation in all things identify a couple of areas where numbers might help you in monitoring progress evaluating performance or assessing productivity and start using numbers to assist you fourth you might want to know more maybe you feel like you’re operating your business blind your profitability seems low but you can’t figure out why then you need some exposure to some simple techniques of financial analysis at the end of the day please remember that it’s always about people numbers can help us but numbers aren’t the answer people are the answer never forget regardless of what we do for a living we are in the people business you

8 thoughts on “finance 101, finance overview, basics, and best practices

  1. awesome stuff. thank you for putting these videos together. if anyone wanted to they could have a very solid foundation following your videos regarding accounting.

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