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Finance and Accounting for NonFinancial Managers, 3rd Edition

Book Description

Finance and Accounting for Nonfinancial Managers, Third Edition, introduces the reader to financial terminology, relates financial measures to operating information, enables the student to understand and apply financial measures to operating performance, and ties all of this to the current business environment. Today’s managers, whether supervisors or senior executives, are expected to understand and use financial and operational measures, prepare and utilize budgets, respond to inquiries about the financial consequences of actions taken by them or by their department or team, and understand and use financial and accounting terminology—the common language of business measurement. Written in a conversational, easy-to-understand tone, the course treats finance and accounting from the perspective of users of financial information—it enhances their ability to communicate effectively with subordinates, other managers, senior executives, and accounting and finance professionals. It offers managers the ability to use and analyze financial information to improve the performance of their operations and to identify—and avoid—potential problems. The third edition includes discussion of the continuing transition of financial reporting to an international standard as well as consideration of the effects on accounting and finance resulting from the Recession of 2007-2009. New sections on how to read an annual report and navigating the shifts in the marketplace are also included. This edition has been updated throughout to provide managers with the most current and complete information available. Selected Learning Objectives Participants will learn how to: Prepare budgets Read, understand, and use financial and operational measures Manage short-term assets Relate department performance to the big picture. This is an ebook version of the AMA Self-Study course. If you want to take the course for credit you need to either purchase a hard copy of the course through amaselfstudy.org or purchase an online version of the course through www.flexstudy.com.

Table of Contents

  1. Cover
  2. Title Page
  3. Copyright
  4. Contents
  5. About This Course
  6. How to Take This Course
  7. 1 Introduction to Finance
    1. Overview
    2. The Vocabulary of Finance
    3. The Elements of Finance
      1. Bookkeeping
      2. Accounting
      3. Planning
      4. Cash Management
    4. The Basic Financial Statements
      1. The Balance Sheet
      2. The Income Statement
      3. Statement of Cash Flows
      4. Statement of Retained Earnings
    5. The Structure of Business and the Impact of Financial Statements
      1. Proprietorship
      2. Partnership
      3. Corporation
      4. Other Business Structures
      5. How to Read an Annual Report
      6. The Company-Produced Annual Report
      7. Cover Material Plus the Form 10-K
      8. Communication of the Annual Report
    6. Recap
    7. Review Questions
  8. 2 Introduction to Accounting
    1. Overview
    2. The Purpose of Accounting
      1. The Accounting System
      2. Who Uses Accounting Information?
    3. Basic Terminology
      1. Financial Statements
      2. The Chart of Accounts
    4. The Accounting Cycle
      1. Using Journal Entries to Record Transactions
      2. Closing Procedures
    5. More Financial Concepts
    6. Preparing Financial Statements
      1. The Key Financial Statements
      2. Trial Balance
    7. Recap
    8. Review Questions
  9. 3 Financial Analysis: Using Ratios
    1. Overview
    2. Analysis of Financial Information
    3. The Purpose of Business
    4. Who Performs Financial Analysis?
    5. The Power of Ratios
      1. Comparative Analysis
      2. Trend Analysis
    6. Traditional Ratio Analysis
      1. Liquidity Ratios
      2. Activity Ratios
      3. Profitability Ratios
      4. Operating Profit Margin
      5. Debt Management Ratios
      6. DuPont Analysis
      7. A Different Perspective
      8. Creating Other Ratios
      9. Conflicting Information
    7. Recap
    8. Review Questions
  10. 4 Managing Operating Performance
    1. Overview
    2. Making Your Information Useful
    3. The Key Financial Statements
      1. Ratios That Help Tell the Company’s Story
      2. Effect Ratios
      3. Crossover Indicators and Causal Ratios
    4. Recap
    5. Review Questions
  11. 5 Managing Short-Term Assets
    1. Overview
    2. The Management of Cash
      1. Reasons for Holding Cash
      2. Techniques for Managing Cash
    3. The Management of Other Short-Term Assets
      1. Managing Marketable Securities
      2. Managing Accounts Receivable
      3. Managing Inventory
      4. Prepaid Expenses
      5. Other Current Assets
    4. Recap
    5. Review Questions
  12. 6 Relating Risk and Return, Valuation, and Time Value of Money
    1. Overview
    2. Risk
      1. Defining Risk
      2. Risk Aversion vs. Risk Taking
      3. Possibility of Loss
      4. The Determination of Interest Rates
    3. Types of Risk
      1. Characteristics of Different Types of Risks
      2. Default Risk
      3. Inflation Risk
      4. Maturity Risk
      5. Liquidity Risk
    4. Estimating Interest Rates
      1. Interest Rates and the Economy
      2. The Role of the Federal Reserve on Interest Rate Determination
      3. Capital Asset Pricing Model
      4. Relating Risk and Return
      5. Extending the Theory
    5. Time Value of Money
    6. Valuation
      1. An Illustrative Example
      2. Assessing Investments
      3. Valuing an Investment
    7. Recap
    8. Review Questions
  13. 7 Capital Investment Decision Making
    1. Overview
    2. Calculating the Cost of Capital
      1. The WACC Model
      2. Initial Exercise in Estimating Financing Requirements
      3. Calculating the Cost of Capital
    3. Capital Budgeting
    4. Types of Capital Investment Projects
      1. Applying Cost of Capital
      2. Determining Investment Cost
      3. Determining the Cash Flows of a Project
      4. Determining the Terminal Cash Flows
    5. Evaluating Capital Investment Projects
      1. Payback Period
      2. Discounted Payback Period
      3. Net Present Value (NPV)
      4. Internal Rate of Return (IRR)
      5. Modified Internal Rate of Return (MIRR)
      6. Time Value of Money Calculations Using Excel
    6. Recap
    7. Review Questions
  14. 8 Managing Long-Term Assets
    1. Overview
    2. Considering Asset Classification
    3. The Investment in Fixed Assets
      1. Depreciation
      2. Fixed Asset Accounting
      3. Acquisition of Fixed Assets
      4. Other Long-Term Assets
    4. Recap
    5. Review Questions
  15. 9 Managing Liabilities
    1. Overview
    2. The Liabilities of the Business
    3. Short-Term or Current Liabilities
      1. Accounts Payable
      2. Notes Payable
      3. Taxes Payable
      4. Accruals
      5. Long-Term Debt
      6. Access to Credit
      7. Choosing a Bank Lending Officer
    4. The “C’s” of Credit
      1. Character
      2. Capacity
      3. Capital
      4. Cash Flow
      5. Collateral
      6. Conditions
      7. Competition
      8. Credibility
      9. Competence
      10. Communications
      11. Covenants
      12. Coverage
    5. Banking Relationships
      1. Defining Debt
      2. Bank Structure Dictates Loan Interest Rates
      3. The Cost of Bank Funds
      4. Operating Expenses
      5. Loan Losses
      6. Profit Criteria
    6. Comparison to Traditional Business Cost Structure
      1. Bank Debt Pricing
      2. Loan Pricing Example
    7. Recap
    8. Review Questions
  16. 10 The Equity in the Business
    1. Overview
    2. Equity and Business Structure
      1. Preferred Stock
      2. Common Stock
      3. Additional Paid-in Capital
      4. Retained Earnings
      5. Other Equity Accounts
      6. Stock Repurchase Plans
    3. The Investment Marketplace
    4. Accounting for Equity
    5. Recap
    6. Review Questions
  17. 11 Financial Planning
    1. Overview
    2. The Essence of Financial Planning
    3. Business Planning—A Continuous Process
      1. Roles of the Key Players
      2. Overview of the Financial Planning Process
      3. Planning Sequence
    4. The Business Planning Process
      1. Business Plan
      2. Strategic Plan
      3. The Operative Plan or Annual Budget
    5. Projecting the Financial Future
      1. Estimating Financial Requirements
      2. Capital Budgets
      3. Cash Budgets
    6. Recap
    7. Review Questions
  18. 12 Corporate Governance and Financial Integrity
    1. Overview
    2. Sarbanes-Oxley
    3. Defining Corporate Governance
    4. The Major Corporate Scandals Preceding Sarbanes-Oxley
      1. Enron
      2. WorldCom
      3. Scandal Summary
    5. Post-SOX Financial Failures
      1. Bernard Madoff
      2. American International Group (AIG)
      3. Goldman Sachs
      4. Dell Computer
    6. The Response of the Federal Government to the Financial Crisis
    7. The Broader Aspects of Corporate Governance
      1. EVA and MVA
      2. Executive Compensation
    8. Recap
    9. Review Questions
  19. 13 Relating Departmental Performance to the Big Picture
    1. Overview
    2. The Inverted Triangle: Finance from Broad to Specific
      1. The Company
      2. Subsidiary
      3. Division
      4. Department
      5. Group
      6. Individuals
    3. The Relationship Between Budgets and Actuals
    4. Navigating the Shifts in the Marketplace
    5. Recap
    6. Review Questions
  20. Appendix A: Time Value of Money Tables
  21. Appendix B: The Sarbanes-Oxley Act of 2002
  22. Glossary
  23. The Final Exam
  24. Index