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Contents 1 WHAT IS NAKED FINANCE? 1 Why do all managers need to understand finance? 2 How is this book going to help me? 3 PART ONE: SETTING FINANCIAL OBJECTIVES 9 2 IS IT ALL ABOUT PROFIT? 10 What does a business need to survive? 10 What is the objective of financial management? 11 What is profit? 13 Is cash flow important? 18 3 HOW DO YOU MAKE PROFIT? 20 Where does the profit-making process start? 20 Why do companies need shareholders? 21 Why do companies borrow? 24 Why do companies need assets? 28 Why are companies obsessed with sales? 29 4 HOW DO YOU MEASURE FINANCIAL SUCCESS? 32 How do shareholders measure success? 32 How do managers measure success? 38 Are there other commonly used measures of success? 41 5 WHICH ARE THE FIGURES THAT COUNT? 46 What are the four key figures in a business? 46 How do the four key figures interrelate? 52 What strategies will enhance the profit-making process? 53 PART TWO: USING FINANCIAL INFORMATION 59 6 WHY PRODUCE FINANCIAL STATEMENTS? 60 What is the role of financial statements? 61 What does a balance sheet tell you? 63 What does an income statement tell you? 72 What does a cash flow statement tell you? 82 Where do accounting scandals come from? 85 7 WHAT CAN YOU LEARN FROM FINANCIAL STATEMENTS? 90 What is the first thing you should look for? 90 What can financial statements tell you about how a business is being managed? 94 How do financial statements interrelate? 100 How can financial statements be used to help manage a business? 101 What are the danger signals to watch out for? 103 8 WHAT CAN YOU LEARN FROM THE FINANCIAL PRESS? 105 How do you value a company? 106 What determines share prices? 109 How can you interpret the share price information of a publicly quoted company? How do you manage share prices? 121 How do you determine the share price of a privately owned company? 122 How do you value an unincorporated business? 124 9 HOW DO YOU KNOW IF A COMPANY IS BEING WELL MANAGED? 127 What is shareholder value? 128 How do you know if a company is creating shareholder value? 128 Why is shareholder value important? 134 How can you measure the amount of shareholder value being created? 135 PART THREE: PROVIDING FINANCIAL CONTROL 139 10 HOW DO YOU CREATE A FINANCIAL PLAN? 140 Why have financial plans? 141 Why have forecasts? 142 Can a plan ever be right? 143 How do you create a budget? 146 How do you agree on a plan? 152 HOW DO YOU MANAGE COSTS? 156 What drives costs? 156 How do costs affect the relationship between sales and profit? 159 Is there an optimal cost structure for a business? 163 12 HOW DO YOU MANAGE SALES? 168 How can you ensure that sales will be profitable? 168 How can you plan sales quickly? 170 How can you decide if a sales plan is achievable? 174 How can you evaluate alternative sales strategies? 176 Why do businesses fail to make a profit? 180 13 HOW DO YOU MANAGE PROFIT? 182 What can you learn from a budget report? 183 Why is actual profit different from budgeted profit? 186 Where is management action required? 201 How is management action to be prioritized? 202 How should you interpret a budget report? 203 14 WHAT ABOUT CASH FLOW? 208 What is cash management? 209 What is the link between cash management and profit management? 213 How can you measure cash performance? 214 Is there an optimal cash cycle? 218 15 HOW DO YOU MANAGE CASH FLOW? 220 What are the main issues that affect cash flow? 220 How do you manage inventory? 221 How do you manage accounts receivable? 225 How do you manage accounts payable? 227 Should companies maintain high or low cash balances? 228 16 WHAT ABOUT LONG-TERM PROJECTS? 230 What is a long-term project? 230 How do you argue the case for a long-term project? 232 How do you evaluate the risk of a long-term project? 236 17 HOW DO YOU DECIDE IF A LONG-TERM PROJECT IS WORTHWHILE? 243 How do you make the accept/reject decision? 244 What is return on investment? 246 What is payback? 249 What is net present value? 252 What is internal rate of return? 258 PART FOUR: SUMMARY 261 18 HOW DO THE PIECES FIT TOGETHER? 262 How do you manage a profitable business? 262 Is there anything else we need to cover? 267 Index 269 Acknowledgments
Library of Congress Subject Headings for this publication:
Business enterprises -- Finance.
Financial statements.
Business mathematics.