FinanceAccounting Issues Central to Strategy Implementation Acquiring needed

Finance/Accounting Issues Central to Strategy Implementation – – Acquiring needed capital – Developing pro forma financial statements – Preparing financial budgets – Evaluating worth of a business 1

Decisions Requiring Finance/Accounting Policies Raise capital w/ short-term, long-term preferred or common stock Lease or buy fixed assets Determine an appropriate dividend payout ratio Use LIFO, FIFO, or market-value accounting approach 2

Decisions Requiring Finance/Accounting Policies Extend time of accounts receivable Establish percentage discount on accounts for terms Determine the amount of cash kept on hand 3

Finance/Accounting Issues Acquiring Capital to Implement Strategies – • Basic sources of capital: – Debt – Equity 4

Finance/Accounting Issues Debt vs. Equity Decisions – • EPS/EBIT analysis – Earnings per share/Earnings before interest and taxes 5

Finance/Accounting Issues Pro Forma Financial Statements - • Allows an organization to examine the expected results of various actions and approaches 6

Finance/Accounting Issues 6 Steps in Pro Forma Financial Analysis 1. 2. 3. 4. 5. 6. Prepare income statement before balance sheet (forecast sales) Use percentage-of-sales method to project CGS and expenses Calculate projected net income Subtract dividends to be paid from Net Income and add remaining to Retained Earnings Project balance sheet times beginning with retained earnings List comments (remarks) on projected statements 7

Finance/Accounting Issues Financial Budget – Document that details how funds will be obtained and spent for a specified period of time. 8

Finance/Accounting Issues Types of Budgets – – – Cash budgets Operating budgets Sales budgets Profit budgets Factory budgets Capital budgets Expense budgets Divisional budgets Variable budgets Flexible budgets Fixed budgets 9

Evaluating Worth of a Business Central to strategy implementation as integrative, intensive and diversification strategies are often implement through acquisitions of other firms. 10

Evaluating Worth of a Business 3 Basic approaches: 1. What a firm owns 2. What a firm earns 3. What a firm will bring in the market 11