fred r. david prentice hall ch 8-1 finance/accounting issues central to strategy implementation –...

Fred R. DavidPrentice Hall

Ch 8-1

Finance/Accounting IssuesFinance/Accounting Issues

Central to Strategy Implementation –Central to Strategy Implementation –

– Acquiring needed capitalAcquiring needed capital– Developing pro forma financial statementsDeveloping pro forma financial statements– Preparing financial budgetsPreparing financial budgets– Evaluating worth of a businessEvaluating worth of a business


Ch 8-2

Decisions Requiring Finance/Accounting PoliciesDecisions 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


Ch 8-3

Decisions Requiring Finance/Accounting PoliciesDecisions Requiring Finance/Accounting Policies

Extend time of accounts receivable

Establish percentage discount on accounts for terms

Determine the amount of cash kept on hand


Ch 8-4


Acquiring Capital to Implement Strategies –Acquiring Capital to Implement Strategies –

• Basic sources of capital:Basic sources of capital:– DebtDebt– EquityEquity


Ch 8-5


Debt vs. Equity Decisions –Debt vs. Equity Decisions –

• EPS/EBIT analysisEPS/EBIT analysis– Earnings per share/Earnings before interest Earnings per share/Earnings before interest

and taxesand taxes


Ch 8-6


Pro Forma Financial Statements -Pro Forma Financial Statements -

• Allows an organization to examine the Allows an organization to examine the expected results of various actions and expected results of various actions and approachesapproaches


Ch 8-7


6 Steps in Pro Forma Financial Analysis6 Steps in Pro Forma Financial Analysis

1.1. Prepare income statement before balance sheet Prepare income statement before balance sheet (forecast sales)(forecast sales)

2.2. Use percentage-of-sales method to project CGS and Use percentage-of-sales method to project CGS and expensesexpenses

3.3. Calculate projected net incomeCalculate projected net income4.4. Subtract dividends to be paid from Net Income and Subtract dividends to be paid from Net Income and

add remaining to Retained Earningsadd remaining to Retained Earnings5.5. Project balance sheet times beginning with retained Project balance sheet times beginning with retained

earningsearnings6.6. List comments (remarks) on projected statementsList comments (remarks) on projected statements


Ch 8-8


Financial Budget –Financial Budget –

Document that details how funds will be Document that details how funds will be obtained and spent for a specified obtained and spent for a specified period of time.period of time.


Ch 8-9


Types of Budgets –Types of Budgets –

– Cash budgetsCash budgets– Operating budgetsOperating budgets– Sales budgetsSales budgets– Profit budgetsProfit budgets– Factory budgetsFactory budgets– Capital budgetsCapital budgets– Expense budgetsExpense budgets– Divisional budgetsDivisional budgets– Variable budgetsVariable budgets– Flexible budgetsFlexible budgets– Fixed budgetsFixed budgets


Ch 8-10

Evaluating Worth of a BusinessEvaluating Worth of a Business

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


Ch 8-11

Evaluating Worth of a BusinessEvaluating Worth of a Business

3 Basic approaches:3 Basic approaches:

1.1. What a firm ownsWhat a firm owns2.2. What a firm earnsWhat a firm earns3.3. What a firm will bring in the marketWhat a firm will bring in the market

fred r. david prentice hall ch 8-1 finance/accounting issues central to strategy implementation –...

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