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ToTCOOP+i O3 o4 unit-8_final version_en

Unit 8 - Management of financing and investment

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ToTCOOP+i O3 o4 unit-8_final version_en

  2. 2. INDEX 1. Message of welcome, participants introduction, explanation of the rules and program of the training. Participants’ needs and expectations. Introduction – basic terminology. Company’s finances, market environment, benefits of finance management 2. Finance management – competencies and responsibilities of a person who manages company’s finances 3. Financial management tasks. Budgeting 4. Rules of making good financial decisions. Making good financial decisions 5: Net Present Value – NPV. Competitive advantage of a company (90 minutes). 6: Three lenses theory 7: Making long – term decisions 8: Where to look for money for development? 9: Making short – term decision. Working capital and cash. General principles of accountancy – bookkeeping and financial documents circulation 10: Questions. Evaluation. Summary and closure
  3. 3. Activity 1 Message of welcome, participants introduction, explanation of the rules and program of the training. Participants’ needs and expectations. Introduction – basic terminology. Company’s finances, market environment, benefits of finance management
  4. 4. Main goals  Identification and establishing cooperative’s financial management priorities, responsibilities, executive limitations, and financial delegations  Direction of the manager for preparing before the end of each year an operating budget for the next fiscal year for board approval  Monitoring of financial management and prudence through policies, financial reports and established metrics, and identification and adoption of necessary adjustments
  5. 5. Object  The essence of corporate finance  Features finance management- responsibilities  The current financial management company  Cost / expenditures accounting as a basis for finance management  Financial decisions in a company  Budgeting
  6. 6.  Making proper decisions  Three lenses theory  Cash flow statement, methods of preparing it  Working capital management  Material investments efficiency evaluation  Investments
  7. 7. Company’s finances? All economics phenomena related to revenues and expenditures in terms of company’s goals
  8. 8. What are the principles of company’s financial means management Acquisition of financial sources for company’s operations (capital) and investing it in such a way that the strategic goal of maximizing profits for the company’s owners, that is those who invested their capital, can be carried out indelibly.
  9. 9. Shareholders ‘s profits:  dividends  Increase in value of assets in their possession
  10. 10. Features of a company  Economics entity  Legal entity  Organizational entity
  11. 11. A company on a market COOPERATIVE political and legal environment economic environment social and cultural environment technologica l environment
  12. 12. Activity 2 Finance management – competencies and responsibilities of a person who manages company’s finances
  13. 13. Functions of financial management? organizational activity business decision – making monitoring
  14. 14. Features of finance management - responsibilities
  15. 15. Organization and management of information flow inside the company - information flow inside the company is aimed at enabling financial operations monitoring, indicating potential dangers which could require measures to be taken and facilitating proper evaluation of the financial situation of the company .
  16. 16. Informing owners of the company’s financial issues and predicted / planned developments Decision making when it comes to capital acquisition – ensuring financial liquidity is maintained
  17. 17. Maintaining contacts with all the stakeholders – creditors, debtors, fiscal administration
  18. 18. Experience, knowledge and competencies of a person responsible for company’s finances need to be adjusted to:  Scale of company’s operations  Size of a company  Type of a company
  19. 19. Exercise  What are the basic and additional competencies of a person responsible for my company’s finances management today?  What will the above mentioned be in five years’ time.
  20. 20. Activity 3 Financial managements task. Budgeting.
  21. 21. Financial management tasks financial planning (budgeting) execution of the financial plan (providing financing) control (controlling the implementation of financial plans (monitoring może byłoby lepsze?)
  22. 22. BUDGETING Most popular forms Continuous budgeting – producing a detailed budget for the first quarter and a general, less detailed for the rest of the year Incremetal budgeting – budgeting based on previous data usually multiplied by a certain variable, „from scratch” – budgeting based on a precise analysis as if it was done for the very first time Up – high – budgeting at the level of high managerial stuff Participative – management personnel produce a strategy, others produce fragmentary budgets
  23. 23. BUDGETING – functions  Inspiring planning in a systematic way  Promulgating plans and goals  Providing data for the sake of inspections  Actions coordination  Cooperation coordination
  24. 24. Steps in budgeting preparation operation supervision
  25. 25. Development of the assumptions in the budget Establishment of the budget Reconciliation and budget approval Control of budget Reaction to the results of the inspection
  26. 26. Activity 4 Rules of making good financial decisions. Making good financial decisions
  27. 27. How to make good financial decisions?
  28. 28. Egoism principle – company’s sake is the highest priority Risk taken – return on investment principle Aversion to risk principle Principles of financial decision making
  29. 29. Observing and following leaders who operate in the field of our business principle Use of data and information which appear on the market Profits increase principle
  30. 30. Exercise Analyse decisions made last month in your company – what principles did you take into consideration?
  31. 31. What is 'Net Present Value - NPV' Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of a project or a projected investment.
  32. 32. Activity 5 Net Present Value – NPV. Competitive advantage of a company
  33. 33. NPV = (i=1 S t) CFt/(1+r)t - Ni  CFt - net cash flow (incomings minus expenditures),  r - interest rate (expected rate of return on investment),  t - number of periods,  Ni - investment expenditure,  Positive value of NPV means that the investment (finance or develoment) has been profitable i.e. today’s value of future profits is higher than investment expenditures related to utilization.  Negative value of NPV means that the investment project should be rejected due to its non – profitability
  34. 34. Exercise Select one of your company’s last year’s investments and evaluate it if it was profitable according to NPV management principles.
  35. 35. The competitiveness of the company  A company with better economic results has the advantage when it comes to competitiveness,  Features of the advantage in the area of competitiveness:  type,  magnitude,  durability.  4 levels of competitiveness (types) according to P. Kotler  Within a brand (similar product and service) e.g. manufacturers of van vehicles,  Within the area of industry (e.g. all manufacturers of cars),  Within a form of product (means of transport manufacturers),  Competition in general (any products and services).
  36. 36. Source of advantage in the area of competitiveness  High quality, serviceable and lasting products  Following the needs of clients and providing a better offer than competition  Capability of expanding to new markets and development of new lines of products  Better location and access to primary products or raw materials  Highly quallified personnel  Efficient financial sources  Innovativeness
  37. 37. Exercise Explain the advantages of your company in the area of competitiveness
  38. 38. Activity 6 Three lenses theory
  39. 39. Three lenses theory Three aspects of analyses – the way one should look at a company: 1. Economics 2. Finance 3. Assets
  40. 40. Economic lense Profit Loss Sale profits Return on investment rate Rate of profit
  41. 41. Financial lense  It provides an answer to the question of how the efficiency of assets management influences financial issues in a company. The answer can be found in an operational activities cash flow report  Temporary or permanent loss of financial liquidity in most cases leads to the bankruptcy
  42. 42. Assets lense  Risks of running a comapny  Answers to the following questions:  What are the financial sources spent on company’s assets?  What are the relations between current and non – current assets and how they influence operational risks?  What assets belong to the company?  What does the structure of equity and liabilities look like? What is the size of foreign finance contribution in terms of equity and liabilities which influences financial risks of a company. (Nie do końca zrozumiałem, czy to pasywa „się przekładają” czy udział obcego kapitału „się przekłada” na ryzyko?)
  43. 43. Three basic strategies of financing company assets:  Dynamic  Conservative  Moderate
  44. 44. Activity 7 Making long – term decisions
  45. 45. FINANCE DECISION MAKING Decisions Long – term Short – term
  46. 46. Long – term decisions 1 Investment decisions 2 Project financing decisions 3 Decisions about dividends (dividend policy)
  47. 47.  Requirements when it comes to making investment decisions: Evaluation of the value of particular projects, Defining the scale of the investment, Time needed for project(s) implementation Predicted cash flow related to the project
  48. 48. Financial decisions Capital Internal Entry fee Share Participation Contribution Amortization Part of a profit
  49. 49. Capital External Credits Loans Grants Issueing shares, stocks, bonds, etc. Other Financial decisions
  50. 50. Activity 8 Where to look for money for development?
  51. 51. External capital  Enables to use the effect of financial leverage – additional profits, after foreign capital is paid off, they increase profitability of an investment / project. When losses are incured though, the foreign capital instalements which have to be paid off will make the losses even higher  External capital is a cheaper source of finance;  External capital enables to use the effect of tax credit / tax shield – by decreasing the cost of capital. It is possible thanks to regarding foreign capital instalments as tax deductible expenses.
  52. 52. BANK CREDITS – CONDITIONS TO BE ENTITLED  types of bank credits  working capital credit  investment credit  credit applications  evaluation of credit rating (creditworthiness)  types of credit collaterals
  53. 53. Where to look for money for development?  Finance market  Money market  Currency market,  Capital market,  Stock market,  Alternative sources of financing a company’s development
  54. 54. Other sources of financing a company’s development  Factoring  Franchasing  Forfaiting  Leasing
  55. 55. European Union financial contribution to investment projects – principles Concentration of financial means Subsidiarity Sustainable and balanced development Efficiency Evaluations / assessments Partnership Management improvement Programming Equal opportunities and gender perspective Civil society
  56. 56. Activity 9 Making short – term decision. Working capital and cash. General principles of accountancy – bookkeeping and financial documents circulation
  57. 57. SHORT – TERM DECISIONS  GOALS:  Ensuring adequate volume of cash flow in order not to be in arrears with long – term debts, current and unexpected expenditures  Maximum increase of value takes place when the return on investment is higher than the cost of capital incured.
  58. 58. Short – term decisions concern management of company’s working capital  Sufficient working capital prevents from: High costs of capital acquisition for company’s current expenditures Losses incured in case there is an urgent need to sell assets (below the market value) SHORT – TERM DECISIONS
  59. 59. PRINCIPLES  Sufficient reserves need to be maintained in order to facilitate uninterrupted production process and meeting the demand for products . There is also a need to minimize costs of orders, transport and storage.  Sufficient financial means should be kept so that all financial liabilities can be dealt with on time. There ought not to be excessive spare cash which could be used to finance investments or other projects.  Suitable structure of short – term financial sources should be selected (among others credit lines, trade credits, factoring) in order to minimize the costs of debts, credits ad other liabilities.
  60. 60. WORKING CAPITAL PROCESS CYCLE Purchase of raw materials / services Production process / services provision Final product/ service provided liabilities Cash
  61. 61. Optimisation of current assets Reserves optimisation  keeping no reserves – only in a hypothetical perfect situation establishing optimal quantities of reserves Cash management  planning income and expenses Management of due payments  value of products and/or services sold, before actual cash has been transfered from a customer
  62. 62. The purpose of cash management Maximizing the benefits of having cash
  63. 63. How to do it?  reduction of cash on hand the company – maintaining a certain level of current interest – bearing bank account  the use of the system of deposits offered by banks, for example, overnight  investing resources in long-term securities, such as treasury bills or bonds  Warning – you have to remember that these investments can lose!
  64. 64. General principles of accountancy – bookkeeping  Account books  Accounting records  Location of accounting department
  65. 65. Description of accountancy principles should comprise:  Current / working year  Methods of assessments of assets and liabilities  Methods of keeping the account books  Description of a data processing system  Data protection system
  66. 66. Circulation of financial document model  Decision to purchase products/services  Recording the document (register of incoming letters, documents, etc.)  Content related decree  Formal decree  Payment approval  Payment  Recording in the books and archiving
  67. 67. Description of a financial document In accordance with:  Accountancy and tax laws  Requriements of financial authorities  Managerial reqirements
  68. 68. QUESTIONS?