Introduction

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Section 1

1.0 Overview of Financial Management Principles (Economy & Finance)

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1.1 General

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1.1.1 Kiss Approach

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1.1.2 Water Bed Approach

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1.2 What Is Financial Management?

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1.3 Accounting Elements

1-5

1.3.1 Budgeting

1-7

1.3.2 Ratio Analysis

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1.3.3 Cost of Capital

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1.3.4 Capital Decisions

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1.3.5 Lease Versus Buy

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1.3.6 Working Capital (Cash Management)

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1.3.7 Summary

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1.4 The Economy & Economic Indicators (Wall Street Journal or Financial Times)

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1.4.1 Monetary Policies

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1.4.2 Raw Resources

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1.4.3 Fiscal Policies

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1.4.4 Productivity

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1.4.5 Balance of Payments

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1.4.6 Treasury Department

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1.4.7 Summary

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Appendix 1A Background writes ups on WSJ & FT Economic Indicators

1A-1

1.5 General Summary

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Section 2

2.0 Basic Financial Statements and Glossary of Terms

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2.1 General

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2.2 Basic Financial Statements Used In Annual Reports

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2.2.1 What Is An Income Statement?

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2.2.2 What Is A Balance Sheet?

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2.2.3 Statement of Retained Earnings

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2.3 Glossary of Terms

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Section 3

3.0 Financial Planning and Control

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3.1 General

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3.2 Budgeting and Managing

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3.2.1 Nature of Budgeting for Growth and Profit

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3.2.2 Budgeting Procedures

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3.2.3 Sources of Information

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3.2.4 Elements of Financial Planning

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3.3 Operating Budget

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3.3.1 General

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3.3.2 Profit Objective

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3.3.3 Forecasting Revenue

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3.3.4 Pro Forma Income Statement

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3.3.5 Some Facts Affecting Pro Forma Statements

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3.3.6 Limiting Expenses

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3.3.7 Preparation

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3.3.8 Presentation of. Operating Budget

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3.4 Cash Budget (A Tool for Cash Management)

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3.4.1 General

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3.4.2 Purpose

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3.4.3 Preparation

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3.5 Capital Budget

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3.5.1 General

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3.5.2 Purpose

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3.5.3 Long-Range Planning

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3.5.4 Sources of Capital

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3.5.5 Preparation

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3.6 Balance Sheet Projection

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3.6.1 General

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3.6.2 Purpose

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3.6.3 Preparation

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3.6.4 Use of Financial Ratios

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3.7 Summary

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Section 4

Section 4.0 Comparative Analysis of Financial Statements

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4.1 General

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4.2 Analytical Methods and Techniques

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4.3 Comparative Statements

4-2

4.3.1 General

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4.3.2 Types of Comparison

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4.3.3 Horizontal Analysis

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4.3.4 Vertical Analysis

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4.3.5 Budgets To Actual(s)

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Section 5

Section 5.0 Financial Statement Analysis Through Ratios

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5.1 General

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5.1.1 Liquidity Ratios

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5.1.2 Efficiency Ratios

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5.1.3 Leverage Ratios

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5.1.4 Profitability Ratios

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5.1.5 Market Value Ratios

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5.2 Ratio Categories

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5.2.1 Ratio Categories

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5.2.2 Efficiency Ratios

5-7

5.2.3 Leverage Ratios

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5.2.4 Profitability Ratios

5-13

5.2.5 Market Value Ratios

5-17

5.2.6 Summary

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5.3 Trend and Comparative Analysis

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5.4 Limitations of Ratio Analysis

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Appendix 5A Industry Averages

5A-1

Section 6

Section 6.0 Working Capital (Cash Management)

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6.1 General

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6.1.1 In spite of

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6.1.2 Cash Needs

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6.1.3 Plan to Meet Your Cash Needs

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6.1.4 Cash Budgeting

6-2

6.1.5 Uses of A Cash Budget

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6.2 Working Capital

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6.2.1 Net Working Capital

6-4

6.2.2 The Management of Working Capital

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6.2.3 Flow of Working Capital

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6.2.4 Administration of Current Assets

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6.2.5 Required Working Capital

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6.2.6 Working Capital Ratios

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6.3 Hedging/Matching Principle

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6.3.1 Temporary vs. Permanent

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6.4 Break-even Point

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6.4.1 General

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6.4.2 What is meant by the break-even quantity of output?

6-10

Section 7

Section 7.0 Cost of Capital, Internal and External

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7.1 General

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7.1.1 Types and Sources of Capital

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7.1.2 Borrowing Working Capital

7-2

7.1.3 Borrowing Growth Capital

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7.1.4 Borrowing Permanent Equity Capital

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7.1.5 Financing Sources for Your Business

7-7

7.1.6 Applying for Capital

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7.2 Market Risk

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7.3 Overview of Risk

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7.4 Cost of Capital

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7.4.1 Weighted Cost of Capital

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7.5 Summary

7-17

Section 8

Section 8.0 Capital Decision Techniques

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8.1 General

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8.1.1 Capital Budgeting

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8.2 Cash Flows

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8.2.1 The Net Initial Outlay

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8.2.2 After Tax Cash Flows Over the Project's Life

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8.2.3 Terminal Cash Flow 8-2 8.3 Cost of Capital

8-2

8.4 Accept/Reject Criterion

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8.4.1 The Payback Period Method

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8.4.2 The Net Present Value Method (NPV)

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8.4.3 The Profitability Index (PI)

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8.4.4 Internal Rate of Return (IRR)

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8.4.5 Which of the methods is best suited for capital budgeting?

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8.5 Preparation

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8.5.1 Cash Flows

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8.5.2 Cost of Capital

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8.5.3 Accept/Reject Criterion (NPV, PI, IRR)

8-6

Section 9

Section 9.0 Lease Versus Buy Decision

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9.1 General

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9.1.1 What Is a Lease?

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9.1.2 Types of Leases

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9.1.3 Kinds of Lessors

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9.1.4 Advantages of Leasing

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9.1.5 Disadvantages of Leasing

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9.1.6 Federal Tax Treatment of Leases

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9.1.7 Accounting Treatment of Leases

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9.2 Cost Analysis of Lease Versus Loan/Purchase

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9.3 Look Before You Lease

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