Mastering Financial Management: Demystify Finance and Transform Your Financial Skills of Management (Masters in Management)

265 Pages·1998·2.05 MB·English

by  Stephen Brookson

Mastering Financial
Management
Demystify finance and transform
your financial skills of management
Stephen Brookson
IFC
Mastering Financial Management
Demystify finance and transform your
financial skills of management
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Mastering Financial
Management
Demystify finance and transform
your financial skills of management
Stephen Brookson
Published by
Thorogood Ltd
12-18 Grosvenor Gardens
London SW1W 0DH
0171 824 8257
A catalogue record for this book is available from the British Library
ISBN 1 85418 067 3 (Trade edition)
ISBN 1 85418 101 7
© Stephen Brookson 1998
All rights reserved. No part of this publication may be reproduced, stored in
a retrieval system or transmitted in any form or by any means, electronic,
mechanical, photocopying, recording or otherwise without prior permission
of the copyright holder.
Printed in Great Britain by Ashford Colour Press
The author
Stephen Brookson
Stephen Brookson is Managing Director of his company, New City Consulting,
which specialises in the provision of practical business development consultancy
and training programmes.
He qualified as a Chartered Accountant in 1980 with Peat Marwick and after
a period at Grandmet plc, he joined a leading organisation in the provision of
training for chartered accountants in practice. During this time he gained
extensive experience of writing, developing and presenting programmes on
accountancy and taxation. He then joined Ernst & Young for a number of years
as a consultant, leaving them to set up his own management and training
consultancy business. He has presented numerous seminars and training events
in both the public and private sectors, in the UK and overseas.
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1
Contents
Icons....................................................................................................11
Chapter 1: Finance makes the world go round..........................................13
Who this is for ......................................................................................14
You are not alone ............................................................................14
Overview ..............................................................................................15
Other sources..................................................................................15
Users and uses of financial information ..............................................16
Financial versus management accounting ............................................17
Name that accountant......................................................................18
Rules governing accounting....................................................................20
Law ..............................................................................................20
Accounting standards ......................................................................20
International dimension ..................................................................24
Big GAAP/Little GAAP ......................................................................24
Corporate financial health......................................................................25
Audits ..........................................................................................25
Corporate reality ............................................................................25
SSAP 2..................................................................................................25
1 Accruals (or matching) concept ......................................................26
2 Going concern..............................................................................27
3 Consistency ................................................................................27
4 Prudence ....................................................................................28
Basic accounts ......................................................................................28
Profit and loss account ....................................................................29
Balance sheet ......................................................................................34
The two business cycles....................................................................35
Fixed assets....................................................................................35
Cost ..............................................................................................36
Revaluations ..................................................................................36
2 M A S T E R I N G F I N A N C I A L M A N A G E M E N T
Depreciation ..................................................................................38
Depreciation method........................................................................40
Notes to accounts ..........................................................................43
Current assets and current liabilities ......................................................44
Current assets ................................................................................44
Working capital example ..................................................................46
Current liabilities ............................................................................48
Ratio analysis ................................................................................48
Other current liabilities ....................................................................50
Critical issues ................................................................................50
Long-term liabilities ............................................................................51
Creditors due after more than one year ..............................................51
Historical cost ................................................................................51
Balance sheet summary ....................................................................52
Other side of the balance sheet ..............................................................52
Chapter 2: Analysing performance ...............................................................55
Interpreting accounts using ratio analysis ..............................................56
Introduction ..................................................................................56
Return on capital employed (ROCE) ....................................................56
Tree of ratios ..................................................................................58
Profitability measures ..........................................................................59
Earnings per share (EPS) ..................................................................60
Balance sheet measures ........................................................................61
Asset turnover ................................................................................61
Fixed asset turnover ........................................................................61
Debtor days ....................................................................................62
Stock days......................................................................................63
Creditor days ..................................................................................63
Current ratio ..................................................................................63
Quick ratio ....................................................................................64
Stock to net assets ..........................................................................65
Stock turnover ................................................................................65