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BE3 Summary

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Business Economics 3

Instelling
NHL Stenden Hogeschool (NHL)

Boek
The Basics of financial management

This is a very detailed summary for Business Economics 3 made with the use of the book "The Basics of Financial Management", class notes and power point presentations from lectures. So everything relevant for the exam, as well as examples, is mentioned and explained here!

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Geupload op 20 juni 2022
Aantal pagina's 19
Geschreven in 2021/2022
Type Samenvatting

business economics
business economics 3
nhl stenden
tourism management
financial management
be3
nhl
international tourism management
the basics of financial management
be
summary

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Summary for Business Economics 3 NHL Stenden University of Applied Sciences BA International Tourism Management

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Samenvatting
• 19 pagina's •
door leonieballner •
geupload 2024

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NHL Stenden Hogeschool • Business Economics 3

Business Economics 3
CHAPTER 3: FINANCIAL STATEMENT

INVESTMENT & FINANCING

Running a company requires resources

 Fixed Assets: tangible or intangible assets staying in the company > 1 year
 Current Assets: in the company < 1 year; these assets need to be financed somehow  there will be
time between moment of purchase and moments of cash flow; e.g. accounts receivable from
customers that received deliveries but did not pay yet

Financing can be obtained either by using equity or credit

 Equity: capital made available by the owner(s) of the company; equity is available for an unlimited
period of time

Reward for providing equity is the profit generated  owners decide if they want to receive a share of
the profit or retain the earning  additional equity is made available

 Liabilities: capital made available by creditors

Temporary financial resource  prior agreement on repayment is made

BALANCE SHEET & INCOME STATEMENT

Balance sheet is made to compare the value of resources a company invested in (assets) and the financial
resources used to acquire these assets (liabilities)

Balance sheet 31-10-2012

Fixed assets Equity capital

E.g.: Buildings E.g.: Share capital

Computers etc Reserves

Current assets Long term liabilities

E.g.: Debtors E.g.: Mortgage

Inventories Short term liabilities

Cash E.g.: Creditors

Financial structure changes throughout the year through

 Sales
 Purchases
 Loss of value of assets  Depreciation

,PROFIT VERSUS CASH FLOW

Profit can be further analysed by taking a closer look at sales and costs over the period concerned  Income
Statement

 Sales: assigned to the period during which the company delivered and invoiced the goods/services,
regardless of whether the delivery resulted in payment
 Costs: not automatically equal to cash outflows; e.g. depreciation

DIFFERENCE BETWEEN SALES/COSTS AND CASH INFLOWS/OUTFLOWS

There are specific items that create a difference between cash flow and profit:

 Depreciation: investment should not be considered as a cost on the income statement for the entire
amount immediately, but should be spread for the economic lifespan
 Provisions: considered in the event of future obligations;

Costs will be recognized on the income statement before any actual payment has taken place

e.g. Provisions of 20,000€ will be made on the credit side of the balance sheet  equity & profit go
down; Provisions of 20,000€ will be recognized in the income statement  if the 20,000€ will need to
be paid, payment will not result in costs  reduction on cash will be equal to reduction of provision,
equity will not change

 cash flow cannot be manipulated, profit however can be adjusted

 Direct equity transactions: of the owner deposits or withdraws money, these owner deposits/owner
withdrawals have no influence on profit  origin not related to business activities

CHAPTER 4: BUSINESS PLAN

PURPOSE OF THE BUSINESS PLAN

DRAWING UP A BUSINESS PLAN
 Forces the creator to reflect if the ideas are realistic or not
 Provides an overview of all the steps that need to be taken

, A business plan consists of several sub plans, however, in BE3 only the Financial Plan will be discussed

FINANCIAL PLAN

The Financial Plan consist of:

 Investment Plan: overview with all required investments in resources: balance sheet opening
 Financing Plan: How will the investments be financed?
 Income Statement: forecast for the first year: sales estimates
 Cash Flow Overview: forecast cash inflows and outflows
 Balance Sheet: prognosis at the end of the first year (data derived from income statement & cash
Flow)

CHAPTER 6: WORKING CAPITAL MANAGEMENT

Working Capital = current assets

Net working capital = current assets – current liabilities

INVENTORY MANAGEMENT

Presence of inventory results in

 Investments
 Additional costs (financing, storage, insurance, decay,…)

Advantage of excessive inventory:

 Obtaining discounts for bulk purchases
 Saving on transportation costs
 Less dependent on suppliers
 Quick delivery to customers

It is important to find a balance between advantages and costs by choosing the optimum inventory size and
purchasing amounts. Efficient inventory management will lead to lowest sum of carrying costs and ordering
(set up) costs

 Carrying costs: costs of carrying an inventory, depended on number of goods in inventory
 Ordering costs: costs involved in purchasing goods or setting up machines, depended on. Number of
purchasing or production costs
 Economic Order Quantity: At what order size are costs at a minimum?

EOQ=
√ 2∗D∗F
c
D … total purchasing costs

F … ordering costs per order
c … carrying costs per product per period

Suppose Blokker purchases 75,000 lunch boxes per year. The carrying costs are 0.30€ per lunch box per
year. The ordering costs are 5€ per order.

EOQ=
√ 2∗75,000∗5
0.30
= 1,581 lunch boxes  Each time Blokker orders new lunch boxes, it will order

1,581. By doing so, the total or ordering and carrying costs will be at a minimum.

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