This is a summary of financial management the first year of tourism managment at the NHTV. In this summary you will find everything you need to learn from the book and the knowledge clips.
Samenvatting Basics of financial management PART 1
Business Economics 3 summary
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NHTV (NHTV)
International Tourism Management
Financial Management
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SAMENVATTING FINANCIAL MANAGEMENT
H1
Public sector: state, local authorities non-profit. To ensure public goods, everyone has to pay
(tax).
Private sector: mail, supply of energy, transport.
A company operating as a legal entity is considered independent in legal agreements and
doing business agreements. If the company is not a legal entity, the agreement will be made
out of the owner. If there is only one owner it’s called a sole proprietorship and with multiple
owners a partnership.
There are two ways a company can be financed: equity and liabilities.
Joints share companies: Two types:
- Limited Liability company (LLC)
- Public Liability Company (PLC)
Companies both exist out of shareholders, who when Important decisions are made come
together. LLC most of the times comes from a partner or sole ship, so only a few
stakeholders. While PLC is made to bring in a lot of capital, so loads of stakeholders. The
company has to pay corporate tax and the stakeholders income tax.
Three major differences between PLC an LLC
- LLC registered shares, while PLC easily changeable.
- LLC can restrict the sale of shares
- For setting up a PLC a minimum capital is required.
Cooperative:
a cooperative acts on behalf of its members and only does business with its members. It
exists out of different types: Production, purchasing or bank.
VAT= value added tax (BTW)
Cartels: agreements between manufactures created to restrict competition.
,H2
Accounting exists to provide financial information to the company, two types can be
distinguished: Management accounting, to provide information to the management to help
them in the decision making process and is focussed on the future. And financial accounting
to provide information to the outside and stakeholders, and is focused on the past.
Ledger account: financial information over something eg building.
There are four positions within the finance of a company:
- Bookkeeper, focus on registration, sales and purchases, salary, depreciation.
- Internal auditor, reviews system and ledger
- Controller, manages financial control
- Treasurer, optimal cash management.
H3
Fixed assets: things that will serve a company for a long time, building.
Current assets: things that don’t last that long less than a year, eg ingredients. Also accounts
receivable.
Equity: the capital made available by the owners, shareholders or savings.
Liabilities: capital made available by creditors, temporarily, risk avoiding.
Balance sheet: on the left side debit, what you own. And on the right side credit, how you
financed these activities.
Provisions are costs that still need to take place in the income statement.
H9
To figure out a company’s financial structure, you can have a ratio analysis. Its divided as
following:
- profitability ratio
- solvency ratio
- liquidity ratio
profitability is an important condition for continuation of a company. This can be related to
sales, this ratio is called gross profit margin.
This can be calculated as the following:
Gross profit margin= operating income/ sales
, the operating income consists of profit before deduction of interest expenses and tax (EBIT).
Profitability means the general ratio between earnings and the capital that generate these
earnings.
The profitability of a company’s total invested capital, return on assets ROA, is calculated as
following:
Roa= EBIT/ average total assets X 100%
to the owner the operating result is not significant as interest and tax still need to be
deducted. Return on equity ROE, the calculation of equity after tax:
ROE= net income/ average equity X 100%
or If it is calculated before tax:
ROEbt= operating interest before tax/ average invested equity X 100%
For the creditors, the profitability of the capital invested in the company is equal to the
agreed interest percentage . the company considers the interest paid as a cost. The average
cost of debt can be calculated:
Average cost of debt= interest/average debt X 100%
Solvency is the extent to which a company in the event of a bankruptcy, can meet its
financial obligations towards its creditors. In an event of bankruptcy the selling of the assets
should cover the costs.
The debt ratio indicates which part is financed with liabilities:
Debt ratio= liabilities/total assets
Financial resilience is a company’s capacity to continue in unfavourable times
The ratio is linked to the interest coverage ratio which can be calculated as:
If the answer is lower than 1 it’s not good and they have to use their equity.
Elasticity the ability to adapt in financial situation.
Liquidity ratio indicates how a company can meet its short term obligations.
- Dynamic liquidity : incoming cash flow outpaces the outgoing
- Static liquidity: if they can meet short term obligations, amount of composition
current assets
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