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Financial Management and Control

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Financial Management and Control

     Understanding Financial Module title

    Principles

    MN50341 Module code

    2006/07 Year

    Dr. Philip Cooper Module Leader

     thth 10 November 6Session Dates

    Understanding Financial Principles

    Full Time MBA 2006-2007

    UNDERSTANDING FINANCIAL PRINCIPLES

COURSE OVERVIEW

The course is taught in two separate themes (accounting and financial management),

    which are given equal weighting over the week of the course. Details of the content are

    given in the attached session outlines. Please note that these outlines follow a

    chronological order but that the sessions do not necessarily coincide with the morning or

    afternoon periods.

A. Accounting (Monday to Wednesday lunchtime)

    Philip Cooper

    This section of the course focuses on how non-financial managers can use financial and accounting information to achieve their objectives, rather than how to construct it. It

    covers the external perspective (how the company’s activities are represented in its

    financial accounts) as well as the internal perspective (how management accounting tools

    can be used to support business decisions, planning and control). The section concludes

    with a review of current issues in corporate accountability that are likely to affect the risks

    and responsibilities of all business managers.

For this section of the course, the core text (supplied by the University) is:

    ? Glynn, J. et al. (2003) Accounting for Managers, 3

    rd edition, Thomson Learning

    (denoted Glynn below under Core Readings).

    A general supplementary text for those with little or no experience in this area is:

    ? Atrill, P. and McLaney, E. (2006) Accounting and Finance for Non-specialists,

    th5 edition, Prentice Hall, [ISBN 0-273-70244-0; Library code 657ATR]

    This text can be used as an introduction for several sessions as the course proceeds and as

    pre-reading for specific topics with which you are completely unfamiliar (chapter

    references are given in the Session Outlines below). However, you do not have to learn the indicated chapters in advance.

Other texts for specific parts of the course (as indicated in the Session Outlines below):

    Financial accounting

    th? Elliot, B. and Elliott, J. (2006) Financial Accounting and Reporting, 11 edition,

    FT Prentice Hall [ISBN 0-273-70870-8; Library code 657ELL]. (Comprehensive

    coverage of accounting techniques and the regulatory framework for external

    reporting - for those with a significant interest.

    ? Pendlebury, M. and Groves, R. (2001) Company Accounts - Analysis,

    thInterpretation and Understanding, 5 edition, Thomson Learning [ISBN 1-86152-

    595-8; Library code 657.37PEN]. (A detailed text on analysis and interpretation.)

    Management accounting

    nd? Drury, C. (2001) Management Accounting for Business Decisions, 2 edition,

    Thomson Learning [ISBN 1-86152-770-5; Library code 657DRU]. (A good,

    comprehensive intermediate level text.)

    rd? Kaplan, R.S. and Atkinson, A.A. (1998) Advanced Management Accounting, 3

    (international) edition, Prentice Hall [ISBN 0-13-080220-4; Library code

    657KAP]. (A more advanced text for those with a significant interest.)

    You are not expected to read all the references to these texts, they are there to help you

    dip into each topic and develop your knowledge in areas of interest to you.

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    Understanding Financial Principles

    Full Time MBA 2006-2007

    B. Financial Management (From Wednesday lunchtime to Friday)

    Anthony Birts

    The second section deals with the main financial decisions that companies have to take.

    These include investment appraisal processes, capital structure issues, dividend policy and

    a range of issues related to how businesses are financed.

    For this section of the course, the core text (supplied by the University) is:

    Brealey, R. and Myers, S. Corporate Finance, 8th (International) edition, McGraw-Hill

    (denoted B&M below).

For Section B, those with little or no experience of finance may find chapters 10-12 in

    Atrill and McLaney useful.

    Additional optional reading:

    Balance Sheet Structures, Anthony Birts (Ed.), Woodhead Publishing Limited.

    Fundamentals of Financial Management 10th edition Brigham, Published by Thomson. thInvestment Appraisal & Financing Decisions 6 ed, Steve Lumby and Chris Jones,

    published by Thompson business Press

    Financial Management for International Business, Demirag and Goddard, published by

    McGraw Hill

You are not expected to read all the references to these supplementary texts, they are there

    to help you dip into each topic and develop your knowledge in areas of interest to you.

STAFF PROFILES

Dr. Philip Cooper MA (Oxon), MSc, MBA, PhD, FCA, ATII

    Senior Lecturer in Accounting

Philip worked at Arthur Andersen in London and Australia in the period 1980-1995 (as a

    partner from 1991), specialising in international business transactions and the financial

    markets. He is a Fellow of the Institute of Chartered Accountants in England & Wales

    and a chartered tax adviser. Since 1995 he has obtained masters and doctoral degrees in

    environmental economics. His research interests include environmental and sustainability

    reporting and their roles in socially responsible investment.

Mr. Anthony Birts ACT Cert ICM, BSc, MBA

    Teaching Fellow in Finance

    Anthony joined the University after time spent in industry and with Bank of America NT

    & SA (BoA). With BoA Anthony had a variety of roles including Account Manager with

    the Energy Section, Corporate advice on Foreign Exchange and risk management,

    international cash management consultancy and marketing payments and cash

    management services. He is Chief Examiner for the Association of Corporate Treasurers

    Certificate of International Cash Management.

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    Understanding Financial Principles

    Full Time MBA 2006-2007

SESSION OUTLINES

A. ACCOUNTING

    SESSIONS 1-3: FINANCIAL ACCOUNTING

    Introduction to the Accounting Section: The nature of accounting information, types of user and their needs. The distinctions between internal and external reporting, and

    between financial and management accounting. Course outline.

    Corporate Financial Reporting: Components of company reports and the content and purpose of the principal financial statements: balance sheet, profit and loss account and

    the cash flow statement. Qualitative characteristics of useful accounting information.

    Key accounting principles and concepts (e.g. separation of business and ownership, the

    accounting period, cash v. accruals accounting, the accounting equation, matching,

    historical cost, accounting for related companies). The effect of accounting policies on

    the results for a period (e.g. depreciation of fixed assets, stock/inventory valuation). The

    relevance of fundamental concepts to the representation of more complex transactions in

    financial statements (e.g. treasury instruments).

    Regulation of Financial Reporting: The legal and regulatory framework covering company reports and accounts. Regulation of accounting practices: principles v. rules-

    based systems, and accounting standards. Regulation of the integrity of accounts: role

    and nature of external and internal auditing, and of corporate governance principles (for

    listed companies). The responsibilities of the external auditor. Regulatory statements in

    public company accounts.

    Note: The impact of international variations in these practices, particularly as they affect

    corporate governance, are discussed in session 6.

    Analysis and Interpretation of Corporate Reports: The need for critical appraisal of corporate reports. Principles for interpreting and analysing financial statements. The

    methodology of ratio analysis. Types of ratio (e.g. for assessing profitability v.

    efficiency), the need for interpretation in a business context and implications for managers.

    Limitations of ratio analysis and pitfalls in the comparison of companies.

    SESSIONS 4-5: MANAGEMENT ACCOUNTING

    The Functions of Management Accounting: The information needs of management in decision-making, planning and control. Introduction to developments in the use of

    accounting to support strategy.

    Costing and Business Decisions: Types of costs and their behaviour. Short-term decisions based on cost-volume-profit analysis, and the contribution concept. The need

    for assignment of costs to product and service outputs. Traditional methods of cost

    assignment and the development of Activity-Based Costing (ABC). Pricing decisions.

    Budgeting and Management Control: The objectives of budgets, particularly in terms of financial planning and control. Types of budget (e.g. material inputs, sales, and cash)

    and the assignment of responsibilities.

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    Understanding Financial Principles

    Full Time MBA 2006-2007

Assessing Business Performance: Interpreting variances between out-turn and standard

    costs/budgets, and the implications for management. Measuring the performance of

    divisions and the importance of transfer prices between divisions. The scope for non-

    monetary measures of performance - the balanced scorecard approach.

    SESSION 6: CORPORATE ACCOUNTABILITY

    Current Issues in Corporate Accountability: Financial information and the risk of catastrophic failure some lessons from the US (Enron and WorldCom). The pressures

    to extend the scope of corporate reporting social and environmental issues. Reporting guidelines. Proposals for including a mandatory Operating and Financial Review in

    company reports.

B. FINANCIAL MANAGEMENT

    SESSION 7: INTRODUCTION TO FINANCIAL MANAGEMENT

What are the objectives of a company or other organisation? Where does financial

    management fit into the attainment of these objectives? Can we build a model (a simple

    one) of the organisation to help us understand the decisions that have to be made? Who

    are the managers making decisions for?

    Having put finance into context, we may now start to consider the individual strands that

    go to make up the finance rope

    SESSION 8: MAKING INVESTMENT DECISIONS

The basic approaches to investment appraisal will be explained and also specific factors,

    which cause difficulties in practical investment decision-making, will be discussed. This

    session will also consider the time value of money

    SESSION 9: INTRODUCING RISK AND THE RISK/RETURN ISSUE

We will explore the basic risk/return concepts and how they relate to the estimation of the

    returns required on investment.

SESSION 10: THE DEBT/EQUITY DECISION, FUNDING THE COMPANY AND

    THE DIVIDEND DECISION

Part 1

    Given the importance of the weighted average cost of capital in determining the overall

    value of a company, one question that needs to be answered is whether ‘how a company is

    financed will affect the overall weighted average cost of capital?’. This question may be

    taken in three stages. The first stage is whether varying the proportions of debt and equity

    in a company’s capital structure will change the overall value of a company and this

    question will be dealt with in Part 1.

CASE STUDY to be done in class: Bon Vivant Fashions

Part 2

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    Understanding Financial Principles

    Full Time MBA 2006-2007

The second stage. Given that a portion of capital is likely to be debt, the financial

    manager still has to decide what sort of debt is needed and how much of each type. This

    session will look at the types and sources of funding available and will consider the pros

    and cons of each.

    Case Study: Motorway Chef (will be provided during lecture)

Part 3

    The third stage. There is a debate about whether the way in which shareholders obtain

    their return on a company (either via dividends and/or capital growth) will affect the value

    of the company. The debate runs along the same lines as the debt/equity discussion.

    SESSION 11: MANAGING LIQUIDITY

Considerable attention is often paid in academic texts to the question of investment in

    fixed assets but it is also very important to develop policies for the determination of

    working capital needs and its control. Much of this area is a question of common sense,

    luckily.

    SESSION 12: THE FINANCIAL IMPLICATIONS OF INTERNATIONAL

    OPERATIONS, AND AN INTRODUCTION TO FOREIGN EXCHANGE

    MANAGEMENT

Anthony will consider how going international impacts upon the financial position of a

    company and introduce the basic aspects of foreign exchange risk and the challenges it

    presents to a company.

Case study: Primrose and Percy’s Catering Corporation (will be provided during lecture)

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