Finance and Accounting for Nonfinancial Managers by Eliot H. Sherman
Chapter 1: Introduction to Finance
LEARNING OBJECTIVES
By the end of this chapter, you should be able to:
– Explain and use basic financial terms and concepts.
– Define the key financial statements and accounting equations and explain their purposes and contents.
– Describe the different forms of business structure and recognize similarities and differences among them.
Change is a given in business today, and managers are expected to do more and understand more
Than they ever had to in the past. How often have you heard statements just like these – often from
Your own managers?
Act like you own the business.
Everyone is self-employed.
If what you’re doing isn’t adding value to the business, then stop what you’re doing.
In today’s businesses, managers are expected to be active participants in and leaders of self-directed
Teams, they are supposed to be empowered, they are responsible for their own training and their own
Careers. You may be asked to come up with ways to help the company increase the bottom line, or
To lead a team investigating new technologies. Functional expertise isn’t enough any more. You’ve
Got to understand the relationship of the work you do to the overall financial success of your
Organization.
Finance and accounting give you tools that you can use to understand how the decisions you make
And the jobs you perform affect the long-term success of the entire organization. Understanding the
Language of finance and accounting will allow you to present your ideas persuasively and precisely,
To be more comfortable when discussing results or forecasts with your financial staff or outside
Investors. It will help you to understand the financial news and how financial markets can affect
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Your own firm. And it will help you make better decisions about your personal finances and
Investments.
Accounting has been called “the language of business.” This chapter introduces the basic
Terminology and concepts of financial management. You’ll see how these terms and concepts relate
To your everyday responsibilities, and you’ll look at the basic financial statements, which will
Provide a starting point for everything that follows. This chapter will also describe the three major
Business structures and explain their similarities and differences.
Are You a Financial Manager?
Bob had just been hired as the controller of a small, semiautonomous division of a publicly-held
Company that was experiencing severe growing pains. Rapid expansion strained the cash resources
Of the company as well as its human resources. Bob decided to introduce open-book management to
The employees, but he knew he’d have to give people some basic tools before the company’s
Financial information would make much sense to them.
He called the first group together and asked, “How many of you are financial managers?” Every
Hand stayed down. Then he asked, “How many of you have a checking account?” Most of the hands
Went up. “How many of you make mortgage or car payments?” Again, most of the group had loans
They were paying off. When he asked, “How many of you have MasterCard or VISA cards?” nearly
Everyone raised their hand.
Bob pointed out that the managers in the group were managing cash, making investments and
Incurring loans, handling credit, and looking out for their own financial well-being. They all had
Plenty of experience that they could use as they analyzed the financial results of the company. When
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