BUSINESS ADMINISTRATION SYLABUS

MODULE I: FUNDAMENTALS
Topic 1. Enterprises & businesspeople
Topic 2. Types of enterprises
Topic 3. Environment
Topic 4. Introduction to the management subsystem

MODULE II: FUNCTIONAL SUBSYSTEMS CHAPTER 7: The financial functioning of enterprises

Topic 5. Introduction to the operations subsystem
Topic 6. Enterprises & marketing management
Topic 7. The financial functioning of enterprises
Topic 8. Human Resources INES HERRERO CHACÓN
UNIVERSIDAD PABLO DE OLAVIDE
MODULE III: BUSINESS DEVELOPMENT SEVILLA
Topic 9. Business Evolution over time.
Topic 10. Business cooperation.

Function of the finance sub-sistem

Objetive of the finance sub-system
A liability is a financial Liabilities
obligation, debt, claim, Liabilities
or potential loss.
FINANCE DECISIONS gets
gets

FINANCE FINANCE
SUB-SYSTEM SUB-SYSTEM
invests invests

Any item of economic value

Assets owned by an individual or Assets
corporation, especially that
which could be converted to
cash. DECISIONS ON INVESTMENTS

BALANCE SHEET BALANCE SHEET

ASSETS LIABILITIES & OWNERSHIP EQUITY

A BALANCE SHEET is a snapshot of a business’ financial condition at a
specific moment in time, usually at the close of an accounting period. Assets are subdivided into current OWNERSHIP EQUITY
and long-term assets to reflect the Owners’ equity is made up of the
ease of liquidating each asset initial investment in the business
as well as any retained earnings
A balance sheet comprises ASSETS, LIABILITIES & OWNERS’ EQUITY that are reinvested in the business
LONG TERM ASSETS
LONG-TERM LIABILITIES
Assets which cannot easily be
converted into cash in the S/T These are any debts or
ASSETS LIABILITIES & OWNERSHIP EQUITY obligations owed by the
Also known as fixed assets business that are due more
This includes all debts and than one year out from the
Determine productive capacity current date.
An asset is anything the business obligations owed by the business
owns that has monetary value. to outside creditors, vendors, or
CURRENT LIABILITIES
banks that are payable within one CURRENT ASSETS
Assets are subdivided into current year, plus the owners’ equity.
and long-term assets to reflect the Assets which are expected to be Liabilities owed to creditors
ease of liquidating each asset Often, this side of the balance sold or otherwise used up in the that must be paid within a one-
sheet is simply referred to as near future (in the S/T). year time frame.
“Liabilities”

1
 BALANCE SHEET Previous Concepts: EBITDA, EBIT, EBT, NI
Revenues (Price  quantity)
ASSETS LIABILITIES & OWNERSHIP EQUITY
– Consumption of raw material
LONG TERM ASSETS
OWNERSHIP EQUITY
 Land – LC (labour cost)
Owners’ equity is made up of the
 Buildings initial investment in the business – GC (General cost)
as well as any retained earnings
 Office equipment that are reinvested in the business
+  W-I-P-G (Changes in inventory of work-in-process goods)
 Machinery
 Furniture LONG-TERM LIABILITIES +  F-G (Changes in inventory of finished goods)
 Vehicles These are any debts or
obligations owed by the = EBITDA (Earnings before interests,taxes,depreciation&amortization)
business that are due more
than one year out from the
CURRENT ASSETS current date.

 Cash
EBITDA– Depreciation = EBIT (Earnings before interest&taxes)
CURRENT LIABILITIES
 Accounts receivables
Liabilities owed to creditors
 Notes receivables that must be paid within a one- EBIT– I (Interest) = EBT (Earnings before tax)
 Inventory year time frame.

EBT – T (Taxes) = EBT - (EBT  t (tax rate)) = NI (Net income)

Previous Concepts Finantial equilibrium

Depreciation:
Terms that refer to an enterprise’s state of financial health
An expense recorded to allocate a tangible asset's cost over its useful life.
Because depreciation is a non-cash expense, it increases free cash flow while decreasing
reported earnings Liquidity
It is important because it reduces taxable income
Liquidity is a measure of the business' ability to pay its bills on time (S/T)
We will assume a strait-line depreciation It also refers to its capability to sell assets quickly to raise cash

Amortization:
The paying off of debt in regular installments over a period of time. VS
Salvage value:
Solvency
The estimated value that an asset will realize upon its sale at the end of its useful life.
The value is used in accounting to determine depreciation amounts and in the tax system
Firm’s ability to meet its long-term financial commitments (L/T)
to determine deductions.
A solvent company is one that owns more than it owes
The salvage value is used in conjunction with the purchase price and accounting method
to determine the amount by which an asset depreciates each period.

Finantial equilibrium
FINANCIAL EQUILIBRIUM

Liquidity Liquidity Correspondence Payment obligations

…is a measure of the business' ability to pay its bills on time

It is the relationship between current assets & current liabilities
Liquidity is a sensitive barometer of month to month operations
FIXED LONG-TERM
ASSETS LIABILITIES &
EQUITY
Payment duties Correspondence Liquidity of investment

Equity & Fixed liabilities Correspondence Fixed assets CURRENT

ASSETS CURRENT
LIABILITIES
Current liabilities Correspondence Current assets

WITH SOME
EXCEPTIONS!!!

2
Cash conversion cycle
Function of the finance sub-system
STOCK CONVERSION PERIOD

Liabilities
Raw material Work-in- Finished goods Debtor
stock period progress period inventory period conversion per.
gets
Credit period granted
CASH CONVERSION CYCLE
by suppliers FINANCE
Accounts payable SUB-SYSTEM

Clients (debtors) pay

Product. completed
Input purchase

Output is sold
invests
Production starts

Creditor is paid

Assets

CCC: how long it takes for a company to convert resources into cash

Types of financial sources Financing decisions

FINANCIAL SOURCES INTERNAL vs EXTERNAL funding

INTERNAL EXTERNAL
FINANCING
DECISIONS

With respect to
Generated by the firm Generated outside the external sources… DEBT vs EQUITY

Retained earnings plus Equity (stock)

With respect to
depreciation & debts the internal sources… DIVIDENS vs RESERVES

FINANCIAL SOURCES (L/T): FINANCIAL SOURCES (L/T):

Sources of Long Term Borrowing Bank loan: a bank loan is a debt that the borrower has
with a bank. The firm borrower initially receives a
certain amount of money, from the lender and is
• Bank loans obligated to pay back an equal amount of money to the
• Shares lender at a later time plus some interests.
• Bonds Bond - A bond is a debt security. Typically the borrower
is obliged to repay the initial amount at a later date and
• Leasing
pay some interest (the coupon) at fixed intervals.
• …
Share - a share of stock (also referred to as
equity share or simply stock) is a share of
ownership in a company
Lease - Long-term rental agreement.

3
 FINANCIAL SOURCES (L/T): FINANCIAL SOURCES (S/T):

Leasing
Lease = A rental agreement that extends for a year or Sources of Short Term Borrowing
more and involves a series of fixed payments

• Bank loans
TYPES OF LEASING • Factoring
• Commercial paper
FINANCIAL OPERATING LEASE-BACK • Medium term notes
LEASES LEASES LEASING • Accounts payable
Lessor ≠ Manufacturer Lessor = Sell to the lease company
No cancellation manufacturer Then make a leasing contract

FINANCIAL SOURCES (S/T): FINANCIAL SOURCES (S/T):

Medium-term notes.
Commercial Paper.
A Medium Term Note (MTN) is a debt that usually
matures (is paid back) in 5–10 years, but the term may be
An unsecured obligation issued by a corporation to as short as one year or as long as 50 years.
finance its short-term credit needs, such as accounts
receivable and inventory. They're normally issued on a floating basis
(Euribor +/- basis points)
http://www.iberdrola.es/webibd/corporativa/iberdrola?cambioIdioma=ENWEBACCCAPITALRENTAOBLIETMN

Maturities typically range Implies low risk

from 2 to 270 days. (for buyers)
Accounts payable
Accounts payable: money that firms owed to their
suppliers (S/T)

FINANCIAL SOURCES (S/T):

Factoring.

The selling of a company's accounts receivable, at a

discount, to a factor, who then assumes the credit
risk of the account debtors and receives cash as
the debtors settle their accounts.