How to uses financial tools

How Anyone Can Use A KISS AND WATERBED To Understand The Basic Elements Of Financial Growth Tool Strategies.

Authored By
F J. “Scarp” Scarpinato
2005 All Rights Reserved


Introduction I-1

   This book brings together the major elements and tools of financial growth strategies in a simplistic, usable form. Whether you are an executive, financial manager, or new business student, if you have ever felt overwhelmed by the myriad of financial data that crosses your desk each day then read on. This book can help you simplify this financial data and strengthen your understanding of finance.

   There are two major thrusts within this text. Section 1 provides an overview of how you can use a KISS and Waterbed approach to understand the basic elements of the Economy & Economic Indicators by using the Wall Street Journal or the Financial Times (London) and Tools of Financial Growth Strategies. Sections 2 through 9 focus on these tools in more detail. The same Income Statements and Balance Sheets are used throughout all sections. It will be easier to pick up new ideas when the financial data is consistent from chapter to chapter. This will free you to focus on the tool being discussed and how it relates to the overall strategy of growth.

   Planning is a major tool for growth. Poor planning translates into poor management and poor management is generally found to be the leading cause of stagnation or failure of business. All to often, management is so caught up in the day-to-day tasks of getting the product out the door that they fail to plan. There never seems to be time to review Pro Forma(s) or Budgets. Often new managers understand their products but not their financial statements and accounting system, which they feel are for the benefit of the IRS and the banks. Such overburdened managers can scarcely identify what will affect their businesses next week, let alone over the coming months and years. But, we may ask, “What should we do? How can we, as a business manager, avoid getting bogged down? How can we ensure success?" Success can be ensured only by focusing on all factors affecting a business' performance. Planning is essential to survival.

   Short-term planning is generally concerned with profit planning or budgeting. Long-term planning is generally strategic, setting goals for sales growth and profitability over a minimum of three to five years.

   The tools for short- and long-term plans will be explained in the following sections. These tools include Budgets, Ratio Analysis, Capital Decisions Process, Cost of Capital and Leasing.


Section 1.0
Overview of Financial Management Principles (Economy & Financial) 1-1

   Just as the French Foreign Legion has its motto, 'March or die," in business, "You grow or ???" In today's business environment we are inundated with so much information it is sometimes difficult to make the right financial decisions to support that growth. Whether you are an executive, financial manager, or new business 'student, if you have ever felt overwhelmed by the myriad of financial data that crosses your desk each day -- this section is for you.

   Chances are you haven't gotten where you are today without already having an understanding of some, if not all of the 12 elements (Economy & Financial) discussed here. If you already have an understanding of finance, this section can help to reinforce that knowledge. The key to success and financial growth, however, is not only in understanding these elements but in being able to simplify them so they become useful management tools.

   The model presented below includes the major financial tools necessary to plan for your business' future financial success and economic indicators on the cost of money by using the Wall Street Journal and Financial Time (London). In the same way executives have their staffs summarize the information they need to make decisions, this model summarizes into 12 basic financial elements the information we will need to make financial decisions which support the growth of our business.


Section 2.0
Basic Financial Statements and Glossary of Terms 2-1

   This section includes the basic financial statements that will be used throughout the text. I have also included a Glossary of Terms for your reference.

   Before we deal with the financial statements, we will answer the question, "What is a corporation's annual report?" The annual report for a corporation is that report which management is required to generate for its stockholders and future investors. The annual report contains management's observations and opinions on the past business history of the entity and corporate objectives for the future. Four basic financial statements are included: Income Statement, Balance Sheet, Statement of Retained Earnings along with Statements of Cash Flows. These financial statements, of course, give an accounting view of the firm's operations and financial position and if the firm is publicly owned must be certified by a public accountant. We will briefly cover these four financial statements.


Next page