Franchise Financial Management PDF

# Franchise Financial Management ## Introduction of Working Capital - Working Capital: working capital means this is the amount of cash which helps to run the business. - It is capital refers to firm investment in short-term assets, viz. cash, short-term securities, debtors, and inventories of raw...

# Franchise Financial Management ## Introduction of Working Capital - Working Capital: working capital means this is the amount of cash which helps to run the business. - It is capital refers to firm investment in short-term assets, viz. cash, short-term securities, debtors, and inventories of raw material, work and process and finished goods. - It can also be regarded as that portion of the firm's total capital, which is employed in short-term operations. - Simply we can say that working capital is the investment needed for carrying out day-to-day operations of the business smoothly. ## Concept of Working Capital - There are two concepts of working capital. - Gross working capital. (quantitative concept). - Net working capital. (qualitative concept). ## Gross Working Capital - Total Current assets. - Where current assets are the assets that can be converted into cash within an accounting year & include cash, debtors etc. - Referred as "Economics Concept" since assets are employed to derive a rate of return. ## Net Working Capital Net working capital is the deference between the current assets to current liabilities. Working capital = C.A-C.L ## What is Working Capital? Working Capital is an indicator of the short-term financial position that measures the overall efficiency of an organization. It is calculated by subtracting current liabilities from current assets and listed directly in its balance sheet. ## Working Capital Formula Working Capital = Current Assets (Net of Depreciation) - Current Liabilities ## Importance of Working Capital - It is a key indicator of a company's ability to meet its short-term financial obligations. - A healthy working capital balance allows a company to take advantage of opportunities, such as expanding into new markets. - It may help a company avoid financial distress. ## Financial Planning Financial planning means deciding in advance how much to spend, on what to spend, according to the funds at your disposal. Thus, there are two aspects of financial planning: - How much funds are required to finance current and fixed assets and future expansion projects? - From where will these funds come? Financial planning takes into consideration the growth, performance, investments, and the requirement of funds for the business for a given time period. ## Objectives of Financial Planning - To supply adequate funds to ensure optimum utilization of resources. - To minimize the cost of raising funds. - To protect the owners against loss of control of the business. - To provide flexibility in the financial structure. - To keep the financial plan simple and consistent with other objectives. ## Importance of Financial Planning - Integrates the different functional departments. - Helps to eliminate waste and ensures maximum profitability. - Ensures adequate supply of funds. - Reduces uncertainty about the availability of funds. - Attempts to achieve a balance between the inflow and outflow of funds. - Serves as the basis of financial control. - Helps reduce the cost of financing. - Enables the optimum utilization of financial resources. - Enables the communication of the goals of the top management properly. ## Financial Statements - A set of documents that provide information about a company’s financial performance and position. - These statements report on a company's financial position over time. - They include the balance sheet, income statement, and statement of cash flows. ## What are the Functions of Financial Statements? - Provide information to owners and creditors about the firm's current status and past financial performance. - Provide a convenient way for owners and creditors to set performance targets and impose restrictions on managers. - Provide a convenient way for a firm's financial planning. ## Types of Financial Statements - Balance sheet. - Income statement. - Statement of cash flows.