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Book Details
Abstract
Finance is as fundamental to the IT world as it is to most other aspects of life. However, many IT professionals lack knowledge of the particular financial principles on which decisions about IT should be based. Assuming no prior knowledge, this new edition covers all relevant aspects of finance and is updated with International Financial Reporting Standards (IFRS) terminology. It is ideal for all IT decision makers who wish to conquer their fear of finance or refresh existing knowledge.
Michael Blackstaff is a chartered accountant with over thirty years' finance and marketing experience in the IT industry. He has worked as a financial marketing specialist with IBM, teaching salespeople the finance of selling and advising customers on finance and accounting for IT. He writes and teaches on finance for non-financial professionals.
This is a practical, readable and enjoyable guide to the financial factors that IT decision makers should consider when making an investment and how these relate to business operations.
Geoff Berridge
Finance is as fundamental to the IT world as it is to most other aspects of life. However, many IT professionals lack knowledge of the particular financial principles on which decisions about IT should be based - decisions that often have serious financial implications for their organisations. Assuming no prior knowledge, this new edition covers all aspects of finance relevant to IT professionals and is updated with International Financial Reporting Standards (IFRS) terminology. It is ideal for IT decision makers - managers, practitioners, buyers, sellers, consultants and project managers - who wish to conquer their fear of finance or refresh existing knowledge.
It is written in plain language and contains many practical examples.
Kybernetes
Table of Contents
Section Title | Page | Action | Price |
---|---|---|---|
Cover | Cover | ||
Copyright | iv | ||
CONTENTS | v | ||
FIGURES AND TABLES | x | ||
AUTHORS | xiii | ||
FOREWORD | xiv | ||
ACKNOWLEDGEMENTS | xv | ||
ABBREVIATIONS | xvi | ||
PREFACE | xvii | ||
1 FINANCE AND ACCOUNTS: THE BASICS | 1 | ||
OBJECTIVES | 1 | ||
THE PURPOSE OF BUSINESS | 2 | ||
COMPANIES OR CORPORATIONS | 2 | ||
HOW A BUSINESS WORKS | 4 | ||
EXAMPLE 1.1 PART 1: HOW TRANSACTIONS AFFECT THE STATEMENT OF FINANCIAL POSITION | 7 | ||
EXAMPLE 1.1 PART 2: TYPICAL ADJUSTMENTS | 12 | ||
EXAMPLE 1.1 PART 3: THE INCOME STATEMENT | 15 | ||
EXAMPLE 1.1 PART 4: THE STATEMENT OF CASH FLOWS | 17 | ||
RELATING CASH FLOW TO PROFIT | 18 | ||
PUBLISHED ACCOUNTS | 19 | ||
PLANNING AND MANAGEMENT ACCOUNTING | 22 | ||
CASH FLOW FORECASTING | 22 | ||
NON-BUSINESS ORGANISATIONS | 23 | ||
SUMMARY | 24 | ||
2 DECISIONS, DECISIONS… | 25 | ||
OBJECTIVES | 25 | ||
WHAT IS CASH FLOW? | 25 | ||
A FINANCIAL CASE | 25 | ||
WHAT IS DISCOUNTED CASH FLOW? | 30 | ||
THE COST OF MONEY | 31 | ||
PRESENT VALUE | 32 | ||
NET PRESENT VALUE (NPV) | 35 | ||
INTERPRETING PRESENT VALUES | 37 | ||
OPPORTUNITY COST | 37 | ||
‘FINANCIAL CASH FLOWS’ | 38 | ||
INFLATION | 38 | ||
SUMMARY | 41 | ||
3 FINANCIAL CASES AND BUSINESS CASES | 42 | ||
OBJECTIVES | 42 | ||
COST CASES | 42 | ||
FINANCIAL CASES | 43 | ||
BUSINESS CASES | 44 | ||
WHAT IS A BENEFIT? | 45 | ||
CASH FLOW AND PROFIT | 46 | ||
A BASIS FOR INVESTMENT DECISION-MAKING | 50 | ||
SUMMARY | 51 | ||
4 WHEN IS A BENEFIT NOT A BENEFIT? | 52 | ||
OBJECTIVES | 52 | ||
HOW TO BUILD AN IT FINANCIAL CASE | 52 | ||
EXAMPLE 4.1: DESCRIPTION | 53 | ||
EXAMPLE 4.1: SOLUTION | 57 | ||
EXAMPLE 4.1: EXPLANATIONS | 57 | ||
WHAT CASH FLOWS ARE RELEVANT? | 67 | ||
IS IT A WORTHWHILE INVESTMENT? | 70 | ||
SUMMARY | 70 | ||
5 HOW FINANCIAL CASES ARE EVALUATED: PART 1 | 71 | ||
OBJECTIVES | 71 | ||
PRESENT VALUE REVISITED | 71 | ||
THE COST OF CAPITAL | 72 | ||
WEIGHTED AVERAGE COST OF CAPITAL (WACC) | 73 | ||
APPLYING PRESENT VALUES | 74 | ||
THE NPV DECISION RULE | 77 | ||
PROFITABILITY INDEX | 77 | ||
INTERNAL RATE OF RETURN (IRR) | 78 | ||
THE IRR DECISION RULE | 82 | ||
NPV, IRR AND RISK | 83 | ||
SUMMARY | 87 | ||
6 HOW FINANCIAL CASES ARE EVALUATED: PART 2 | 88 | ||
OBJECTIVES | 88 | ||
PAYBACK | 88 | ||
PAYBACK AND RISK | 90 | ||
DISCOUNTED PAYBACK | 92 | ||
RETURN ON INVESTMENT (ROI) | 94 | ||
ROI AND RISK | 99 | ||
SHAREHOLDER VALUE ADDED (SVA) | 101 | ||
EXAMPLE 6.1: SVA | 102 | ||
THE METHODS COMPARED | 105 | ||
SUMMARY | 107 | ||
7 THE EFFECTS OF TAXATION | 108 | ||
OBJECTIVES | 108 | ||
BUSINESS TAX | 108 | ||
‘DEPRECIATION ALLOWANCES’ | 110 | ||
HOW DOES TAX AFFECT AN IT FINANCIAL CASE? | 113 | ||
AFTER-TAX EVALUATION OF AN INVESTMENT | 116 | ||
THE RESULTS COMPARED | 118 | ||
TAXATION AND LEASING | 119 | ||
SUMMARY | 121 | ||
8 DEPRECIATION OF IT ASSETS | 122 | ||
OBJECTIVES | 122 | ||
DEPRECIATION OF IT ASSETS | 122 | ||
STRAIGHT-LINE DEPRECIATION | 123 | ||
REDUCING BALANCE DEPRECIATION | 123 | ||
LOSS ON DISPOSAL | 123 | ||
FREQUENCY OF DEPRECIATION CHARGE | 124 | ||
DEPRECIATION OF UPGRADABLE ASSETS | 125 | ||
SUMMARY | 126 | ||
9 IT FINANCING AND LEASING | 127 | ||
OBJECTIVES | 127 | ||
INTRODUCTION | 127 | ||
WHAT IS A LEASE? | 128 | ||
LEASE DEFINITIONS | 130 | ||
FINANCE LEASES | 131 | ||
HOW ARE FINANCE LEASES ACCOUNTED FOR? | 132 | ||
SALE AND LEASE-BACK | 133 | ||
LEASING AND FINANCIAL CASES | 134 | ||
OPERATING LEASES | 136 | ||
RESIDUAL VALUE (RV) | 136 | ||
HOW ARE OPERATING LEASES ACCOUNTED FOR? | 140 | ||
RISK AND REWARD | 141 | ||
VARIATIONS ON THE LEASING THEME | 143 | ||
EXCHANGE LEASES | 144 | ||
RENTAL | 144 | ||
INTERNATIONAL FINANCING | 145 | ||
‘SMALL TICKET’ LEASING | 146 | ||
THE LEASING CONTRACT | 146 | ||
THE FUTURE | 147 | ||
SUMMARY | 147 | ||
10 OUTSOURCING: FINANCIAL ASPECTS | 148 | ||
OBJECTIVES | 148 | ||
WHAT IS OUTSOURCING? | 148 | ||
OUTSOURCING IN PERSONAL LIFE | 150 | ||
OUTSOURCING IN BUSINESS | 151 | ||
FINANCIAL CHARACTERISTICS OF OUTSOURCING | 152 | ||
RISK AND SERVICE LEVELS | 152 | ||
FINANCIAL EVALUATION METHODS | 153 | ||
SERVICE ENHANCEMENTS | 154 | ||
INFLATION | 155 | ||
HOW TO BUILD AN OUTSOURCING FINANCIAL CASE | 156 | ||
A WORKED EXAMPLE | 157 | ||
EXAMPLE 10.1: DESCRIPTION | 157 | ||
STEP BY STEP TO THE SOLUTION | 162 | ||
THE TABLES | 162 | ||
EXAMPLE 10.1: EXPLANATIONS | 164 | ||
EXAMPLE 10.1: SUMMARY | 184 | ||
OUTSOURCING DECISION CRITERIA | 185 | ||
MANAGING THE PROCESS | 186 | ||
SUMMARY | 186 | ||
11 BUDGETING, COSTING AND PRICING: THE BASICS | 188 | ||
OBJECTIVES | 188 | ||
BUDGETING | 188 | ||
DEPARTMENTALISED BUSINESSES | 189 | ||
COST CENTRES AND PROFIT CENTRES | 190 | ||
CHARGE-OUT | 190 | ||
RESPONSIBILITY ACCOUNTING | 191 | ||
THE IMPORTANCE OF OPERATING PROFIT | 191 | ||
CAPITAL EXPENDITURE | 192 | ||
REVENUE EXPENDITURE OR ‘EXPENSE’ | 193 | ||
BUDGETS AND LEASING | 194 | ||
COSTING AND PRICING | 196 | ||
VARIABLE COSTS | 197 | ||
FIXED COSTS | 198 | ||
CONTRIBUTION | 199 | ||
PRICE/VOLUME CALCULATIONS | 201 | ||
COSTING IN MANUFACTURING | 203 | ||
ART VERSUS SCIENCE | 206 | ||
SUMMARY | 207 | ||
12 FINANCIAL ANALYSIS: THE BASICS | 208 | ||
OBJECTIVES | 208 | ||
FINANCIAL ANALYSIS | 208 | ||
EXAMPLE 12.1: A SAMPLE COMPANY | 210 | ||
PROFITABILITY RATIOS | 214 | ||
ACTIVITY (OR CAPITAL PRODUCTIVITY) RATIOS | 216 | ||
LIQUIDITY (OR CASH MANAGEMENT) RATIOS | 220 | ||
GEARING OR LEVERAGE RATIOS | 221 | ||
STOCK MARKET RATIOS | 222 | ||
OTHER RATIOS | 223 | ||
SHAREHOLDER VALUE ADDED | 223 | ||
SUMMARY | 225 | ||
APPENDICES | 227 | ||
A1 DISCOUNT TABLES | 229 | ||
THE PRESENT VALUE OF A LUMP SUM | 229 | ||
THE PRESENT VALUE OF AN ANNUITY | 229 | ||
ANNUAL EQUIVALENT ANNUITY | 232 | ||
A2 FINANCIAL CHARACTERISTICS OF DIFFERENT BUSINESSES | 234 | ||
MANUFACTURING BUSINESSES | 234 | ||
BUYING AND SELLING BUSINESSES | 234 | ||
SERVICE BUSINESSES | 235 | ||
A3 PUBLISHED ACCOUNTS | 236 | ||
A4 ACCOUNTING FOR LONG-TERM CONTRACTS | 242 | ||
A5 DEBIT AND CREDIT | 243 | ||
GLOSSARY | 245 | ||
FURTHER READING | 255 | ||
INDEX | 256 | ||
Back Cover | 259 |