THE BASICS OF FINANCIAL
MANAGEMENT
4th edition Wim
Koetzier MSc and Rien Brouwers MSc
Chapters 1 to 9
,Table of Contents
Chapter 1...................................................................................................................................................................2
Chapter 2.................................................................................................................................................................11
Chapter 3.................................................................................................................................................................14
Chapter 4.................................................................................................................................................................17
Chapter 5.................................................................................................................................................................19
Chapter 6.................................................................................................................................................................22
Chapter 7.................................................................................................................................................................26
Chapter 8.................................................................................................................................................................30
Chapter 9.................................................................................................................................................................36
1
,CHAPTER 1
Production organizations/ businesses: Manufacture products and services and sell
these to consumers at a certain price.
The economy: Deals with questions connected to ways in which people strive to
optimize their ‘prosperity’: how can the supply of products and services be optimized
using minimum resources.
Economics: Science that studies human behaviour with respect to the striving wealth,
being the optimal provision of goods and services.
The relationship between consumers and business and the mutual interactions
between business.
Types of economics:
- Microeconomics
- Macroeconomics
- Business economics
Microeconomics: Studies the theory behind markets: How does the price mechanism
work in a particular market.
Macroeconomics: Studies economic problems that affect society as a whole, such as
inflation and unemployment.
Business economics: Discipline in economics that studies economic behaviour in
companies.
Two markets a production organization operates between:
- The supplier market
Where resources are obtained.
- The retail market
Where manufactured goods or services are sold
Production: The creation of goods and services to provide human needs.
Capital: The production factor consisting of raw material and fixed assets of a
company.
Value creation: The sales of the produced goods and services need to outweigh the
price paid for the production factors at the suppliers market.
Profit depends on:
- Efficiency
- Effectiveness
2
, Efficiency: Expedience of a production process to produce a certain amount at
minimal cost.
Effectiveness: Focus of the production process on the production of goods and
services that will be in demand by customers.
Profit: Difference between sales revenue or turnover (measure of effectiveness) and
costs (measure of efficiency).
Continuity is an important concern for a company, profit is necessary to assure
continuity.
Mission statement: Where companies outline their targets without addressing their
drive for profit as a prominent factor, instead focusing on environmental issues, job
satisfaction for employees.
Different non-profit organizations:
- Public sector
- Private non-profit business
Public sector: Comprises that state, provinces, municipalities and regional water
authorities. The government provides public good and services. These facilities do
not have market mechanism, but do apply budget mechanism.
Examples of public goods and services:
- Roads
- Protection against sea
- General protection
Market mechanism: Consumers purchase.
Budget mechanism: The government imposes compulsory contributions (tax) and
provides a budget to finance the production of public goods.
Private non-profit business: Comprise a wide variety of organizations from amateur
sports clubs to charitable organizations. Known as a fund-raising institution as it
attempts to raise funds to achieve a worthy social objective.
Organizations in the non-profit sector differ from companies in the following aspects:
- The target set by non-profit organizations is to provide certain (socially
important) facilities. The activities they perform are connected to their social
objectives.
- Non-profit organizations cannot exist by conducting business transactions and
are not economically independent. They depend on ‘gifts’ such as
contributions, subsidies, inheritance.
- The assessment of the effectiveness of non-profit enterprises is much more
difficult than that of a company. Their effectiveness cannot be measured
3
MANAGEMENT
4th edition Wim
Koetzier MSc and Rien Brouwers MSc
Chapters 1 to 9
,Table of Contents
Chapter 1...................................................................................................................................................................2
Chapter 2.................................................................................................................................................................11
Chapter 3.................................................................................................................................................................14
Chapter 4.................................................................................................................................................................17
Chapter 5.................................................................................................................................................................19
Chapter 6.................................................................................................................................................................22
Chapter 7.................................................................................................................................................................26
Chapter 8.................................................................................................................................................................30
Chapter 9.................................................................................................................................................................36
1
,CHAPTER 1
Production organizations/ businesses: Manufacture products and services and sell
these to consumers at a certain price.
The economy: Deals with questions connected to ways in which people strive to
optimize their ‘prosperity’: how can the supply of products and services be optimized
using minimum resources.
Economics: Science that studies human behaviour with respect to the striving wealth,
being the optimal provision of goods and services.
The relationship between consumers and business and the mutual interactions
between business.
Types of economics:
- Microeconomics
- Macroeconomics
- Business economics
Microeconomics: Studies the theory behind markets: How does the price mechanism
work in a particular market.
Macroeconomics: Studies economic problems that affect society as a whole, such as
inflation and unemployment.
Business economics: Discipline in economics that studies economic behaviour in
companies.
Two markets a production organization operates between:
- The supplier market
Where resources are obtained.
- The retail market
Where manufactured goods or services are sold
Production: The creation of goods and services to provide human needs.
Capital: The production factor consisting of raw material and fixed assets of a
company.
Value creation: The sales of the produced goods and services need to outweigh the
price paid for the production factors at the suppliers market.
Profit depends on:
- Efficiency
- Effectiveness
2
, Efficiency: Expedience of a production process to produce a certain amount at
minimal cost.
Effectiveness: Focus of the production process on the production of goods and
services that will be in demand by customers.
Profit: Difference between sales revenue or turnover (measure of effectiveness) and
costs (measure of efficiency).
Continuity is an important concern for a company, profit is necessary to assure
continuity.
Mission statement: Where companies outline their targets without addressing their
drive for profit as a prominent factor, instead focusing on environmental issues, job
satisfaction for employees.
Different non-profit organizations:
- Public sector
- Private non-profit business
Public sector: Comprises that state, provinces, municipalities and regional water
authorities. The government provides public good and services. These facilities do
not have market mechanism, but do apply budget mechanism.
Examples of public goods and services:
- Roads
- Protection against sea
- General protection
Market mechanism: Consumers purchase.
Budget mechanism: The government imposes compulsory contributions (tax) and
provides a budget to finance the production of public goods.
Private non-profit business: Comprise a wide variety of organizations from amateur
sports clubs to charitable organizations. Known as a fund-raising institution as it
attempts to raise funds to achieve a worthy social objective.
Organizations in the non-profit sector differ from companies in the following aspects:
- The target set by non-profit organizations is to provide certain (socially
important) facilities. The activities they perform are connected to their social
objectives.
- Non-profit organizations cannot exist by conducting business transactions and
are not economically independent. They depend on ‘gifts’ such as
contributions, subsidies, inheritance.
- The assessment of the effectiveness of non-profit enterprises is much more
difficult than that of a company. Their effectiveness cannot be measured
3
