Unit 7: Introduction to Finance
3+ 2 Days
Student Handout and Activities
Additional Activities will be Uploaded into Schoology
7.1 Explain the role of finance in business
7.2 Discuss the role of ethics in finance
7.3 Explain legal considerations for finance
Activity:
As a group or individually write a script for a video that explains the role of finance to new hires. (Just like last time, all that each team needs to write is the script. The video-production team will be responsible for shooting the video.) Make sure that its video answers the following questions:
1. What is the difference between accounting and finance?
2. What are the primary finance activities?
3. How does finance contribute to business operations?
4. What is the relationship between finance and other business functions?
5. What is the difference between capital investment decisions and working capital management?
6. What decisions make up a capital investment decision?
7. How are cash conversion cycles used in managing working capital?
8. How is return on capital used in managing working capital?
Submit its script when complete.
Finance in Business—Discussion Guide
Slide #1 THINK ABOUT IT
Have you ever dreamed of running your own business? You probably have a product and a potential location in mind for your business. But have you considered how you will obtain money to fund your venture, or how you will handle your finances?
KEY CONCEPTS
Slide #2 Finance is the process of obtaining funds and using them to achieve the goals of a business. It includes all issues related to money and money management.
Generally, finance professionals make sure that businesses are using money effectively.
The functions of accounting and finance are interrelated since finance managers depend on the accuracy of accounting information in order to make good financial decisions.
Slide #3 Every part of a company is tied to finance in some way.
Money is needed to buy raw materials to convert them into products, pay for advertising, and maintain and update computer systems just to name a few.
Finance serves many important purposes within a business such as setting and accomplishing future business goals.
Financial managers are responsible for the administration of assets—determining what types of assets the company should own, as well as the proper mix of those assets.
Financing is the process of funding a business venture through the acquisition of funds.
Finance managers are also responsible for making sure that customers pay their bills and for investing company money wisely.
Slide #4 Finance managers do more than manage money; they manage a company’s working capital.
Working capital is the difference between a business’s current assets and current liabilities.
The decision-making that surrounds keeping these short-term assets and liabilities in balance is called working capital management, and it is primarily focused on the management of accounts payable, accounts receivable, inventory, and cash.
A key component of managing working capital is the cash conversion cycle, which refers to the number of days that pass after a company has purchased raw materials, created products, sold them, and received payment.
Another key component of managing working capital is referred to as return on capital.
Slide #5 Capital investment decisions are made for the long term and determine a company’s major projects, how to finance them, and whether or not to pay dividends to the company’s shareholders.
These decisions are referred to as the capital budgeting process and the first step is evaluating a project’s potential ability to produce profit.
Activity:
You may work individually or in a group to develop informational brochures or 30 second commercial that stress the importance of ethical decision-making in finance. Using publishing software, (publisher or LucidPress in Google) design a brochure that details factors that may impair ethical decision-making in finance (e.g., obedience to authority, conformity, groupthink, over-optimism, etc.), as well as methods to prevent and/or respond to ethical dilemmas commonly encountered by finance professionals.
Ethics in Finance—Discussion Guide
Slide #1 THINK ABOUT IT
Finance professionals manage a business’s money. It’s important for them to follow ethical practices because people inside and outside the organization rely on them to do what is right.
KEY CONCEPTS
Slide #2 Finance professionals participate in a lot of important decision-making.
They assist with mergers and acquisitions, analyze and manage the allocation of financial capital, create financial models and projections, find ways to increase profitability, and oversee a company’s investments.
Ethics, the basic principles that guide behavior and help people determine right from wrong, are incredibly important in finance because of the damaging effects that unethical financial practices can have on companies, their employees and customers, and the economy as a whole.
Finance professionals can face a wide range of ethical dilemmas, including:
Slide #3 Finance professionals behave unethically for many reasons, including:
Greed or self-interest Short-term gratification (sacrificing long-term benefits for instant rewards)Obedience to authority (following orders or going along with supervisors’ behavior)Conformity (adjusting behavior to match that of others)Incrementalism (slow diminishment of ethical values over time)Sunk costs (decision-making based on amount of costs already incurred)Loss aversion (trying to avoid losses at all costs)Slide #4 Finance professionals can help ensure workplace behavior remains ethical by:
Recognizing and developing ethical traits
Assessing rationalization
Voicing concerns
In some cases, though, the next step is to raise these concerns with a higher level executive or supervisor, an ethics hotline, or the authorities(if a law is being broken).
Discussion #2: Ask students if they have ever seen unethical behavior happening. Did they voice their concerns? If so, to whom? How did they choose to whom to voice those concerns?
Activity:
Individually or as a group conduct research on the Internet to locate information and articles about laws and regulations affecting finance activities.
Record your findings in a chart containing two columns—“Law/Regulation” on the left, and “Implications” on the right. For each law or piece of regulation (both self-regulation and government regulation), the team should determine how the regulation impacts finance. When finished, the class should discuss similarities and differences among accounting laws/regulations and finance laws/regulations.
Legal Considerations for Finance—Discussion Guide
Slide #1 THINK ABOUT IT
Many millions of people depend on the honesty of finance professionals and the accuracy of their work. The actions of just a few bad actors could throw the entire world into crisis. That’s why laws exist to ensure these important tasks are performed correctly.
KEY CONCEPTS
Slide #2 Over the course of the 20th and early 21st centuries, a number of U.S. laws have been passed in response to instances of mismanagement and fraud in publicly traded companies and financial markets.
Many of these events have had significant and devastating impacts on the national and global economy.
Due to an increasingly interconnected world, financial regulation is one of the few safeguards against the devastating world-wide impact of fraudulent financial practices.
Slide #3 A number of important laws that date back to the Great Depression continue to lay the groundwork for the reporting requirements and regulations that protect investors by mandating the public disclosure of financial information.
The Securities Act of 1933 was passed in response to the stock market crash
of 1929.
The Securities Exchange Act of 1934 (sometimes called the Exchange Act) created the Securities and Exchange Commission (SEC) and granted it with regulatory powers and oversight of the securities industry.
One way to understand the difference in the purpose of these laws is to look at their names.
Slide #4 Almost 70 years later, the Sarbanes-Oxley Act of 2002 was passed to update the regulations established by the Securities Exchange Act of 1934.
This law, also known as the SOX Act, was passed in response to a number of finance scandals involving fraudulent accounting and financial reports from major U.S. companies.
Among many other things, the SOX Act requires corporate executives (such as the CEO or CFO) to review all of the financial statements and reports that their company produces and holds them accountable for establishing internal controls for their companies.
The SOX Act also establishes guidelines for storing financial records and strict punishments for falsifying or destroying them.
It also adds protections for whistleblowers who report fraud or testify against their employers in fraud cases.
Discussion #1: Ask students if it is fair to require executives to be responsible for the work of their accountants. Why or why not?
Slide #5 In addition to regulations on financial reporting, Securities and Exchange Acts protect investors in the event of the purchase or transfer of securities. A major aspect of these regulations cover mergers and acquisitions.
Mergers and acquisitions (M&A) refers to a group of transactions involving the combination of companies or company assets.
For example, the Securities Exchange Act of 1934 establishes that anyone attempting to purchase more than 5% of a company’s securities must disclose all relevant information so that shareholders can make informed decisions about how such an event could affect their investment.
Slide #6 Occasionally, laws are passed to loosen finance regulations as well.
In response to decreased numbers of small businesses after the 2008 financial crisis, the Jumpstart Our Business Startups (JOBS) Act was passed in 2012.
For more information on the JOBS Act, click here: https://www.investopedia.com/terms/j/jumpstart-our-business-startups-act-jobs.asp.
Discussion #2: In the article above, there is a distinction between donation-based crowdfunding and investment-based crowdfunding. Ask students to discuss the difference between getting a discount on an item from donation crowdfunding and receiving dividends from investment crowdfunding. Why would the JOBS Act only discuss one kind of crowdfunding?