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Finance for IT Decision Makers - A practical handbook

Book Description

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.

Table of Contents

  1. FRONT COVER
  2. HALF TITLE PAGE
  3. BCS, THE CHARTERED INSTITUTE FOR IT
  4. TITLE PAGE
  5. COPYRIGHT PAGE
  6. CONTENTS
  7. FIGURES AND TABLES
  8. AUTHORS
  9. FOREWORD
  10. ACKNOWLEDGEMENTS
  11. ABBREVIATIONS
  12. PREFACE
  13. 1 FINANCE AND ACCOUNTS: THE BASICS
    1. Objectives
    2. The purpose of business
    3. Companies or corporations
    4. How a business works
    5. Example 1.1 Part 1: How transactions affect the statement of financial position
    6. Example 1.1 Part 2: Typical adjustments
    7. Example 1.1 Part 3: The income statement
    8. Example 1.1 Part 4: The statement of cash flows
    9. Relating cash flow to profit
    10. Published accounts
    11. Planning and management accounting
    12. Cash flow forecasting
    13. Non-business organisations
    14. Summary
  14. 2 DECISIONS, DECISIONS…
    1. Objectives
    2. What is cash flow?
    3. A financial case
    4. What is discounted cash flow?
    5. The cost of money
    6. Present value
    7. Net present value (NPV)
    8. Interpreting present values
    9. Opportunity cost
    10. ‘Financial cash flows’
    11. Inflation
    12. Summary
  15. 3 FINANCIAL CASES AND BUSINESS CASES
    1. Objectives
    2. Cost cases
    3. Financial cases
    4. Business cases
    5. What is a benefit?
    6. Cash flow and profit
    7. A basis for investment decision-making
    8. Summary
  16. 4 WHEN IS A BENEFIT NOT A BENEFIT?
    1. Objectives
    2. How to build an IT financial case
    3. Example 4.1: Description
    4. Example 4.1: Solution
    5. Example 4.1: Explanations
    6. What cash flows are relevant?
    7. Is it a worthwhile investment?
    8. Summary
  17. 5 HOW FINANCIAL CASES ARE EVALUATED: PART 1
    1. Objectives
    2. Present value revisited
    3. The cost of capital
    4. Weighted average cost of capital (WACC)
    5. Applying present values
    6. The NPV decision rule
    7. Profitability index
    8. Internal rate of return (IRR)
    9. The IRR decision rule
    10. NPV, IRR and risk
    11. Summary
  18. 6 HOW FINANCIAL CASES ARE EVALUATED: PART 2
    1. Objectives
    2. Payback
    3. Payback and risk
    4. Discounted payback
    5. Return on investment (ROI)
    6. ROI and risk
    7. Shareholder value added (SVA)
    8. Example 6.1: SVA
    9. The methods compared
    10. Summary
  19. 7 THE EFFECTS OF TAXATION
    1. Objectives
    2. Business tax
    3. ‘Depreciation allowances’
    4. How does tax affect an IT financial case?
    5. After-tax evaluation of an investment
    6. The results compared
    7. Taxation and leasing
    8. Summary
  20. 8 DEPRECIATION OF IT ASSETS
    1. Objectives
    2. Depreciation of IT assets
    3. Straight-line depreciation
    4. Reducing balance depreciation
    5. Loss on disposal
    6. Frequency of depreciation charge
    7. Depreciation of upgradable assets
    8. Summary
  21. 9 IT FINANCING AND LEASING
    1. Objectives
    2. Introduction
    3. What is a lease?
    4. Lease definitions
    5. Finance leases
    6. How are finance leases accounted for?
    7. Sale and lease-back
    8. Leasing and financial cases
    9. Operating leases
    10. Residual value (RV)
    11. How are operating leases accounted for?
    12. Risk and reward
    13. Variations on the leasing theme
    14. Exchange leases
    15. Rental
    16. International financing
    17. ‘Small ticket’ leasing
    18. The leasing contract
    19. The future
    20. Summary
  22. 10 OUTSOURCING: FINANCIAL ASPECTS
    1. Objectives
    2. What is outsourcing?
    3. Outsourcing in personal life
    4. Outsourcing in business
    5. Financial characteristics of outsourcing
    6. Risk and service levels
    7. Financial evaluation methods
    8. Service enhancements
    9. Inflation
    10. How to build an outsourcing financial case
    11. A worked example
    12. Example 10.1: Description
    13. Step by step to the solution
    14. The tables
    15. Example 10.1: Explanations
    16. Example 10.1: Summary
    17. Outsourcing decision criteria
    18. Managing the process
    19. Summary
  23. 11 BUDGETING, COSTING AND PRICING: THE BASICS
    1. Objectives
    2. Budgeting
    3. Departmentalised businesses
    4. Cost centres and profit centres
    5. Charge-out
    6. Responsibility accounting
    7. The importance of operating profit
    8. Capital expenditure
    9. Revenue expenditure or ‘expense’
    10. Budgets and leasing
    11. Costing and pricing
    12. Variable costs
    13. Fixed costs
    14. Contribution
    15. Price/volume calculations
    16. Costing in manufacturing
    17. Art versus science
    18. Summary
  24. 12 FINANCIAL ANALYSIS: THE BASICS
    1. Objectives
    2. Financial analysis
    3. Example 12.1: A sample company
    4. Profitability ratios
    5. Activity (or capital productivity) ratios
    6. Liquidity (or cash management) ratios
    7. Gearing or leverage ratios
    8. Stock market ratios
    9. Other ratios
    10. Shareholder value added
    11. Summary
  25. APPENDICES
    1. A1 DISCOUNT TABLES
      1. The present value of a lump sum
      2. The present value of an annuity
      3. Annual equivalent annuity
    2. A2 FINANCIAL CHARACTERISTICS OF DIFFERENT BUSINESSES
      1. Manufacturing businesses
      2. Buying and selling businesses
      3. Service businesses
    3. A3 PUBLISHED ACCOUNTS
    4. A4 ACCOUNTING FOR LONG-TERM CONTRACTS
    5. A5 DEBIT AND CREDIT
  26. GLOSSARY
  27. FURTHER READING
  28. BACK COVER