Lesson 1 - Intro to SC Finance Management Flashcards
(20 cards)
What is the primary focus of supply chain finance (SCF)?
SCF focuses on the application of financial principles and tools to support decision-making across the supply chain, optimizing the flow of cash, capital, and risk.
Why is it important to integrate finance into supply chain management (SCM)?
Finance is the language of business. Integrating it into SCM improves understanding among decision-makers and helps align supply chain decisions with financial goals like profitability, ROI, and risk management.
What does a balance sheet show?
It provides a snapshot of a company’s financial position at a specific point in time: assets, liabilities, and shareholder equity.
Formula: Assets = Liabilities + Shareholder Equity
What is the difference between finance and supply chain management?
Finance deals with the allocation of assets and liabilities over time, often under uncertainty. SCM manages the two-way flow of goods, services, information, and finances across the value chain.
What are the three main types of financial statements?
Balance Sheet (financial position), 2. Income Statement (financial performance), 3. Cash Flow Statement (cash inflows and outflows).
What distinguishes current from non-current assets and liabilities?
Current assets convert to cash within 1 year; non-current assets have a longer lifespan (e.g. equipment, property).
How is net income calculated on an income statement?
Net income = Revenue – Expenses. This can also include operating and non-operating income after tax adjustments.
What are the three components of a cash flow statement?
- Operating activities (day-to-day cash), 2. Investing activities (assets & investments), 3. Financing activities (loans, dividends, equity).
What does ROI (Return on Investment) measure, and how is it calculated?
ROI measures profitability of an investment.
ROI = (Gain from Investment – Cost of Investment) / Cost of Investment
What does the income statement measure?
A company’s financial performance over a period—revenues, expenses, and net income.
What is the difference between single-step and multi-step income statements?
Single-step subtracts total expenses from revenues; multi-step breaks down operating and non-operating items.
How is retained earnings calculated?
Retained Earnings = (Beginning Retained Earnings + Net Income) - Dividends.
What are examples of current liabilities?
Accounts payable, short-term debt, taxes due within a year.
What does ROIC (Return on Invested Capital) tell us?
How efficiently a company uses its capital to generate profits.
ROIC = (Net Income – Dividends) / (Debt + Equity)
What does ROA (Return on Assets) measure?
Profitability relative to total assets. It reflects how well assets are used to generate earnings.
ROA = Net Income / Average total Assets
How can effective inventory management improve ROA?
It reduces asset base (inventory), improving the return generated per unit of asset.
Why don’t traditional accounting tools serve SCM well?
They often fail to capture dynamic, decentralized transaction costs and don’t reflect real supply chain decision variables (e.g. TCO - total cost of ownership).
What financial shortfalls exist in current SCM practices?
Poor measurement of transaction costs
Ignored supplier switching costs
Overhead-buried SCM transactions
Misalignment in working capital understanding
How can supply chain professionals benefit from financial literacy?
They can analyze performance, support investment cases, communicate with stakeholders, and evaluate supplier risk better using tools like ROI, ROA, and financial statements.
Why is inventory management linked to financial performance?
Better inventory control reduces holding costs and asset base, improving ROA and increasing working capital efficiency.
