Writea 175- to 350-word summary on key concepts of the attached document

What is finance Jim, you're on the board of directors of a publicly traded company. - That's correct. - My understanding is that members of a board meet together about once a month or two, maybe once a quarter, to talk about broad strategic issues. - That is also correct. What kind of broad strategic issues do you talk about? - We talk about inventory. We're a consumer products company and our inventory can lose value rapidly as consumer tastes change. - You talk about inventory management. That's interesting. What else? - We talk about acquisitions. We frequently expand by buying other companies. - That's interesting. You strategically evaluate what new resources, what new products, what new markets to add to your existing mix. What else? Do you ever talk about getting loans? - That's a good questions. We don't talk about getting loans very often because we have a line of credit with the bank. - Line of credit? - Yes, a pre-approved loan for a certain amount. We use this line of credit when we need to borrow money. - What other issues do you talk about? Do you ever talk about issuing shares of stock? - No, as a matter of fact, we spend a fair amount of time talking about buying back outstanding shares. - Now that's an interesting financing choice. Are there any other big issues that you talk about? - Yes. We're not a super big company, so we're interested in knowing who out there in the stock market is buying shares of company from existing shareholders. In other words, who are our shareholders, who are our partners? - Who is buying shares in your company? - That interesting. We find that the primary investors in our company are large institutions, pension funds, insurance companies, mutual funds. - To summarize, your board talks about inventory management, strategic acquisitions, borrowing policy, share buybacks, and the large institutions that own shares in your company. In short, what you do is talk about finance. - That's right. Now, let's systematically discuss the key question. What is finance? Understanding Financial Statement - Let's talk a little about financial statements. These reports provide the raw data people use in making financial decisions. - The first primary financial statement is the balance sheet. A balance sheet is a listing of a company's valuable resources, it's assets. - A balance sheet also shows the three general sources that companies use to get money to buy assets. First, they borrow it. Second, the owners can take money from their private savings and invest it in the business. And third, the company can generate profits that are then kept in the business to buy more assets. - The second primary financial statement is the income statement. An income statement is a report telling how much money a company made during the month, or the quarter or the year. Whatever period is covered by the income statement. - It seems like people are always talking about company's net income. - Yeah, you often hear in the business news about a company's net income. - The third primary financial statement is the statement of cash flows. - Now, let me give you a lesson in accounting terminology. When in doubt, say it slowly. So what is a statement of cash flows? It's a statement of a company's cash flows. - So it's just a report of cash in, cash out? - That's it. So the three primary financial statements are the balance sheet, the income statement, and the statement of cash flows. - Perfect. - Which is your favorite one? - Oh, that's a tough question. Let's review them all, and then you decide. Short term financial Statement - Nike makes athletic shoes and other sportswear. Nike manufactures these items and then sells them to retail outlets, typically on credit. Now I know that you are expert in these matters. So, roughly speaking, how many days elapse from the time that Nike buys the raw materials until the time that Nike sells these finished goods and sportswear? - That's about 80 days, we call that the number of days sales and inventory. - OK, so how long until Nike actually collects the cash from these retail outlets? - On average that's about 50 days, we call that the average collection period. If you take those two numbers together, 80 days from the purchase of raw materials to the sales of the finished goods and 50 days from the sale to the cash collection you get 130 days, which is the length of Nike's operating cycle. - Operating cycle? - Yeah, the time from the purchase of the raw materials to the collection of the cash from the sale of the finished goods. For Nike, 130 days. - So 130 days, all right. Now, I assume that Nike purchases the raw materials on standard credit terms from its suppliers? So how long can Nike wait until it pays for those raw materials? - On average, Nike pays in about 40 days. - Now wait, so Nike buys the raw materials on credit and then pays for those raw materials after 40 days. But Nike doesn't collect the cash from selling the finished shoes and sportswear until a total of 130 days have elapsed? - That's exactly right. That's why companies such as Nike must carefully manage purchases, sales and cash collections in order to balance out this mismatch between the timing of cash payments and the cash collections. - So that's Nike. What about McDonalds? - Ah, I love the cash flow patterns at McDonalds. From the time that McDonalds buys raw materials, that's food and packaging, until McDonalds sells the finished product, the food wrapped in the packaging, that's about seven days. Cash collection takes about two seconds, because even when the customer uses a credit or a debit card McDonalds gets its electronic cash almost instantly. So the length of McDonalds operating cycle is seven days plus two seconds. Seven days from the purchase of the raw material until the sale and then two more seconds to collect the cash. - That is rapid asset management! Let's talk about short term financial management