Asphalt Pro - March / April 2020

Page 66

off the mat

Financial Terms for the Plant Manager Financial terms aren’t sexy, but knowing the basic ones makes your job as a plant manager easier. In today’s world, business is driven by financial language. As much as you might like to limit your talk to plant performance, repair needs or weather, at some point, you’ll need to talk in financial terms. No matter your background or educational level, every plant manager needs a basic understanding of financial terms in order to discuss local plant concerns. When reading reports or participating in meetings, as the manager, you must be able to understand what is being conveyed. Is your plant in line with other sites? Are you controlling costs the best that you can? Whether or not you are directly involved in the negotiations of various cost factors relating to your plant, you need to understand the effects of the costs. Let’s use this space to review some terms that may come up in your day-to-day decision-making. In the following descriptions of financial terms, we’re focusing on the needs of the local plant manager, starting with a definition of management.

F

Management: Combined fields of policy and administration and the people who provide the decisions and supervision necessary to implement the owner’s objectives and achieve stability and growth Amortized expenses: The costs for assets such as buildings and computers, which are expensed over time to reflect their usable life Assets: Anything owned by the company having a monetary value; i.e., fixed assets like buildings, plants, machinery, and vehicles (As a plant manager, your focus is to manage local site assets. You keep the assets in good working condition, evaluate the plant for improvements and ensure all assets are in safe working order.) Break-even point: The point when a business’s revenue equals its expenditure (In most cases, the plant manager will participate in the break-even point by providing data in the budget process. It’s important to have a sense of the break-even point in order to make your day-to-day decisions.) Budget forecast: The amount of money the company plans to spend over the course of a period, usually a year Budget variance: The difference between a budget forecast and actual expenditures Capital investment: The term capital investment has two usages in business First, capital investment refers to money used by a business to purchase fixed assets such as land, machinery or buildings.

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Second, capital investment refers to money invested in a business with the understanding that the money will be used to purchase fixed assets, rather than used to cover the business’s day-today operating expenses. Cost: An amount that has to be paid or given up in order to get something. In business, cost is usually a monetary valuation of (1) effort, (2) material, (3) resources, (4) time and utilities consumed. One of the greatest champions of the practice of controlling costs was Andrew Carnegie, who is quoted as saying, “Watch the costs and the profits will take care of themselves.” Direct vs. indirect costs: Costs that are directly associated to the manufacture of a product. • Indirect costs cannot be directly tied to a particular product. • Direct materials cost is the cost of the materials that are traceable to the product. Direct labor: Represents the wages and fringe benefits earned by the individuals who are physically involved in converting raw materials into a finished product • Straight time: scheduled shift of time normally eight hours, paid at the straight time-rate • Overtime: request for additional time in addition to the straight time, paid at a higher rate than the straight time Depreciation: The method used to systematically move the cost of an asset from the balance sheet to the income statement over the course of the asset’s useful life Fixed assets: Assets that are difficult to convert to cash, such as buildings and equipment • Inventory is an asset, and is found on the balance sheet under current sssets, as it is usually assumed that these parts will be turned into products and sold reasonably soon. Financial reports: Reports issued by a company that describe the financial activities of the company • The financial statements are broken down into three different statements: • The income statement shows the income and expenditure of the company, including things such as depreciation, income tax, interest income, etc. These expenditures are then compared to revenue to determine gross profit. • The balance sheet statement is used to value a company and to show what it owns or owes. The balance sheet lists all assets, liabilities and shareholders’ equity attributed to the company. It is always a snapshot of one point in time. The balance sheet statement must always be in balance.


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