Intro. to Business Chapter 15

Cash Flow from Investing

represents cash involved in the purchase or sale of investments or income-producing assets (example: buildings and equipment)

Cash Flow from Financing

shows cash exchanged between a company and its owners (shareholders) and creditors, including dividends and debt service

Income Statement

shows how much revenue the company generated in the period and how much money it spent

Assets

are the things a company owns, including cash, investments, buildings, furniture, and equipment. cash accounts receivables inventory investments equipment goodwill

Fundamental Accounting Equation

Assets = Liabilities + Owner's Equity

Short-term financing

any type of financing repaid within a year or less. It is used to finance day-to-day operations, such as payroll, inventory purchases, and overhead (utilities, rent, leases) made for small businesses

Liabilities

are all debts and obligations owed by a business to outside creditors, suppliers, or other vendors. accounts payable wages payable taxes bonds debt

Financial Statements

are formal reports of a business's financial condition that accountants prepare periodically represent what has happened in the past and provide company's managers with a perspective of what might happen in the future

3 Types Financial Statements

balance sheet income statement statement of cash flow

Components of a Statement of Cash Flows

cash flow from operations cash flow from investing cash flow from financing

Types of Accounting

corporate accounting auditing tax accounting government and not-for-profit accounting

Ratio Analysis (Current Ratio)

current ratio = current assets / current liabilities

Ratio Analysis (Debt-to-equity ratio)

debt-to-equity ratio = total liabilities / owners' equity

Operating Profit Margin

determines a company's profitability of operations OM = gross profit - operating expense / revenue

Gross Profit Margin

determines the company's profitability of production gpm = revenue - cost of goods sold / revenue

Financial Management Responsibilities

developing plans that outline a company's financial short and long-term needs defining the sources and uses of funds needed to reach goals monitoring the cash flow of a company to ensure obligations are paid in a timely and efficient manner and funds owed to the company are collected efficiently investing any excess funds so those funds can grow and be used for future developments raising capital for future growth and expansion evaluating financial outcomes and expectations and generating financial reports

Corporate Accounting

includes managerial and financial accounting the part of an organization's finance department responsible for gathering and assembling data required for key financial statements determine whether a company's financial assets are working efficiently evaluate what kind of strategy is best choosing a way to obtain needed funds

Tax Accounting

involves preparing taxes and giving people advice on tax strategies can be complicated and ever changing

Financial Accounting

is an area of accounting that produces financial documents to aid investors and creditors external users: creditors, customers, investors, tax authorities

Auditing

is the area of accounting responsible for reviewing and evaluating the accuracy of financial reports internal auditors: work independently of the accounting department to determine whether a company's financial information is recorded correctly external auditors: hired outside the organization to ensure that their financial statements have been prepared accurately and are not biased or manipulated in any way

Accounting

is the process of tracking a business's income and expenses by recording its financial transactions transactions are summarized into financial reports that are further used to evaluate a business's current and expected financial status accounting is vital for all business sizes

Owners' Equity

is what is left over after you have accounted for all of your assets and taken away all that you owe. stock retained earnings

Cash Flow From Operations

measures cash used or provided by the core business of a company

Managerial Accounting

provides information and analyses to managers within an organization so they can make informed business decisions example: managerial accounting budget can help a company's manager determine whether to increase the firm's staff or initiate layoffs

Government and not-for-profit accounting

refers to the accounting required for organizations such as legislative bodies and charities that are focused on generating profits must report financial activities so taxpayers and donors can see how funds are spent and used example: American Red Cross, hospitals, and educational institutions must distribute and manage funds, maintain a budget, and plan for future projects, just like for-profit companies

Sources of Short-Term Financing

self-financing/family/friends credit cards

Statement of Cash Flows

shows the exchanges of money between a company and everyone else it dealt with during the period -- that is, the cash that came into and went out of the business

Balance Sheet

shows what a company owns and what it had borrowed (owes) along with the net worth of a business

Earnings Per Share (EPS)

the portion of a company's profit allocated to stockholders on per-share basis EPS = net income / outstanding shares

Financial Management

the strategic planning and budgeting of funds for a firm's short-term needs and long-term needs implement controls to ensure its money and budgets are managed in a way that allows it to reach its financial goals

Ratio Analysis (Working Capital)

working capital = current assets -current liabilities