mgt 3210 midterm

physical inventory

a count of all the inventory being held for sale at a specific point in time

property

a general term for real estate, but can also be applied as a legal term for anything owned or possessed

plant

a general term for the facilities of a business

capital leases

a lease in which at the end of the lease period the asset becomes the property of the lessee, possibly with an additional payment

tax abatements

a legal reduction in taxes by a government primarily used to encourage specific activities that are expected to improve blighted areas or to provide additional employment

operating leases

a long-term rental in which ownership of the asset never passes to the person paying for the lease

liquidity

a measure of how quickly a company can raise money through internal sources by converting assets to cash

financial leverage

a measure of the amount of debt relative to total investment

what are operating expenses

can be classified into selling, general and administrative, research and development, and other

what happens during the maturity stage of a business

can include the the exit from of the entrepreneur from the business. the process of planning/preparing for this is called exit planning and should begin planning this at the beginning of the business venture. exits happens by either selling the business, transitioning to the next generation in a family business, going bankrupt, or dying.

difference between wealth and income

income is the cash that is available from the business to pay the entrepreneur's salary, whereas wealth is the value of the business if sold

external cost factor examples

inflation changes in supply and demand economic shocks such as war

what does ipo stand for

initial public offering

activity ratios

measure how productive a particular asset is in producing sales activity

profitability ratios

measure management effectiveness in creating wealth from sales and from invest funds

liquidity ratios

measure the business's ability to pay debts and expenses that are due in the current accounting period

leverage ratios

measure the relative risk that a business setback could cause bankruptcy

return on assets

measures managements effectiveness in using the assets of the business to provide profits. higher return is preferred. net income/ average total assets

debt-to-equity ratio

measures the extent to which the business can meet its obligations for the long haul. calculated by dividing total liabilities by total owners' equity. a lower ratio indicated greater solvency, a higher ratio indicates increased business risk

accounts receivable turnover

measures the frequency with which receivables are converted to cash. a higher turnover provides faster access to cash that can be used in the business net credit sales/ average net accounts receivable

times interest earned

measures the risk of being forced into bankruptcy for not meeting required interest payments. higher is preferred operating income before interest and taxes/ interest expense

what is included in the cost of disposing of an asset

meeting environmental regulations, disassembly, advertising, commissions, shipping, insurance, and fees

what is inventory

merchandise held by a company to be sold to its customers. typically the most significant asset for merchandising or manufacturing firms

outside equity

money from selling part of your business to people who are not and will not be involved in the management of the business

cash

money that is immediately available to be spent

long-term liabilities

obligations that are not due within the current year. includes borrowing from banks or the issuance of bonds

cash flow management

planning and tracking the amounts and timing of money to be received and paid during the business cycle

what are the three essential long-term assets

property, plant, and equipment (PPE)

types of profitability ratios

return on sales asset turnover return on assets dupont model

safety stock

the amount of inventory carried to ensure that you will not run out of inventory because of fluctuating levels of sales

optimum stocking level (reorder point)

the amount of inventory that results in the minimum cost, when considering the cost of lost sales resulting from running out of stock, the number of units sold per day, and the number of days required to receive inventory

currency

the bills and coins printed by governments to represent money

processes

the business activities necessary to convert inputs into desired outputs

JOBS Act

the jumpstart our business startups act, signed into law in 2012. the law specifically provides for raising equity funds by crowdfunding, very complex

inputs

the materials, labor, and energy put into the production of a good or service

disposable value

the net amount realized after subtracting the costs of getting rid of an asset from its selling price

contributed capital

the original investment in the company by the owners. in a partnership or sole proprietorship it is called capital

cost of capital

the percentage cost of obtaining future funds

economic order quantity (eoq)

the quantity at which the total cost of inventory is minimized

productivity

the ratio measure of how well a firm does in using its inputs to create outputs. literally, productivity is outputs divided by inputs

cash to cash cycle

the time that is required for a business to acquire resources, convert them into product, sell the product, and receive cash from the sale

replacement cost

the total cost of replacing an asset with an essentially identical asset

what are the 3 key steps in transforming revenue forecasts to cash flow forecasts

1) the entrepreneur needs to determine whether they will be extending credit to customers 2) if credit is extended, the entrepreneur should estimate the percentage of the sales that will be on credit and the percentage that will be cash 3) the entrepreneur will need to determine how long it will take to collect credit sales

what are the 9 common accounting functions

1. accounts receivable 2. accounts payable 3. payroll 4. fixed asset 5. inventory 6. credit card sales 7. insurance register 8. investment 9. leasehold

what are the 4 broad categories of financial ratios

1. activity ratios 2. profitability ratios 3. liquidity ratios 4. leverage ratios

what are the three basic financial reports for a business

1. balance sheet 2. income statement 2. cash flows statement

what are the three forecasting scenarios

1. best-case scenarios 2. most-likely-case scenarios 3. worst-case scenarios

what are the 2 forms of short-term financing?

1. commercial paper 2. short-term debt

what are the three ways to record cogs

1. fifo 2. lifo 3. average cost

what are the 4 main steps in the operations process

1. inputs 2. operations 3. outputs 4. feedback

what are the 3 most common forecasting mistakes

1. linear forecasting mistake 2. hockey stick forecast mistake 3. the 20/80 vs. 80/20 mistake

what are the two basic types of leases

1. operating leases 2. capital leases

what are 3 of the most common financial ratios

1. roi 2. current ratio 3. debt-to-equity ratio

what is the accounting equation

Assets = Liabilities + Owner's Equity

how to improve productivity

1. efficiency 2. quality

what are the four differing degrees of components for services

1. explicit service 2. supporting facility 3. implicit service 4. supporting good

formula for breakeven in units

= fixed costs for the period / (price of one unit-variable cost of one unit)

secured debt

Loans that provide the lender with the legal right to seize specific assets in the event of nonpayment. Most automobile loans are secured debt and if you don't make your payments, your car will be repossessed.

types of activity ratios

account receivable turnover dso ratio COGs

which type of financing is the best

depends on your business

is cogs a revenue or expense?

expense

multiple-step income statement

lists revenues from operations separately from other income and gains

quick ratio

measures how much money can be made available very quickly to pay obligations within the fiscal year. a higher ratio is preferred. current assets - (inventories+prepaid assets) / current liabilities

return on investment (roi)

measures management's effectiveness in using the invested capital of the business to provide profits. ROI is calculated by dividing the net income generated by a project by the average assets invested in the project. ROI is a percentage, and the higher the percentage return, the better.

demand deposits

money held in checking and savings accounts

financial strength

the ability of a business to survive adverse financial events

what is the relationship between the marketing plan and revenue forecasts

they tell the same story (information) in different ways. the marketing plan is in a narrative format while the revenue forecasts use numeric data

what are 4 common accounting methods to determine value

1. book value 2. disposable value 3. replacement value 4. fair market value

what are the 6 items that must be reported in the statement of cash flows

1. cash flows from operating activities 2. cash flows from investing activities 3. cash flows from financing activities 4. net effect of foreign exchange rates 5. net change in cash balance during the period 6. non cash investing and financing activities

steps for crowdfunding

1. document your business 2. make a business plan 3. create a compelling story 4. create a professional-looking video 5. develop a list of potential investors

advantages of renting over buying assets

1. the exact amount and timing of cash outflows is specified in the rental contract 2. renting provides a fall-back position should your projections prove to be incorrect

disadvantages of renting over buying assets

1. you do not have an ownership position 2. rental requires that you make regular, timely payments 3. the number of dollars paid in rent usually exceeds the number of dollars you would spend to own the asset

credit reporting agency (cra)

a business that collects, collates, and reports information concerning an entity's use of debt

financial flexibility

a business's ability to manage cash flows in such a manner that the company can respond appropriately to unexpected opportunities and needs

what is a business plan

a comprehensive document describing the intended course that the entrepreneur wants the business to take. it is developed from the business model and used to translate the visual model into a written document that can be used to communicate the details that support the model to outsiders, such as bankers and investors

cost-volume-profit analysis

a method for planning operations necessary to attain a specific profit goal. break-even analysis is a specific application of this

royalty financing

a method of raising capital where investors provide money to a business in return for a guaranteed percentage of revenues

quality

a product or service's fitness for use, measured as durability, reliability, serviceability, style, ease of use, and dependability

financial management

a set of theories and techniques used to optimize the receipt and use of capital assets

fractional ownership

an ownership structure similar to joint ventures created by some leasing companies that offer buses, airplanes, and yachts under arrangements in which a small business may buy only that share that it can reasonable use during the course of business.

short-term debt

any debt that must be paid in less than one year from that date of the financial statement on which it is reported

what are noncurrent assets

assets that are not expected to be turned into cash within a year or have a useful life longer than one year. includes land, buildings, equipment, furniture, and fixtures

cash equivalents

assets that may be quickly converted to cash

what is the linear forecasting mistake

assuming a simple linear growth in revenues

what is the hockey stick forecasting mistake

assuming that sales will begin slowly and then suddenly increase dramatically for no documented reason other than blind faith in the business

formula for retained earnings

beg r/e + net income - dividends = end r/e

business model vs business plan

business model is a visual representation of various aspects of the business that is later used to develop the business plan, which is a more comprehensive document that translates the visuals into words and are usually shown to outsiders like bankers or investors

what is the most essential element of an accounting system, regardless of your businesses size

cash accounting

how to improve operations management in a service firm

choosing one of the four components of your service to focus on and improving them one at a time

ebt

earnings before taxes most users want to know this amount because it is a contractual obligation

what happens during the prelaunch stage of a business

entrepreneur develops the business model and plan and does all the work necessary to open the business, such as securing needed resources, setting up operations, and hiring and training staff

where do personal financing gifts come from?

family or occasionally from friends

how is managerial accounting different from financial accounting?

financial accounting deals mostly with reporting what has happened historically (backwards looking) managerial account relates to accounting information prepared internally to help managers make decisions for the business (forward looking)

what is a balance sheet

financial statement that reports what a company owns and owes at a given point in time. uses assets, liabilities, and equity classifies assets and liabilities as either current (<1 year) or long-term (>1 year)

where do institutional financing gifts come from?

government agencies and foundations

point-of-sale inventory

hardware and software combinations that integrate inventory management directly into accounting software

unsecured debt

loans that do not allow a lender to seize specific assets in the event of nonpayment

what are the 4 Cs of borrowing

1. character of the managers of the business 2. capacity of the business to repay both principal and interest on time 3. conditions of the industry and economy in which the business operates 4. collateral that can be used to secure the loan

what are the steps to perform a npv analysis

1. estimate the amount and timing of al cash flows of the project 2. select an appropriate discount rate 3. discount to present value each cash flow using the selected discount rate and timing 4. sum the discounted cash flows

what are the three types of accounting

1. financial accounting 2. tax accounting 3. managerial accounting

what are the three types of capital financing

1. financing with equity 2. financing with debt 3. financing with gifts

what are the steps of stakeholder analysis

1. identify the relevant stakeholders 2. determine the basic ethical principles and values that guide the entrepreneur's interaction with each of these stakeholders 3. apply these principles specifically to the financial resource management of the business

what are 6 common financial statements

1. income statement 2. statement of comprehensive income 3. statement of retained earnings 4. statement of owner's equity 5. balance sheet 6. cash flows

what are the 3 types of angel investors

1. individual angel 2. angel network 3. angel fund

what are the two general sources of gift financing?

1. institutional 2. personal

what are the three characteristics of services

1. intangibility 2. inseparability 3. perishability

4 rules to follow to get the greatest benefit from outsourcing

1. know yourself 2. keep strategy decisions in-house 3. fully specify tasks that are to be outsourced 4. know with whom you are contracting

what are the two more complex financial ratios for comparing investment alternatives

1. net present value 2. internal rate of return

what are the 5 main sources of funding for small businesses?

1. owner capital (personal savings, home equity credit line, etc.) 2. owner loans/ retained earnings/ owners' equity investments (when there is cash flow in the business) 3. loans or investments from family/ friends/ fools and trade credit 4. external loans from motivated (high-cost) lenders 5. external loans from commercial-rate lenders

what are the two most commonly used financial ratios for comparing investment alternatives

1. payback period 2. return on investment

what are the three most common approaches to maintaining records of inventory in small businesses

1. periodic inventory 2. perpetual inventory 3. point-of-sale inventory

what are the 4 stages of growth that businesses go through

1. prelaunch 2. start-up 3. growth 4. maturity

what are the 8 steps in making a master budget

1. sales budget 2. plan for inventory purchases 3. cogs budget 4. labor budget 5. selling, general, and admin expense budget 6. cash receipts budget 7. cash disbursements budget 8. cash budget

what are the 4 parts of the financial management model

1. setting financial goals 2. revenue forecasting 3. expense forecasting 4. monitoring performance

what are the 4 costs all capital assets cause you to incur over time?

1. the cost of acquiring the asset 2. the cost of owning the asset 3. the cost of operating the asset 4. the cost of disposing of the asset

what is included in the costs of carrying inventory

1. the opportunity cost of the funds invested in inventory 2. the cost of keeping inventory secure and in sellable condition 3. cost of warehouse or other storage facilities (utilities, physically moving inventory into, within, and out of the storage area, security guards, fencing, access control, etc) 4. insurance and taxes on inventory 5. inventory shrinkage (loss from waste, spoilage, and theft) 6. the transaction costs for counting and record keeping

what are the three primary CRAs

1. transunion 2. equifax 3. experian

perpetual inventory

a system of recording the receipt and sale of each item as it occurs

the budget cycle process

a term applied to the schedule and the process for setting the schedule for making purchases by an individual or an organization

what are the two critical short-term assets

accounts receivable and inventory

what are liabilities

amounts owed to others. includes accounts payable, wages payable, taxes payable, notes payable, bank loans, etc

what are bad debts

an estimate of what is uncollectible at the time of sale (what a customer will be unable to pay you)

outsourcing

contracting with people or companies outside your business to do work for your business

what are the two main categories of equity

contributed capital and retained earnings

cost of disposition

cost incurred in the activities necessary to get rid of an asset

what are two managerial accounting procedures that depend on being able to forecast future revenues and expenses?

cost-volume-profit analysis and the budget cycle process

types of liquidity ratios

current ratio quick ratio (aka acid test ratio)

types of leverage ratios

debt to equity ratio debt ratio times interest earned

inventory valuation

determination of the amount of assets held by the firm for sale or production

what is the worst-case scenario

developed by pushing all the critical assumptions to the extreme, often a scenario of failure

tax credits

direct reduction in the amount of taxes that must be paid, dependent on meeting some legal criteria primarily used to encourage investment in specific types of assets, to increase economic activity in specified disadvantaged geographic areas, increase the welfare of specific groups of citizens, or support industries that are held to be of national strategic interest

ebit

earnings before interest and taxes usually considered a key measurement of managements ability to utilize a firm's assets to generate income gross profits-operating income

ebitda

earnings before interest, taxes, depreciation, and amortization often used by entrepreneurs and bankers as a quick measure of cash flow

fifo

first in first out assumes that the oldest costs in inventory are moved to cogs first, the result is that ending inventory consists of the most recent costs

internal cost factor examples

functions of how your business works

grants

gift of money made to a business for a specific purpose available from the u.s. government, most state governments, and semiprivate and private economic development agencies

what is included in the cost of owning an asset

interest on funds borrowed and the opportunity cost of funds invested to acquire it, insurance the asset, property taxes, value of the space that the asset occupies, and the cost of record keeping and security for the asset

lifo

last in first out assumes that the newest costs in inventory are the first ones moved to cogs, resulting in the oldest costs remaining on the balance sheet

equipment

machinery, tools, or materials used in the performance of the work of the business

asset turnover

measures how efficiently a business uses all its assets to produce sales. a higher ratio is better than a lower ratio net sales revenue/ [average total assets (beg. assets + end assets)/2]

current ratio

measures how much money can be made available to pay obligations within the fiscal year. calculated by dividing current assets by current liabilities. a higher ratio is preferred

return on sales

measures managements effectively in managing all costs relative to sales. higher ratio is preferred net income/sales revenue

accounts receivable

money owed to your business by customers who purchased your product on credit

commercial paper

notes issued by creditworthy corporations

unearned/deferred revenues

occur when customers pay for products or services in advance. recorded as liabilities because the company has the cash up front but has done nothing to earn the payment

pro forma financial statements

planning documents for future business activities that are formatted to look like the common financial statements of the income statement, balance sheet, and statement of cash flows

inventory

products that are held for sale to customers. it is the largest current asset that most manufacturing, wholesale, and retail firms have

single-step income statement

provides little detail, it simply lists all revenues and gains together, then lists all expenses and losses together

what are the three types of inventories for a manufacturing company

raw materials work in process finished goods

what is the 20/80 vs. 80/20 mistake

refers to the allocation of time spent in creating the two main sections of the income statement, forecasting revenues and forecasting expenses. typically, 20% of time is spent developing the revenue portion of the forecast while 80% is spent on the expenses portion

what is owner's equity

represents the ownership rights of the investors, the owners' claims to assets after all liabilities have been satisfied. aka stockholder's equity, net assets, and book value of the company

what are assets

resources owned by an entity. includes cash, accounts receivable, prepaid expenses, inventory, land, equipment, patents, copyrights, etc.

what happens during the growth stage of a business

revenues, and hopefully profits, begin to grow quickly. the biz may begin to experience many stresses/strains on systems and staff. management team and operating systems need to be put in place and upgraded to manage growth effectively

what is the formula for net income

revenues-expenses

what is accounts receivable

sales to customers on credit

what is an income statement

shows how a company has performed, it's income or loss for a given period of time only two categories: revenues and expenses

what are the two income statement formats?

single-step and multiple-step

work instructions

specific guidance for completing steps in a process

what is the most valuable function in planning for future business activities

standard budgeting (profit planning)

which of the 6 common financial statements parallels your monthly bank statement

statement of retained earnings

marketable securities

stocks and bonds that are traded on an open market

what is the most-likely-case scenario

taking 3-5 critical assumptions and adjusting them all downward to reflect a less than ideal set of circumstances

payback period

the amount of time it takes a business to earn back the funds it paid out to obtain a capital asset

profitability

the amount that revenues exceed expenses

personal equity

the amount that you may contribute to your business from your own resources. it's determined by how much you are worth and how easy it is for you to use what you have

average cost method

the average cost of all the purchases is used to determine the cogs

efficiency

the comparison of productivity ratios to see the extent that an organization has generated more outputs with fewer inputs

replacement value

the cost incurred to replace on asset with an identical asset

what is working capital

the difference between current assets and current liabilities management uses concerning this relate to seasonal cycles, which dictate a need for planning cash in/outflows

what is gross profit

the difference between sales and the cogs

book value

the difference between the original cost of an asset and the total amount of depreciation expense that has been recognized to date

net present value

the difference between the present value of cash inflows and the present value of cash outflows over a specified period of time

cost of operating

the direct cost incurred in using an asset for the purpose for which it was intended

internal rate of return (irr)

the discount rate at which the present value of the cash inflows of the project exactly equals the present-value of the cash outflows

what is included in the cost of operating an asset

the energy the asset consumes, maintenance, loss of economic value resulting from wear and obsolescence, and any necessary training of operators

weighted average cost of capital (WAC)

the expected average future cost of funds

just in time inventory

the practice of purchasing and accepting delivery of inventory only after it has been sold to the final customer

fair market value

the price at which goods and services are bought and sold between willing sellers and buyers in an arm's-length transaction

feedback

the process of communicating within or to the organization about how the outputs worked or were received

capital budgeting

the process of deciding among various investment opportunities to create a specific spending plan the goal of this is to improve the quality of decisions about how to best use the scare resources of the business

variance analysis

the process of determining the effect of price and quantity changes on revenues and expenses at the most basic level, variances occur because of one of two events: (1) the effect of changes in prices and (2) the effect of changes in the quantity used or produced

periodic inventory

the process of physically counting business assets on a set schedule

operations

the process of transforming materials, labor, and energy into goods and services

microinventory

the purchase of inventory only after a sale is made, very typical with internet firms

optimum capital structure

the ratio of debt to equity that provides the maximum level of profits

what is a business model

the rationale of how an organization creates, delivers, and captures value typically done with a visual representation of the various aspects of the venture

procedure

the series of steps and activities required to complete a process

outputs

the services or products that are produced for sale

whole of life costs

the sum of all costs of capital assets, including acquisition, ownership, operation, and disposal

acquisition cost

the total cost of acquiring an asset, including such costs as purchase price, transportation, installation, testing, and calibrating in order to ready it for its first productive use

what happens during the start-up stage of a business

the venture is launched and begins basic operations. entrepreneur is very hands on with the biz, building customer base and refining the product/service to meet the needs of the market. can last until the business produces well over $1M in revenue

what is included in the eoq graph

total annual cost purchase and carrying cost cost of ordering order quantity

what is a cash flows statement

tracks the sources and uses of cash in the company

fair credit reporting act (FCRA)

u.s. federal legislation specifying consumers rights vis-a-vis credit reporting agencies. requires all information reported by CRAs be accurate, but does not require that CRAs independently confirm any info, so the consumer must notify the CRA in writing of any mistakes

financial risk

uncertainty of returns; the probability of losing money

bootstrapping

using low-cost or free techniques to minimize your cost of doing business

what two categories are costs separated into in a cvp analysis

variable costs and fixed costs

what is the best-case scenario

what the entrepreneur believes is likely to occur