Biz 1000 - SLU - Finance & Accounting

Venture Capital

Investment in the form of money that includes a substantial amount of risk for investors

Securities

Investment instruments such as bonds (debts) or stock (equity)

Tax Accounting

Involves preparing taxes and giving advice on tax strategies

Financial Management

Involves the strategic planning for and budgeting of short & long term funds for current & future needs. It establishes and monitors controls to make certain the plans and budgets are managed sufficiently so that the business can reach its financial goals.

Accounting

Involves tracking a business's income and expenses by recording its financial transactions. Transactions are then summarized into key financial reports that are further used to evaluate a business's current and expected financial status

Stock certificates

represent stock ownership and include the details of the stock issue, such as the company name, number of shares the certificate represents, and the type of stock being used

Financial Management/Manager Responsibilities

1. Planning & Budgeting 2. Evaluating & Reporting 3. Resource Allocation 4. Raising Capital 5. Investing Funds 6. Monitoring Cash Flow

How do companies finance their short-term business needs? (Short-Term Financing Options)

1. Self-financing/family/friends 2. Credit Cards 3. Trade Credit 4. Commercial Paper

5 Parts of an Income Statement

5 Parts of an Income Statement 1) Revenue (Sales) 2) Cost of Goods Sold (COGS) 3) Gross Profit (Income) 4) Operating Expenses 5) Net Profit (Income)

Commerce finance company

A financial institution that makes short-term loans to borrowers who offer tangible assets as collateral

Current Ratio (Liquidity Ratio)

A measurement used to determine the extent to which a company can meet its current financial obligations

Trade Credit

Ability to purchase from the supplier inventory and supplies on credit without interest

Two Divisions of Finance Department

Accounting & Financial Management

Retained Earnings

Accumulated profits a business has held onto for reinvestment into a company

Collateral

Additional form of security that assures a lender that the borrower has another way of repaying the loan

Liabilities

All debts & obligations owed by business to outside creditors, suppliers, or other vendors

Leverage

Amount of debt used to finance a firm's assets with the intent that the rate of return on the assets is greater than the cost of the debt

Revenue

Amount of money generated by a business by either selling goods or performing services

Financial Accounting

An area of accounting that produces financial documents to aid investors and creditors (External to the organization)

Project Budget

An endeavor that has a specific start & end date

Auditing

Area of accounting responsible for reviewing and evaluating the accuracy of financial reports

Current Assets

Assets that can be turned into cash within a year

Fixed Assets

Assets that have long-term use such as real estate, building, machinery, & equipment

Ratio Analysis

Comparison of number's and therefore is used to compare current data to data from previous years, competitor's data, or industry averages

Capital Budget

Considers a company's long-range plans and outlines the expected financial needs for significant capital purchases, such as real estate, manufacturing equipment, plant expansions, or technology

Main Types of Accounting

Corporate (including Managerial & Financial), auditing, government and non-for-profit, and tax

Steps towards Creating a Financial Plan

Creating a Financial Plan Step 1 - Take a Financial Inventory (List everything of value that you own and then subtract everything you owe in loans & credit & card balances) Step 2 - Set Financial Goals (Short Term Goals are realistic and are less than a year. Eg. Paying off your car; Long Term Goals are motivational and more than a year. Eg. I want to save $250,000 by the time I'm 40) Step 3 - Know where your money goes (Know your fixed expenses (rent and car payments); Know your variable expenses like gas, food, clothing, entertainment, utilities, and cell phone) Step 4 - Create a Budget (Create a spending plan that tells you where your money goes each month) Step 5 - Execute the Plan (Pay off all unpaid credit card debt; Reduce interest rates on loan; To reduce impulse buying, try using cash only)

Line of credit

Credit that a manager can access at any time up to an amount agreed on between the bank and the company

Certified Public Accountant (CPA)

Designation given to someone who has passed a rigorous series of examinations given by the American Institute of Certified Public Accountants

Operating Profit Margin

Determines a company's profitability of operations (Gross Profit - Operating Expenses) / Revenue

Gross profit margin

Determines a company's profitability of production (Revenue - COGS) / Revenue

Unsecured Loans

Doesn't require collateral

Commercial Banks

Financial institutions that raise funds from businesses and individuals in the form of checking and savings accounts and then use those funds to make loans to businesses and individuals

Initial Public Offering (IPO)

First sale of stock to the public by the company

Demand Deposit

Funds that can be withdrawn (or demanded) at any time without prior notice; i.e. checking & savings accounts

Liquidity

How quickly an asset can be turned into cash

Long-Term Liabilities

Include debts & obligations that are owed by a company that are due more than one year from the current date

Operating (Master) Budget

Includes all the operating costs for an entire organization , including inventory, sales, purchases, manufacturing, marketing, and operating expenses

Owner's Equity

Literally the amount the owner's of a business can call their own

Secured Loans

Loans that require collateral

Budget

Management tool that outlines a company's planned cash flows, expected operating expenses, and anticipated revenue

Debt-to-Equity Ratio

Measurement of how much debt a company has relative to its assets my comparing a company's total liabilities to its total shareholder's equity

Short-Term Liabilities (Current Liabilities)

Obligations a company is responsible for paying within a year or less

Debt financing

Occurs when a company borrows money that it is legally obligated to repay, with interest, by a specific time

Equity financing

Occurs when funds are generated by owners of a company rather than being borrowed from an outside lender

Statement of Cash Flow organizes & reports cash generated in these three business components

Operating Activities Investing Activities Financing Activities

Operating Expenses

Overhead costs incurred with running the business

Financial Manager (CFO - Chief Financial Officer)

Oversees the financial operations of a company

Equity

Ownership interest in the form of stocks

Factoring

Process of selling accounts receivable for cash instead of using them as collateral for a loan

Depreciation

Process of spreading out the costs of the equipment over its useful life

Fundamental Accounting Equation

Refers to when assets = the sum of liabilities + owners Equity

Managerial Accounting

Provides information and analyses to managers within an organization so that they can make informed business decisions (Internal to the Organization)

Earnings per share (EPS)

Quotient of net income divided by outstanding shares that results in the portion of a company's profit allocated to the stockholder's on a per share basis (Net Income / Outstanding Shares)

Double entry bookkeeping

Recognizes that for every transaction that affects an asset, an equal transaction must also effect either a liability or owner's equity

Government and not-for-profit accounting

Refers to the accounting required for organizations that are not focused on generating a profit

Statement of Cash Flows

Shows the exchange of money between a company and everyone else it deals with over a period of time; It shows where cash was used

Balance Sheet

Shows what a company owns and what it has borrowed (loans) at a fixed point in time and shows the net worth of a business (Assets = Liabilities + Owner's Equity)

Generally Acceptable Accounting Principles (GAAP)

Standard accounting rules defined by the Financial Accounting Standard Board

Intangible Assets

Such as trademarks, patents, & copyrights do not have physical characteristics but have values nonetheless

Bookkeeping

Systematic recording of a company's every financial transaction

Gross-profit

Tells how much money a company makes just from its products and how efficiently management controls costs in the production process

Cash Flow

The amount of money that a company actually receives and spends over a specific period

Financial Statements

The formal reports of a business' financial transactions that accountants prepare periodically

Assets

The things a company owns, including cash, investments, buildings, furniture, and equipment

Income Statement

This shows how much money is coming into a company and how much money a company is spending over a period; It shows how well a company has done in terms of profit and loss (P&L Statements)

Sinking Funds

Type of savings fund into which companies deposit money regularly to help repay a bond

Stock

Unit of ownership in a company that is sold with the intention of raising capital to finance ongoing or future projects and expansions

Commercial Paper

Unsecured, short-term debt that matures in 270 days (9 months) or less

Cost of Goods Sold (COGS)

Variable expenses that a company incurs to manufacture and sell a product, including the prices of raw materials used in creating the good along with the labor costs used to produce and sell the item

Three main ratios one can use with info from a balance sheet to determine a company's health & liquidity

Working Capital (Current Assets - Current Liabilities) Current Ratio (Current Assets / Current Liabilities) Debt-to-equity ratio (Total Liabilities / Owner's Equity)

Cash Flow Budget

a short-term estimate of cash inflows & outflows, and predicts any cash flow gaps for the business

Working capital

amount left over after the company pays off its short-term liabilities with its short term assets

Short-term financing

any type of financing that is repaid within a year or less

Bonds

debt instruments issued by companies or governments with the purpose of raising capital; lenders are investors, not banks

Peer-to-peer lending

growing source of financing for small businesses; the process of individuals lending to each other

Sarbanes-Oxley Act

is an act of 2002 passed by US Congress that protects investors from possible fraudulent accounting methods used by organizations

Net income after taxes

is the "Bottom Line" stated on the last line of the Income Statement

Long-term Financing

provides funds for a greater period a period greater than one year

Microloans

small, short-term loans specific to small-businesses (max is $50k)

Corporate accounting

the part of an organization's finance department that is responsible for gathering and assembling data required for key financial statements