DECA Business Finance Series - Financial Analysis Performance Indicators (Tiers 1, 2, and 3)

Pay bills

- Pay money for heat, electricity, and other household needs - Pay any debts - Can use credit (sometimes), debit, or check - Can mail company a check or do an online bank transfer transaction

Explain the need to save and invest

- Helps create wealth needed to achieve financial goals - Protect business from emergency - Reduce need for debt or obtaining loans - Provide long-term stability

Make responsible financial decisions

- Never make a quick decision - Think long-term - Prioritize needs vs wants

Explain forms of dividends

--Cash dividends - The most common form of payment and are paid out in currency, usually via electronic funds transfer or a printed paper check. Such dividends are a form of investment income and are usually taxable to the recipient in the year they are paid. This is the most common method of sharing corporate profits with the shareholders of the company. --Stock dividends - Dividends that are paid out in the form of additional stock shares of the issuing corporation, or another corporation (such as its subsidiary corporation). They are usually issued in proportion to shares owned (for example, for every 100 shares of stock owned, a 5% stock dividend will yield 5 extra shares). --Stock dividend distributions - New shares made to limited partners by a partnership in the form of additional shares. Nothing is split, these shares increase the market capitalization and total value of the company at the same time reducing the original cost basis per share. --Property dividends - Paid out in the form of assets from the issuing corporation or another corporation, such as a subsidiary corporation. They are relatively rare and most frequently are securities of other companies owned by the issuer, however they can take other forms, such as products and services. --Interim dividends - Dividend payments made before a company's Annual General Meeting (AGM) and final financial statements. This declared dividend usually accompanies the company's interim financial statements. --Other dividends - Financial assets with a known market value can be distributed as dividends; A common technique for "spinning off" a company from its parent is to distribute shares in the new company to the old company's shareholders. The new shares can then be traded independently.

Manage loans

1. Do a Thorough Financial Assessment 2. Manage Your Cash Flow 3. Never Mix Business Expenditure With Personal Finances 4. Increase Your EMI Amount During Busy Seasons An equated monthly instalment (EMI) is a set monthly payment provided by a borrower to a creditor on a set day, each month. 5. Have Constant Communication With Your Bank 6. Know When You Need Help.

Monitor project portfolio

1. Set the Strategy --> Strategy is influenced by Vision (where the company wants to be) and Mission (what the company does). These goals are translated into initiatives or projects to deliver business value. 2. Win Executive Support 3. Build the Implementation Team --> The team should include technical team members, portfolio managers, and other key stakeholders. 4. Collect Project Data --> Gathering project data also provides an opportunity to review processes throughout the organization 5. Evaluate Your Projects --> Review the portfolio and look for any obvious issues, such as duplicate projects, interdependencies between projects, high-risk projects, and over-allocated resources. 6. Create Your Portfolio --> Create a new portfolio by changing the status and priority of the projects, for example, stop any duplicate projects and start relevant on-hold projects. The goal is to build a well-rounded portfolio that meets internal requirements and delivers a healthy 'risk-reward' mix. At this stage, define and document key processes, such as project request management and PPM reporting structures. 7. Test and Refine --> Before introducing the new portfolio and process to the whole organization, test your assessment with a few stakeholders and use their feedback to refine as needed. 8. Learn and Adapt.

Explain the nature of balance sheets

A balance sheet is a summary of a business' assets, liabilities, and owners' equity. Assets are anything of monetary value that you own and are classified as current or fixed. A current asset is cash or anything that can be converted into cash in a year. A fixed asset is something used over a period of time to operate your business, like property and equipment. Liabilities are the amounts that a business owes and are classified as current or long-term. A current liability is a debt the business must pay back during the upcoming year. A long-term liability is a debt that is due after 12 months' time, such as a long-term loan. Owners' equity (or net worth) is the amount of ownership interest in the business. The difference between assets and liabilities equals the owners' equity.

Read and reconcile bank statements

A bank statement is a document showing activity on your account over the previous month, including a beginning and ending balance and all inflows and outflows during that time. Bank account reconciliation is when you account for the differences between the bank statement and your records (usually your checkbook register). The balances may differ because you have written checks that have not yet cleared the bank, or perhaps because you have deposited money into your account after the bank statement was prepared. To reconcile your account, start by comparing the checks you have written with those listed on the bank statement. List any outstanding checks on the reconciliation form. Subtract the total amount of outstanding checks from the ending balance on the statement. Next, add any recent deposits not on the statement to the reconciliation form. Finally, subtract any fees and add any interest as found on your bank statement to your reconciliation form. Now you should find that the adjusted bank balance and the balance in your records is the same. If there is an error, report it to your bank.

Describe the nature of budgets

A budget is a formal, written statement of expected revenue and expenses for a future period of time. To be effective, a budget should be evaluated periodically with actual income and expenses. Revenues may include cash sales, collections on accounts receivable, and other income. Expenses include purchases, insurance, taxes, payroll, and many other things. As part of budgeting, one should follow the following steps. Set goals and prioritize them. Estimate your income. Budget for unexpected events, fixed expenses, and for variable expenses. Record what you spend. Review your spending patterns and revise your goals as needed.

Explain the nature of capital investment

A capital investment is defined as a sum of cash acquired by a company to pursue its objectives, such as continuing or growing operations. It also can refer to a company's acquisition of permanent fixed assets such as property, plant and equipment (PP&E). Capital investment is having enough cash, loans or assets to fund a company's operations. Banks, investors, financial institutions, angel investors and venture capitalists are all sources of capital investment. For example, a restaurant might need capital investment to update the kitchen with new equipment.

Explain the use of cash budgets

A cash budget is an estimation of the cash inflows and outflows for a business over a specific period of time, and this budget is used to assess whether the entity has sufficient cash to operate. They're a lightweight, small budget. This is what most people's personal budgets look like. A cash budget is extremely important, especially for small businesses, because it allows a company to determine how much credit it can extend to customers before it begins to have liquidity problems.

Prepare cash flow budgets/forecasts

A cash flow forecast is the most important business tool for every business. The forecast will tell you if your business will have enough cash to run the business or pay to expand it. It will also show you when more cash is going out of the business, than in. The easiest way to prepare a cash flow forecast is to break the task into several steps. Then bring all the information together at the end. For existing businesses, look at last year's sales figures. Then decide what adjustments you will need to make based on past trends, i.e. sales increasing or decreasing, or staying the same. If you're a new business, when you prepare your cash flow forecasts, start by estimating all the cash outflows. If you do this you'll get an idea of how much cash needs to come in to cover the cash going out, and therefore what sales you'll need to make to cover this.

Describe the nature of cash flow statements

A cash flow statement is a monthly plan that tracks when you anticipate that cash will come into a business and when you expect to pay out cash. One purpose of a cash flow statement is to determine whether you will have enough money to pay your bills on time. Another purpose is to secure a business loan, as most lenders will request at least a first- year cash flow statement. Cash flow statement is a type of financial statement that shows how changes in the balance sheet accounts and income affect cash and cash equivalents. A cash flow statement itemizes how much cash you started with, what your projected cash expenditures are, and how and when you plan to receive cash. It also shows when you will need to seek out additional funds or when you will have additional cash remaining.

Prepare bank account documents (e.g., checks, deposit/withdrawal slips, endorsements, etc.)

A checkbook register is a booklet that you fill out for all deposits and withdrawals from your checking account. Included are sections for the check number, date of transaction, description, payment amount, reconciliation, deposit amount, and new balance on the account. You will use the checkbook register to reconcile your bank statement when it comes. Writing a check involves writing the date, the name of the payee, the amount of the payment in numerals as well as in words, your signature, and a memo if you choose. When you are cashing or depositing a check made out to you, start by endorsing the check by signing the back of it. Fill out a deposit slip to give to the bank teller with your name and account number, along with the amount of the deposit. Also, be sure to record the amount of the deposit into your checkbook register.

Describe types of financial-services providers

A commercial bank is an institution that offers a full range of financial services, such as checking, savings, and lending. A savings and loan association is a service provider that may specialize in savings accounts and mortgage loans, but now offers a wide range of services. Mutual savings banks specialize in savings accounts and mortgages. Credit unions are nonprofit institutions that are owned by its members. Traditionally, the members of a credit union have a common bond such as employment with the same company. Credit unions offer a full range of financial services. Non-deposit financial institutions include life insurance, investment, finance, and mortgage companies. Such companies specialize in their respective industry but may offer other financial services as well. Finance companies offer higher interest rates loans to individuals and businesses that cannot borrow elsewhere, often due to credit problems.

Apply for a consumer loan

A consumer loan is any type of loan where a person borrows money from a lender. There are various types of consumer loans that are both secured and unsecured. Each loan comes with different terms and interest rates, and they're usually used for a specific purpose. Mortgages: Used by consumers to finance a house (typically larger) Credit cards: Used by consumers to finance everyday purchases. Auto loans: Used by consumers to finance the purchase of a vehicle. Student loans: Used by consumers to finance education. Personal loans: Used by consumers for personal purposes

Explain the nature of dividend reinvestment plans

A dividend reinvestment plan (DRIP) is a program that allows investors to reinvest their cash dividends into additional shares or fractional shares of the underlying stock on the dividend payment date. Dividend reinvestment plans allow you to increase your investment in a company over time by automatically reinvesting cash dividends in new shares rather than receiving the dividends in cash. Dividend reinvestment is when you own stock in a company that pays dividends, and you choose to have those dividends reinvested, rather than receiving the dividends as cash. Many companies pay out dividends to their stockholders. When you reinvest your dividends, you use those payments to buy more company stock.

Discuss the financial planning process

A financial plan acts as a guide as you go through life's journey. Essentially, it helps you be in control of your income, expenses and investments such that you can manage your money and achieve your goals. ... More importantly, you need to have money at the right point in time. --It's the process you go to determine whether or not a certain investment is a good idea, how to pursue it, and checking the outcomes. The steps are below (1) determining your current financial situation (2) developing financial goals (3) identifying alternative courses of action (4) evaluating alternatives (5) creating and implementing a financial action plan, and (6) reevaluating and revising the plan.

Evaluate leases

A lease is a contractual arrangement calling for the lessee to pay the lessor for use of an asset. Property, buildings and vehicles are common assets that are leased. Industrial or business equipment is also leased. There are various kinds of financial lease by which assets like land, buildings, equipment, vehicles and others can be leased for a specific period. The duration of the lease period varies with different assets. It can be either a long-term or intermediate-term lease arrangement, depending on the life and nature of the asset. Throughout the lease period, the lessor remains the owner, and the lessee has to pay the interest and other applicable payments but can enjoy using the asset. Legal Restrictions There are four basic qualification criteria for financial leases in the United States. Every financial lease should satisfy one of these four criteria: The lessor must give the lessee an option of purchasing the leased asset at a low price at the end of the lease period. The purchase price of the leased asset after the end of lease period must be lower than the market value of the asset. The lease period must cover at least 3/4 of the projected life of the asset to be leased. The net value of all payments made during the lease period should cover at least 90 percent of the original purchase value of the asset, so that after the lease and final purchase, the lessor should eventually have made profits.

Describe components of a payment system

A payment system is any system used to settle financial transactions through the transfer of monetary value, and includes the institutions, instruments, people, rules, procedures, standards, and technologies that make such an exchange possible. Common payment options: Cash. Checks. Debit cards. Credit cards. Mobile payments. Electronic bank transfers. There are many online payment systems people use as well, like paypall.

Develop personal budget

A personal budget is a plan for saving and spending your money based on your income and expenses. Start your budget by defining your needs and your goals, considering both short- and long-term goals. Write them down in a list, with a target date or time frame to reach them. Next you will need to prioritize your goals, arranging the items in order of importance. Then you must estimate your income and your expenses. In your income estimate, include your wages or salary but count only your net (take home) pay. Other sources of income might include tips, gifts, and interest earned on a bank account. Estimate your expenses in two categories—fixed and variable. Fixed expenses are usually the same amount each time you pay them. Variable expenses are those that vary each month. Once these steps are completed, you create your budget. You can transfer your estimated income and expenses to a paper or computerized budget form. Indicate your savings on the budget, as well—you may want to consider this a type of expense. As you compare your income to expenses, you should see if you have enough money coming in to pay all of your expenses. It is important to be honest and realistic when creating your budget, even if it means revising some things. Also, check your progress monthly and review You should review your spending carefully so you know if you have to cut back your expenses or increase your income.

Interpret securities table

A securities table provides information on a public auction of securities. It also provides an investor with information about an auction including: what security is available, the issue date, maturity date, terms and conditions of the sale and various bid closing times.

Discuss the nature of stock options

A stock option gives an investor the right, but not the obligation, to buy or sell a stock at an agreed-upon price and date. There are two types of options: puts, which is a bet that a stock will fall, or calls, which is a bet that a stock will rise. The biggest difference between stock options and stocks is that stocks represent shares of ownership in individual companies, while options are contracts with other investors that let you bet on which direction you think a stock price is headed.

Explain the concept of accounting

Accounting is the recording and storage of pertinent financial information in the form of presentable documents that are in accordance with the accepted accounting principles of the GAAP. Accounting also complies with gov. Regulations. Ex. Tax. Financial information for a business can be recorded, summarized, and reported in a variety of ways. The way in which information is kept and reported is determined by the size, type, and complexity of a business. Businesses should also consider the types of decisions that will be made when designing an accounting system. Types of information to be gathered include purchases, sales, expenses, and payroll. There are two basic types of accounting methods: cash and accrual. In the cash accounting method, income and expenses are recorded at the time the money changes hands. The accrual method of accounting records transactions at the time they occur even if no money changes hands at that time. Cash accounting is when money is exchanged while accrual is at the time of transaction, regardless of when money is exchanged.

Analyze the impact of accounts receivable collection on working capital cycle

Accounts receivable collection becomes necessary when customers or clients do not pay their accounts when they fall due, and when they become overdue. This affects the working capital cycle because the money owed to the client is need calculate the working capital. Accounts receivable is an asset account on the balance sheet that represents money due to a company in the short term The working capital calculation is Working Capital = Current Assets - Current Liabilities.

Describe the nature of income statements

An income statement is a summary of a business' income and expenses during a specific period of time. Often called a profit and loss statement, it is used to calculate revenue, costs and expenses, and profit/loss. Income statements have several major parts: total sales, net sales, cost of goods sold, gross profit, operating expenses, other income/expenses, net profit/loss before taxes, and net profit/loss after taxes. Some of these figures must be estimated or projected, such as total sales and business expenses. Shows the company's revenues and expenses during a particular period. Also shows the changes to revenue prior to converting to income/profit. Shows whether company lost or gained money.

Discuss the nature of Initial Public Offerings

An initial public offering (IPO) is the first time that the stock of a private company is offered to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but they can also be done by large privately owned companies looking to become publicly traded. In an IPO, a privately owned company lists its shares on a stock exchange, making them available for purchase by the general public. Many people think of IPOs as big money-making opportunities—high-profile companies grab headlines with huge share price gains when they go public You shouldn't invest in an IPO just because the company is garnering positive attention. Extreme valuations may imply that the risk and reward of the investment is not favorable at the current price levels. Investors should keep in mind a company issuing an IPO lacks a proven track record of operating publicly.

Describe the concept of insurance

An insurance policy is a contract between a business or individual and an insurance company to cover risks. Business risks include economic risks, natural risks, and human risks. Insurance companies estimate the probability of loss due to risk and determine a rate to charge for the policy, called a premium. Property insurance is one common type of insurance, which covers loss or damage to buildings and equipment. Property insurance can be purchased to cover full replacement cost, automatic increase protection, and business interruption. Liability insurance is a form of insurance that protects against damages for which a business or individual may be liable, including injury or property damage to others.

Discuss the impact of employee benefits on business financials

By helping employees achieve financial wellness, businesses can increase employee loyalty, build and maintain productivity, and improve job satisfaction. For employees, employee benefits can assist in saving money on everyday expenses where they'll have more disposable income, they increase engagement at work, they improve mental and physical wellbeing and can create a more enjoyable corporate culture. But the benefits are cut from the profits of the business.

Calculate cash flows associated with an investment (e.g., initial investment, operating cash inflows, operating cash outflows, terminal flows)

Calculating the cash flow from investing activities is simple. Add up any money received from the sale of assets, paying back loans or the sale of stocks and bonds. Subtract money paid out to buy assets, make loans or buy stocks and bonds. The total is the figure that gets reported on your cash flow statement. Initial investment: Multiply the sum by the number of years in question. Take the future value you have in mind and divide it by that sum to find out the initial investment you need. Operating cash inflows/outflows: Cash flow from operating activities is the amount of money the company receives (inflows) from its core business of manufacturing and selling finished products or providing services along with outflows such as payments for expenses. Operating Cash Flow = Operating Income + Depreciation - Taxes + Change in Working Capital. Terminal flows: Terminal cash flow is the net cash flow that occurs at the end of a project and represents the after-tax proceeds from disposal of the project assets and recoupment of working capital. Terminal value is calculated by dividing the last cash flow forecast by the difference between the discount rate and terminal growth rate.

Explain the role of capital markets in business finance

Capital markets are financial markets that bring buyers and sellers together to trade stocks, bonds, currencies, and other financial assets. Capital markets include the stock market and the bond market. They help people with ideas become entrepreneurs and help small businesses grow into big companies. The capital market plays an important role immobilising saving and channel is in them into productive investments for the development of commerce and industry. The capital market acts as an important link between savers and investors. The savers are lenders of funds while investors are borrowers of funds.

Describe the nature of cash flows

Cash flow is the movement of money into or out of a business, project, or financial product. Measurement of cash flow can be used for calculating other parameters that give information on a company's value and situation. Cash flow represents the operating activities of an organization. In accounting, cash flow is the difference in the amount of cash available at the beginning of a period (opening balance) and the amount at the end of that period (closing balance). It is called positive if the closing balance is higher than the opening balance, otherwise called negative. Cash flow is increased by: - Selling more goods or services - selling an asse - reducing costs - increasing the selling price - collecting faster - paying slower - bringing in more equity, - taking a loan The level of cash flow is not necessarily a good measure of performance, and vice versa: high levels of cash flow do not necessarily mean high or even any profit and high levels of profit do not automatically translate into high or even positive cash flow.

Describe cash management procedures

Cash management, also known as treasury management, is the process that involves collecting and managing cash flows from the operating, investing, and financing activities of a company. In business, it is a key aspect of an organization's financial stability. The company should ensure cash availability through managing cash on hand, cash deposits in daily, medium, and long term accounts, and cash disbursements to best meet the company cash and liquidity needs while managing risk.

Describe the nature of short-term financial management

Companies develop short-term financial plans to meet budget and investment goals within one fiscal year. These plans have a higher degree of certainty compared to long-term plans. Short-term plans often are amended as financial and investment goals change. Businesses and individuals alike use short-term plans to manage short-term cash deficits.

Discuss the cost of common stock

Companies sell shares to grow or expand. This way, the owner gets the money to expand his business and make more profit, and the lender gets a portion of profit every time the company makes some. Common stock is a security that represents ownership in a corporation. Holders of common stock elect the board of directors and vote on corporate policies. Common stock is reported in the stockholder's equity section of a company's balance sheet. It is the standard ownership share of a corporation.

Calculate the cost of capital and its components (e.g., debt, equity)

Cost of capital is the minimum return that businesses need to earn before value is generated. "Debt" involves borrowing money to be repaid, plus interest, while "equity" involves raising money by selling interests in the company. The cost of the debt: Average interest cost of debt x (1 - tax rate). The cost of equity: Risk-free interest rate + beta (market rate - risk-free rate). Beta measures the market volatility of your stock compared to the market. Weigh the cost of debt against the cost of equity in proportion to the percentage of debt and equity you will use to finance your venture

Discuss the nature of convergence/consolidation in the finance industry

Convergence or consolidation in the finance industry is the practice of businesses, such as banks and insurance companies joining forces with each other in order to offer customers a broad range of financial services. (In another, a bank can offer insurance products through a joint venture with an insurance company) Companies would do this to improve profitability by increasing their fee income and expanding their product/service mix. It also helps to reduce the cost of locating and securing new customers. To consolidate (consolidation) is to combine assets, liabilities, and other financial items of two or more entities into one. In the context of financial accounting, the term consolidate often refers to the consolidation of financial statements wherein all subsidiaries report under the umbrella of a parent company. This action can benefit both parent companies

Discuss the cost of corporate bonds

Corporate bonds are one way to invest in a company, offering a lower-risk, lower-return way to play a firm's ongoing success, compared to its stock. Bonds offer a regular cash payout, and their price tends to fluctuate less than the company's stock. Bond prices are quoted as a percentage of the face value of the bond, based on $100. For example, if a bond is selling at 95, it means that the bond may be purchased for 95% of its face value; a $10,000 bond, therefore, would cost the investor $9,500. Interest on bonds is usually paid every six months. For example, an investor may pay $800 to purchase a five-year, zero-coupon bond with a face value of $1,000. The company pays no interest on the bond for the next five years, and then, at maturity, pays $1,000—equal to the purchase price of $800 plus interest, or original issue discount, of $200.

Discuss the nature of cost allocation

Cost allocation is the process of identifying, aggregating, and assigning costs to cost objects. A cost object is any activity or item for which you want to separately measure costs. Examples of cost objects are a product, a research project, a customer, a sales region, and a department. Cost allocation is the distribution of one cost across multiple entities, business units, or cost centers. An example is when health insurance premiums are paid by the main corporate office but allocated to different branches or departments.

Explain forms of financial exchange (cash, credit, debit, electronic funds transfer, etc.)

Credit enables a business or individual to purchase goods and services in exchange for a promise to pay later. It is most helpful when consumers want to make major purchases, though it is often used for more common, less expensive items. Customers are typically issued a credit card from a bank to make such purchases. Debit is a variation of credit. Consumers using a debit card authorize a seller to withdraw funds directly from the consumer's bank account at the time of sale. A cash sale is any transaction in which the customer pays for the item with cash or a check. An electronic Funds Transfer (EFT) is an exchange of money by sending bank records via a computer network Other forms of retail sales transactions include layaway, on-approval, and cash-on- delivery (COD). Layaway means removing merchandise from stock and keeping it in a separate storage area until the customer pays. In an on-approval sale, an agreement is made permitting a customer to take merchandise home for further consideration before paying. A COD sale is a transaction that occurs when a customer pays for goods at the time they are delivered.

Explain the purposes and importance of credit

Credit enables businesses or individuals to obtain products or money in exchange for a promise to pay later. Businesses use credit to buy materials and supplies from other businesses. Credit makes it possible for millions of people and companies to purchase goods and services who otherwise would not have the means to do so. By extending credit, businesses provide a purchasing incentive to customers, thus enhancing their sales revenue and supporting the overall economy. Having credit history means a bank believes you will give back the money you are borrowing to make a purchase. Lenders, in return, are paid interest as a percentage of your loan. Depends on good or bad credit history. Creating a trustworthy record of on-time payments (good credit) can help you get lower interest rates when you finance a house, a car, etc. Getting an apartment, signing up for utilities and even landing a job can all be affected by your credit history.

Demonstrate the wise use of credit

Credit is a way to receive cash or goods now and pay for them later, most commonly through the use of a credit card or a loan. Before deciding to use credit, ask yourself if you can afford the item in the first place. Also, would it be better to use your savings instead of credit? Could your credit be put to better use in some other way? Or, should you put off the purchase for a later date? You must be certain that the benefits of making the purchase now on credit outweigh its costs, including fees and interest charges. There are many ways to use credit wisely. For instance, you may be able to combine several purchases into one, thus making only one monthly payment. You will likely need a credit card for major and expensive purchases. It is often safer, and more convenient, to use a credit card when shopping or travelling. The wise use of credit will allow you the opportunity to build a better credit history, which means you are seen as a reliable person to other lenders. When using credit, avoid the temptation to buy more than you can afford. Failing to repay a loan or credit card balance will damage your credit history, and could lead to you losing your property or source of income.

Discuss the nature of depreciation

Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life. Businesses depreciate long-term assets for both tax and accounting purposes. Depreciation is the reduction in the value of an asset over time. Depreciation can occur in any asset, but particularly is common in inventory and equipment. For example, if a business buys a truck worth $100,000 and that truck has a lifespan of 5 years, then it can be said that the truck has a depreciation value of $20,000 every year. Depreciation is important because it tells how much an asset is worth every year.

Describe the scope of costs in managerial accounting (e.g., direct cost, indirect cost, sunk cost, differential cost, etc.)

Direct cost is a price that can be completely attributed to the production of specific goods or services. Indirect costs are costs that are not directly accountable to a cost object (such as a particular project, facility, function or product). Indirect costs may be either fixed or variable. Indirect costs include administration, personnel and security costs. Sunk cost (also known as retrospective costs) refers to the cost that has already been incurred and cannot be recovered. Prospective costs are future costs that may be incurred or changed if an action is taken. Differential cost is the difference in costs between two or more business decisions. Calculating differential cost can help a business when it must decide between varying options and come up with a solution or another viable alternative to the choice in question.

Explain the nature of estate planning

Estate planning is the collection of preparation tasks that serve to manage an individual's asset base in the event of their incapacitation or death, including the bequest of assets to heirs and the settlement of estate taxes. Most estate plans are set up with the help of an attorney experienced in estate law. Some of the major estate planning tasks include: - Creating a will - Limiting estate taxes by setting up trust accounts in the name of beneficiaries - Establishing a guardian for living dependents - Naming an executor of the estate to oversee the terms of the will - Creating/updating beneficiaries on plans such as life insurance, IRAs and 401(k)s - Setting up funeral arrangements - Establishing annual gifting to reduce the taxable estate - Setting up durable power of attorney (POA) to direct other assets and investments

Discuss the role of ethics in finance

Ethics are guidelines for good behavior, based on knowing the difference between right and wrong. Behaving ethically means being truthful, fair, open, and mindful of the law. Companies and their executives can now be held accountable for misinformation or improper recording of a company's financial situation. A company must keep an accurate, honest, and complete record of its accounting transactions. Finance professionals should be educated about insider trading and other unethical practices. They must refrain from misrepresenting the facts to achieve short-term goals. Confidentiality must be maintained with regard to clients' personal information as well as company information. Efforts must also be made to avoid conflicts of interest between employees and customers.

Explain the role of finance in business

Finance is the function of business that pertains to money management. A financial plan is an important element of an overall business plan. Elements that pertain to the role of finance in a business include start up/equity financing, debt financing, and growth financing. Various financial statements, such as a balance sheet and income statement, provide a way to analyze a company's overall financial standing. Managing your business' finances will include planning for profits by forecasting sales, evaluating profit potential, controlling costs, and budgeting. Business financing also requires managing taxes and credit.

Explain the nature and scope of financial globalization

Financial globalization is the worldwide development of economic, financial, trade and communication integration. This pushes business executives to consider broad views in the global marketplace as countries, and their economies, become interconnected and interdependent. Benefits: Access to New Cultures. The Spread of Technology and Innovation. Lower Costs for Products. Higher Standards of Living Across the Globe. Access to New Markets. Access to New Talent. International Recruiting. Managing Employee Immigration.

Set financial goals

Financial goals are influenced by two main factors: the time frame in which you want to achieve your goals, and the type of need that inspires your goals. Goals can be short-term (usually one year or less to achieve), intermediate (two to five years), or long-term (more than five years). Also, some goals may happen every year, while others occur only occasionally. How you establish your financial goals may also depend on whether a goal you have set involves a consumable good that you would use up quickly, a durable good that lasts longer and usually costs more, or something intangible, such as your health or an education. Keep in mind that while setting financial goals, they should be realistic, specific, have a clear time frame, and should help you decide on what action to take. (SMART Goal)

Describe the need for financial information

Financial information includes raw data, records, and reports. Consumers are essentially buying information when dealing with financial services providers; businesses rely on accurate financial information to make sound decisions. Financial services products are bought and sold based on information about costs, returns, and risks. Financial information is used to match company resources to its planned activities and to identify additional resources that may be needed or secured. Businesses use information to identify ways to reduce expenses and invest company assets. Also, information is used to forecast for future budgeting and growth, as well as to control and manage risk. Other pieces of information that are required include sales, inventory, operating systems, personnel costs, insurance expenses, tax liability, and profitability. In addition, information must be collected regarding external factors such as economic conditions, investment alternatives, and competition. Accurate financial information (balance sheet, costs, wages, info about assets and liabilities, etc. ) contains vital data needed to make appropriate decisions on the future operations of a company such as when to purchase new assets, how to reduce costs, and how to increase profitability.

Describe the role of financial institutions

Financial institution refers to any organization in the business of moving, investing or lending money. It deals in financial instruments or in providing financial services. Such institutions are commercial banks, thrifts, federal and state savings banks, saving and loan associations, and credit unions. Financial institutions serve a variety of purposes that benefit consumers, businesses, and the overall economy. Savings, investing, and payment services (such as a checking account) are basic services of many institutions. Borrowing and credit are essential services that keep the economy moving. A variety of other services may be offered, such as insurance, investments, tax assistance, and financial planning services.

Explain legal considerations for finance

Financial services businesses are required to protect the privacy of the consumer information they collect. They must give consumers privacy notices that explain the company's information-sharing practices. Customers of a financial services business have the right to limit the sharing of their personal information. Additionally, information security is an important consideration in the finance industry, as companies are required to keep customer information secure. Audits from the SEC (Securities and Exchange Commission) and IRS (Internal Revenue Service) that reveal inconsistencies or unethical behavior may lead to jail time and/or costly fines. The federal government regulates interstate commerce through the commerce clause of the U.S. Constitution. Securities regulation, especially the Securities Act of 1933 and the Securities Exchange Act of 1934, have been enacted to protect investors. Companies can face criminal penalties for committing fraudulent behavior through intentional misrepresentation of their finances.

Develop policies to manage trade credit

For many businesses, trade credit is an essential tool for financing growth. Trade credit is the credit extended to you by suppliers who let you buy now and pay later. Any time you take delivery of materials, equipment or other valuables without paying cash on the spot, you're using trade credit. The purpose of the credit management policy is to define rules on all steps that are likely to generate business risk by committing financial resources. ... This helps to improve cash flow of the business while avoiding any credit risk. Trade credit insurance, business credit insurance, export credit insurance, or credit insurance is an insurance policy and a risk management product offered by private insurance companies and governmental export credit agencies to business entities wishing to protect their accounts receivable from loss due to credit risks such as protracted default, insolvency or bankruptcy.

Manage bank accounts (e.g., scope of services, fee structures, system integration)

How to manage a checking account: Use automation - One of the easiest ways to manage your checking account and save time is to automate your finances Know your balance Embrace potential earnings Avoid fees or instances where you could garner fees Consider consolidating everything into once account Decide where to keep extra money A scope of services agreement is a contract that defines what services you can expect. The agreement is also called a scope of work or statement of work A fee structure is a chart or list highlighting the rates on various business services or activities. A fee structure lets customers or clients know what to expect when working with a particular business. Banking integration allows you to access your clients'/your financial accounts in one place in your online, cloud-based dashboard. When the financial data is integrated into your association management software, you don't need to keep as many statements or physical paper ledgers to manage finances.

Discuss the impact of obsolescence on business expense

In accounting, useful life is related to the concept of depreciation. At the end of an asset's useful life, it becomes "fully depreciated," and is written off the business balance sheet. The difference between the cost basis of the asset and its value at write off is considered a capital loss, which affects the business taxes. Obsolescence is a notable reduction in the utility of an inventory item or fixed asset. The determination of obsolescence typically results in a write-down of the inventory item or asset to reflect its reduced value. When a business realizes that a portion of its inventory is obsolete, causing the asset to decline in value, it must create an allowance on its balance sheet. The effect of this allowance will increase the cost of goods sold, which modifies the income statement appropriately.

Discuss the nature of cost accounting budgets

In cost accounting, a budget is a financial plan that includes both financial and non-financial information. Its most obvious features are a projection of revenue (how much you anticipate selling) and expenses (how much you anticipate spending). It enables the business owner to concentrate on cash flow, reducing costs, improving profits and increasing returns on investment. Budgeting is the basis for all business success. It helps with both planning and control of the finances of the business.

Protect against identity theft

Individuals should avoid sharing personal information such as social security number (SSN) and credit card number to prevent identity theft. This could lead to fraudulent activity with someone else's money by extorting them by stealing that person's identity. The first step to protecting your identity is to be cautious with sensitive information and documents, including your social security number, checking and other bank account numbers, and the like. Shred any documents that contain sensitive information before throwing them out. When paying with a credit or debit card, be sure the card is always returned to you after the purchase. You may wish to keep a record of your card numbers in a place separate from your cards. Also, always look over your bank and credit card statements carefully when you receive them for mistakes and unknown charges or withdrawals.

Manage investment portfolio

Investment management refers to the handling of financial assets and other investments—not only buying and selling them. Management includes devising a short- or long-term strategy for acquiring and disposing of portfolio holdings. It can also include banking, budgeting, and tax services and duties, as well. Aim to invest in conservative stocks with regular dividends, stocks with long-term growth potential, and a small percentage of stocks with better returns or higher risk potential. If you're investing in individual stocks, don't put more than 4% of your total portfolio into one stock.

Discuss the issuance of stock from a corporation

Issuance of stock is linked to the maximum amount of shares a company can issue to its shareholders. This is usually made up of the total of outstanding treasury stock and shares, as well as shares the company has regained ownership of. Issued stock refers to the shares that the company is able to sell. Preferred stock, common stock, additional paid‐in‐capital, retained earnings, and treasury stock are all reported on the balance sheet in the stockholders' equity section. Information regarding the par value, authorized shares, issued shares, and outstanding shares must be disclosed for each type of stock.

Control debt

Know who and how much you owe. Pay off bills on time, even just minimums. Use incoming cash flow, not savings. Pay off high interest first. Improve credit. Recognize signs that you need help, debt relief company or credit counseling agency. Budget!! Pay the debts with the highest interest first Prioritize paying off debt first rather than saving

Explain legal responsibilities associated with financial exchanges

Legally speaking, a sale is a contract in which ownership of goods transfers immediately from the seller to the buyer for a price. If the transfer of ownership will take place at a future date, it is called a contract to sell, rather than a sale. According to the Uniform Commercial Code (UCC), goods are tangible, movable personal property. Payment occurs when the buyer delivers the agreed price and the seller accepts it. The receipt of goods is when the buyer takes physical possession of the goods. A court may find that a contract is unconscionable, or grossly unfair to one party or another. In such a case, the contract may be voided or limited, so it is important to be both fair and honest with financial exchanges, as any mistakes or cheating can be taken to court.

Explain the role of managerial accounting techniques in business management

Managerial accountants record financial information for their companies that is used by the organization's management team to aid in the decision-making process. Managerial accountants develop budgets, perform asset and cost management, and create important reports used by the management team. Managerial accounting can be used in short-term and long-term decisions involving the financial health of a company. Managerial accounting helps managers make operational decisions-intended to help increase the company's operational efficiency-which also helps in making long-term investment decisions.

Explain the nature of managerial cost accounting (e.g., activities, costs, cost drivers, etc.)

Managerial accounting is the process of identifying, measuring, analyzing, interpreting and communicating information for the pursuit of an organization's goals. This branch of accounting is also known as cost accounting. The key difference between managerial and financial accounting is managerial accounting information is aimed at helping managers within the organization make decisions, while financial accounting is aimed at providing information to parties outside the organization. Activities: Margin analysis Break even analysis. Constraint analysis. Target costing Cost Accounting: Cost accounting is a form of managerial accounting that aims to capture a company's total cost of production by assessing the variable costs of each step of production as well as fixed costs, such as a lease expense Cost drivers: An activity cost driver influences the costs of labor, maintenance, or other variable costs. Cost drivers are essential in Activity Based Costing, a branch of managerial accounting that allocates the indirect costs, or overheads, of an activity.

Describe marginal analysis techniques and applications

Marginal analysis is an examination of the additional benefits of an activity compared to the additional costs incurred by that same activity. Companies use marginal analysis as a decision-making tool to help them maximize their potential profits. For example, if a company has room in its budget for another employee and is considering hiring another person to work in a factory, a marginal analysis indicates that hiring that person provides a net marginal benefit. In other words, the ability to produce more products outweighs the increase in labor costs.

Describe functions of money (medium of exchange, unit of measure, store of value)

Money functions as a vehicle to pay for purchases, save for the future, and build wealth. Medium Of Exchange: The intermediary instrument used to facilitate the sale, purchase or trade of goods between parties (ex: currency) Unit Of Measure: Standard unit or system of units by means of which a quantity is accounted for and expressed. Store Of Value: function of an asset that can be saved, retrieved and exchanged at a later time, and be predictably useful when retrieved. As a savings instrument, money may be set aside in a variety of ways in order to have security for the future or to have on hand later for a large purchase. Money can be used as an investment tool, as well. Stocks, bonds, mutual funds, and retirement accounts are ways that money can be invested in order to build wealth. Other types of investment vehicles include buying real estate, precious metals, and collectibles.

Explain the use of technology in accounting

Most businesses use some type of accounting software to record and report their business transactions. Even when using an automated system, you still need to collect and keep your source documents and each business transaction must be separated into its debit and credit parts. Computerized posting to accounts is faster and eliminates accounting errors that a person might make doing it manually. Daily, weekly, monthly, and annual reports can be generated quickly and accurately. Software is also available for tax collection and reporting. Technology has significantly reduced the mistakes in accounting. Because technology encourages easy access and easy data adjustments, mistakes can be found and corrected easily.

Explain the nature of financial needs (e.g., college, retirement, wills, insurance, etc.)

One aspect of developing a financial plan is to know the difference between your needs and your wants. Furthermore, you need to prioritize your needs and wants as you set your financial goals. As you do so, keep in mind your attitude toward money and ask yourself if something is more important to spend money on now or to save for the future. Having choices with money comes with a cost and with risk. Opportunity cost is the trade off of giving something up when choosing one thing over another. Financial risks that you should consider include the risks of inflation, rising or falling interest rates, loss of income, and liquidity. Liquidity is the ability to convert assets into cash without loss of value. Knowing the difference between your financial needs and wants will allow you to determine for yourself what college, retirement, wills, and insurance will be filed under - needs or wants. You can make a plan to save money for each of these based on your calculation, as these may be either financial needs or wants based on an individual's plan for the future and individual beliefs.

Maintain financial records

Organizing your financial records helps you plan and measure your financial progress, handle routine money matters, determine the money you have now and will have in the future, and make effective decisions about saving and investing. Documents to manage include bank statements, paystubs, ownership certificates, tax forms, etc. Records may be maintained in a file cabinet, a safe-deposit box, and/or on a computer. File cabinets are useful for maintaining printed documents and records, and should be organized by type with labeled folders. Items that are difficult to replace, such as car titles and birth certificates, should be kept in a safe-deposit box. These can be rented at a bank. Alternatively, you may choose to purchase an in home fire safe for such documents. Computer programs are an excellent way to create and manage a personal budget, pay bills online, or generate financial documents that can be stored electronically.

Identify types of currency (paper money, coins, banknotes, government bonds, treasury notes, etc.)

Paper Money: currency in the form of paper, usually regulated by a government Coins: a flat, typically round piece of metal with an official stamp, used as money. Bank Notes: a piece of paper money, constituting a central bank's promissory note to pay a stated sum to the bearer on demand. (ex: one dollar bill is a banknote) Gov't Bond: bond issued by a national government, generally with a promise to pay periodic interest payments and to repay the face value on the maturity date Treasury Notes: marketable U.S. government debt security with a fixed interest rate and a maturity between one and 10 years Cryptocurrency: A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers

Explain methods used to analyze capital investments (e.g., payback period, discounted breakeven, net present value, accounting rate of return, internal rate of return, etc.)

Payback Period --> The payback period refers to the amount of time it takes to recover the cost of an investment. Moreover, it's how long it takes for the cash flow of income from the investment to equal its initial cost. This is usually expressed in years. Discounted breakeven --> The discounted payback period is a capital budgeting procedure used to determine the profitability of a project. A discounted payback period gives the number of years it takes to break even from undertaking the initial expenditure, by discounting future cash flows and recognizing the time value of money. Net present value --> Net present value (NPV) is a method used to determine the current value of all future cash flows generated by a project, including the initial capital investment. It is widely used in capital budgeting to establish which projects are likely to turn the greatest profit. The Net Present Value is the amount by which the present value of the cash inflows exceeds the present value of the cash outflows. Conversely, if the present value of the cash outflows exceeds the present value of the cash inflows, the Net Present Value is negative. Accounting rate of return --> The accounting rate of return (ARR) is a formula that reflects the percentage rate of return expected on an investment or asset, compared to the initial investment's cost. Internal rate of return --> The internal rate of return (IRR) is a metric used in financial analysis to estimate the profitability of potential investments. IRR is a discount rate that makes the net present value (NPV) of all cash flows equal to zero in a discounted cash flow analysis.

Interpret a pay stub

Paystub is a piece of paper that is given to an employee with each paycheck and that shows the amount of money that the employee earned and the amount that was removed for taxes, insurance costs, Social Security, etc. Your paystub includes many important things, starting with your name and social security number. It lists the current pay period. Your current and year-to-date earnings, taxes, and deductions are listed. Current earnings may be described with your hourly rate, the number of hours worked, and your gross earnings (calculated by multiplying your hourly rate by the number of hours worked). Taxes that may be withheld from your gross pay include Federal, State, Local, FICA (Social Security), and Medicare. Other deductions might include union dues and money withheld for fringe benefits, such as health insurance. Net pay is your gross earnings less taxes and deductions.

Discuss considerations in selecting a financial-services provider

People must consider their needs when working to choose. Ex. If I need a credit card and good customer service, I might go with a small bank or credit union. If I want someone to make sure the costs of our business are accurate, I might choose an accountant. When selecting a financial service provider, consider the following, depending on your needs: - Consider one where you can get the highest rate of return on a savings account - You can obtain a checking account with low or no fees - You will be able to borrow money when you need it and at a favorable interest rate - You can get free financial advice - The institution is insured through the FDIC (Federal Deposit Insurance Corporation) - It has convenient location - It offers a broad range of financial services - It has online banking or other special services you may desire

Identify project benefits and costs

Project benefits are referred to as "the measurable improvement deriving from a result perceived as an advantage by one or more stakeholders, which contributes to the achievement of one or more organizational objectives". The approximate total project cost, called the cost estimate, is used to authorize a project's budget and manage its costs. Professional estimators use defined techniques to create cost estimates that are used to assess the financial feasibility of projects, to budget for project costs, and to monitor project spending. Cost-benefit analysis, sometimes also called benefit-cost analysis, is a systematic approach to estimating the strengths and weaknesses of alternatives used to determine options which provide the best approach to achieving benefits while preserving savings.

Describe sources of securities information

Public companies make information available through a variety of documents. Annual reports highlight the company's performance and changes over the past year. A 10-K report is filed annually with the Securities and Exchange Commission. Companies often provide quarterly reports to shareholders, as well. An 8-K report is filed when a major company event that affects its securities takes place. In addition, many companies publish news bulletins. Other sources of information include newspapers, magazines, and other periodicals. The Wall Street Journal is one of the most respected sources of financial information, as are Investor's Business Daily, The New York Times, Barron's, Business Week, Forbes, and Fortune. Other publications are specific to investment advisory information, such as Moody's, Value Line Investment Survey, and Standard and Poor's Stock Guide. Securities brokerages also have numerous resources and internal reports for securities advice and information. Finally, there are numerous websites, as well as television and radio programs offering assistance.

Manage pension investment portfolio

Public pension fund assets are invested in diversified portfolios that include public equities; bonds issued by the U.S. and foreign governments and corporations; real estate; alternatives, such as private equities, hedge funds, and infrastructure; and other asset classes. Until relatively recently, pensions funds invested primarily in stocks and bonds, often using a liability-matching strategy. Today, they increasingly invest in a variety of asset classes including private equity, real estate, infrastructure, and securities like gold that can hedge inflation. A pension plan is an employee benefit that commits the employer to make regular contributions to a pool of money that is set aside in order to fund payments made to eligible employees after they retire. The PBGC acts as a pension insurance fund: Employers pay the PBGC (Pension Benefit Guaranty Corporation) an annual premium for each participant, and the PBGC guarantees that employees will receive retirement and other benefits if the employer goes out of business or decides to terminate its pension plan.

Discuss the nature of retirement planning

Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve those goals. Retirement planning includes identifying sources of income, estimating expenses, implementing a savings program, and managing assets and risk. 401k - A retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren't paid until the money is withdrawn from the account.. Most plans offer a spread of mutual funds composed of stocks, bonds, and money market investments. IRAs - An individual retirement account (IRA) allows you to save money for retirement in a tax-advantaged way. An IRA is an account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis.

Analyze cash budget/forecast variances

Sales figures always change because they depend on various factors, such as the types of customers you sell to, how quickly they have to pay you, what the economy is doing (e.g. interest rate increases or unemployment rates), and what your competitors are doing. Actual Spending - Budgeted Spending = Variance. The second formula is the negative convention, which measures negative variances as a negative value and positive variances as a positive figure. Budgeted Spending - Actual Spending = Variance. Budget variance analysis helps to reveal where your business exceeded expectations and where it came up short. Predictive budgeting can also help. The process of analyzing the variances reveals processes, initiatives, and other activities that created positive or negative results.

Explain the nature of statements of changes in equity

Statement of Changes in Equity, often referred to as Statement of Retained Earnings in U.S. GAAP, details the change in owners' equity over an accounting period by presenting the movement in reserves comprising the shareholders' equity. Statement of Changes in Equity is the reconciliation between the opening balance and closing balance of shareholder's equity. It is a financial statement which summarises the transactions related to the shareholder's equity over an accounting period. This primary purpose of Statement of Changes in Equity is to provide details about all the movements in the equity. It is the difference between the assets and liabilities shown on a company's balance sheet.

Explain the nature of tax liabilities

Taxes are payments you make to the government for services they provide. Tax liability is the total amount of taxes owed. Effective planning can reduce your tax liability, thus paying your fair share while taking advantage of tax benefits. The types of taxes include income, Social Security, sales, wealth and property taxes, as well as user fees. One can use several strategies to reduce tax liability. First, it is important to understand the current tax laws and how they affect you and your financial goals. Second, maintain complete and accurate tax records. Finally, learn and understand the types of taxes and how to make sound financial decisions, keeping taxes in mind.

Discuss the nature of corporate bonds

The corporate bond is a debt instrument, and the company's payment ability is its backing, typically in the form of profits from future operations. The physical assets of a business entity may also serve as collateral for corporate bonds. A corporate bond is a bond issued by a corporation in order to raise financing for a variety of reasons such as to ongoing operations, M&A, or to expand business. The term is usually applied to longer-term debt instruments, with maturity of at least one year. What is corporate bond with examples? For example, an investor may pay $800 to purchase a five-year, zero-coupon bond with a face value of $1,000. The company pays no interest on the bond for the next five years, and then, at maturity, pays $1,000—equal to the purchase price of $800 plus interest, or original issue discount, of $200.

Explain the impact of the cost of capital on capital investments

The cost of capital is simply the return expected by those who provide capital for the business The cost of capital aids businesses and investors in evaluating all investment opportunities. It does so by turning future cash flows into present value by keeping it discounted. The cost of capital can also aid in making key company budget calls that use company financial sources as capital Selection of projects with returns in excess of the cost of capital increases firm value. The selection of all projects with expected returns that are equal or greater to the firm's cost of capital maximizes shareholder wealth.

Describe the relationship between economic conditions and financial markets

The financial markets of a country can reflect the current state of an economy but they are not always linked. However, if an economy is growing, business profits will increase as consumers spend discretionary income. If an economy is headed toward a recession, and consumers are less likely to make purchases, a business' profit could decrease which reduces the business' value in a financial market. There is a strong positive relationship between financial market development and economic growth. Financial markets help to efficiently direct the flow of savings and investment in the economy in ways that facilitate the accumulation of capital and the production of goods and services.

Calculate capital investment return (e.g., payback, net present value, internal rate of return)

The formula for calculating return on capital is relatively simple. You subtract net income from dividends, add debt and equity together, and divide net income and dividends by debt and equity: (Net Income-Dividends)/(Debt+Equity)=Return on Capital. The payback period is the number of months or years it takes to return the initial investment. To calculate a more exact payback period: payback period = amount to be invested / estimated annual net cash flow. The resulting number after adding all the positive and negative cash flows together is the investment's NPV. Internal rate of return --> It is calculated by taking the difference between the current or expected future value and the original beginning value, divided by the original value and multiplied by 100.

Calculate stock-related values (e.g., the value of a constant growth stock, the expected value of future dividends, the expected rate of return, etc.)

The most common way to value a stock is to compute the company's price-to-earnings (P/E) ratio. The P/E ratio equals the company's stock price divided by its most recently reported earnings per share (EPS). A low P/E ratio implies that an investor buying the stock is receiving an attractive amount of value. Constant growth stock: The formula is P = D/(r-g), where P is the current price, D is the next dividend the company is to pay, g is the expected growth rate in the dividend and r is what's called the required rate of return for the company Expected Value of Future dividends: Find the company's historical dividnd growth rate. Go back to the company's financial statements to look up the quarterly dividend for the past 2 years. Subtract the current dividend from the dividend a year ago. Divide this difference by the dividend amount a year ago and multiply by 100 for a percentage growth rate. Expected rate of return: It is calculated by taking the average of the probability distribution of all possible returns. For example, a model might state that an investment has a 10% chance of a 100% return and a 90% chance of a 50% return. The expected return is calculated as: Expected Return = 0.1(1) + 0.9(0.5) = 0.55 = 55%.

Explain legal considerations for accounting

The most significant changes to corporate governance and accounting practice came with the Sarbanes-Oxley Act of 2002. The act requires that CEOs, financial officers, accountants, and auditors comply with regulations and procedures designed to ensure accurate representation of companies' financial positions. It prohibits most loans to directors and executive officers, and forces company insiders to report changes in ownership within two days after a transaction has been executed. Securities regulation ensures that purchasers can learn the true nature of the securities they buy by providing a way to uncover fraud and unfair practices. Audits from the SEC and IRS that reveal inconsistencies or unethical behavior may lead to jail time and/or costly fines. Malpractice is also subject to oversight from other organizations such as the GASB(Governmental Accounting Standards Board) and the PCAOB(Public Company Accounting Oversight Board).

Discuss the role of ethics in accounting

The nature of what accountants do requires a high level of ethics because accountants work with people's money. Financial information must be reported honestly and should not be disclosed without the consent of the subject of the information. The AICPA Code of Professional Conduct outlines a number of rules regarding ethics in accounting. A company must keep an accurate, honest, and complete record of its accounting transactions. Company audits should be carried out by an independent party. Confidentiality must be maintained with regard to clients' personal information as well as company information. Efforts must be made to avoid conflicts of interest between employees and customers. Ethical accountants exercise due care in the performance of their professional services. They should also be educated about insider trading as an unethical practice. Accountants must refrain from misrepresenting the facts to achieve short-term goals that are contrary to a business' long-term objectives. Internal auditors work independently within a business to review and improve the company's operations. They use strict standards to ensure the business sticks to its agreements, to design plans to protect assets, and to make the best use of company resources. Accountants often face ethical dilemmas revolving around company profits. Because of their unique role in recording all financial info, sometimes company management may pressure accountants to adjust certain things (costs, revenue, incomes). Can be controlled by the IMA (Institute of Management Accountants) and the IIA (Institute of Internal Auditors).

Analyze the impact of accounts payable schedules on working capital

The schedule of accounts payable is a listing of all vendors in the accounts payable ledger that the company currently owes money along with the current account balances. In other words, the schedule of accounts payable is a list of all the people whom the company owes in the accounts payable system. (Relates to how to calculate working capital). Accounts payable is considered a current liability, not an asset, on the balance sheet. The working capital calculation is Working Capital = Current Assets - Current Liabilities.

Describe components of a collection system

The system for managing accounts receivable billing and the collection of payments from your customers Process: You receive a notice from your creditor that your account is past due. Your creditor moves your account to a "charge off" status - the account is closed to future use, although the debt is still owed Your debt is sent to a collector The collector contacts you to verify your identity You receive a written debt validation notice from the collector Many different pays to pay: Cash payments, primarily from individuals in a retail business Checks, from individuals in a retail environment and business customers Credit and debit card payments from individuals and businesses Online payment methods such as PayPal, from individuals and companies. Credit or payment plans, from both individuals and business customers. Other external payment sources, such as insurance companies, in certain types of companies.

Calculate the time value of money

The time value of money (TVM) is the concept that a sum of money is worth more now than the same sum will be at a future date due to its earnings potential in the interim. This is a core principle of finance. ... The time value of money is also referred to as present discounted value To calculate future value, we multiply the Present Value by the rate (rate of return/discount rate/interest rate/growth per period) to the power of the number of period. We can manipulate this equation to calculate the time value of money in the future, in the past, or the rate at which it changes.

Use the time value of money to make business decisions (e.g., projects, investments, etc.)

The time value of money is a major financial consideration for companies. Essentially, you compare the value of money in hand versus the relative value of money you receive or pay out in the future. Inflation, risk factors, potential investment returns and loan interest impact business decisions. The time value of money is central to many capital budgeting decisions -- that is, the choices a business makes on which projects to pursue to make the company grow. ... Since those cash flows will arrive in the future, you must convert them to today's dollars -- "present value" -- to compare them to the cost.

Explain the time value of money

The time value of money is the increase of an amount of money due to interest earned over time or dividends paid. It is the idea that money invested now is worth more later because you would earn interest or dividends on it. Interest is money you earn over time as a percentage of the principal, or the original amount of money on deposit. Finding the future value of your original deposit is called compounding. With compounding, your money increases in value faster and faster over time. Figure the future value of your money by multiplying the principal by the annual interest rate, and then adding the interest to the principal. You can determine this future value for as many years as your money will be in an account.

Explain types of financial markets (e.g., money market, capital market, insurance market, commodities markets, etc.)

There are multiple markets that investors use to generate wealth and provide firms the opportunity to raise money for capital. Capital Market trades stocks and bonds. The Money Market trades cash investments (like cash deposits); so named for its high liquidity and maturity time period. The Cash Market is used for goods that are sold for cash and are delivered immediately. Commodities market - A commodity market involves buying, selling, or trading a raw product, such as oil, gold, or coffee Insurance market - the insurance market is simply the "buying and selling of insurance." Consumers or groups buy insurance for risk management from insurers offering coverage for specific risks.

Explain types of investments

There are several main types of investment vehicles. Common stock is a unit of ownership of a company that entities the owner to voting privileges. Preferred stock is a type of stock that gives the owner the advantage of receiving cash dividends before common stockholders receive them. **Stocks are attractive as an investment because owners share in the success of the company. A corporate bond is a corporation's written pledge to repay a specific amount of money, plus interest. A government bond is the written pledge of a government or municipality to repay a specific amount of money, plus interest. **When you buy a bond, you are lending money to a corporation or government entity for a period of time. Mutual funds are investments in which investors pool their money to buy stock, bonds, and/or other securities. The investments are selected by professional managers who work for an investment company. Their expertise can be beneficial to inexperienced investors. To own real estate - the goal of this is to own property that increases in value so you can sell it at a profit or receive rental income.

Prepare personal income tax forms (i.e., 1040 EZ form)

There are three basic income tax return forms, although hundreds of forms exist. Choose Form 1040EZ if your taxable income is less than $100,000, you have no dependents, and your income consists only of wages, salaries, and tips (among other factors). Choose Form 1040A if you have less than $100,000 in taxable income and you claim deductions, have dependents, and have capital gains distributions (among other factors). Form 1040 is an expanded version of Form 1040A, useful if you have taxable income greater than$100,000 and plan to itemize deductions, or have more complicated financial situations. To complete a tax return form, have your W-2 Form from your employer(s) on hand along with any interest and/or dividend forms. You can choose to file your tax return by using traditional paper forms and mailing them in, or you can file electronically over the Internet. In addition, you may choose to use tax preparation software to guide you through the process on your own with a computer. You may also choose to hire a tax professional to complete your return. Be sure to keep a copy of your completed form and your supporting documents in a safe place for at least six years.

Calculate bond-related values (e.g., the price of a bond given its yield to maturity, the coupon interest payment for a bond, the effects of interest rates on the price of a bond, etc.)

To compute the value of a bond at any point in time, you add the present value of the interest payments plus the present value of the principal you receive at maturity. Present value adjusts the value of a future payment into today's dollars. Bond yield is the return an investor realizes on a bond. Coupon Rate= Bond Face Value / Annual Coupon Payment​ If a bond has a face value of $1,000 and made interest or coupon payments of $100 per year, then its coupon rate is 10% ($100 / $1,000 = 10%). Current Yield = Bond Price / Annual Coupon Payment​ Yield is a figure that shows the return you get on a bond. The simplest version of yield is calculated by the following formula: yield = coupon amount/price. When the price changes, so does the yield. Bond price is the present discounted value of future cash stream generated by a bond. It refers to the sum of the present values of all likely coupon payments plus the present value of the par value at maturity. A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. A bond's price moves inversely with its YTM. An increase in YTM decreases the price and a decrease in YTM increases the price of a bond. The relationship between a bond's price and its YTM is convex.

Calculate the cost of credit

To minimize the cost of credit: - Pay off your monthly charges in full to not incur any interest - Have a high credit card score to qualify for the best credit card fees and loans - Choose a card with a good plan, interest rate, low annual fee, and promotional offers

Discuss the use of variance analysis in managerial accounting

Variance analysis is a tool of budgetary control by evaluation of performance by means of variances between budgeted amount, planned amount or standard amount and the actual amount incurred/sold. In budgeting, a variance is the difference between a budgeted, planned, or standard cost and the actual amount incurred/sold. Variances can be computed for both costs and revenues. Variance analysis is used to assess the price and quantity of materials, labour and overhead costs. These numbers are reported to management.

Describe sources of income (wages/salaries, interest, rent, dividends, transfer payments, etc.)

Wages/Salaries: the price paid to labour for its contribution to the process of production Interest: charge for the privilege of borrowing money, typically expressed as annual percentage rate. Interest can also refer to the amount of ownership a stockholder has in a company, usually expressed as a percentage. Rent: pay someone for the use of (something, typically property, land, or a car). Dividends: a sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits (or reserves). Transfer Payments: a payment made or income received in which no goods or services are being paid for, such as a benefit payment or subsidy.

Validate credit history

Your credit history is maintained in a credit report from one of three credit bureaus in the U.S.—Experian, Trans Union, and Equifax. Your credit history also includes a credit rating—a number that reflects your ability and willingness to make credit payments on time. You can validate your credit history by obtaining a copy of your credit report from each of the three reporting agencies. You can obtain a copy free of charge one time per year from each agency. Once you receive a credit report, look it over carefully for errors or out-of-date information, and be sure to contact the agency promptly to make corrections.

Determine personal net worth

Your net worth, quite simply, is the dollar amount of your assets minus all your debts. You can calculate your net worth by subtracting your liabilities (debts) from your assets. If your assets exceed your liabilities, you will have a positive net worth. Conversely, if your liabilities are greater than your assets, you will have a negative net worth.