BACKGROUND KNOWLEDGE for Teachers and Students

Size: px
Start display at page:

Download "BACKGROUND KNOWLEDGE for Teachers and Students"

Transcription

1 Pathway: Business, Marketing, and Computer Education Lesson: BMM C6 4: Financial Statements and Reports Common Core State Standards for Mathematics: N.Q.2 Domain: Quantities Cluster: Reason quantitatively and use units to solve problems. Standard: 2. Define appropriate quantities for the purpose of descriptive modeling.* Student Objectives: 1. Analyze financial statements. 2. Calculate financial performance ratios. 3. Compare mathematical results with industry standards. Math Concepts: BACKGROUND KNOWLEDGE for Teachers and Students Arithmetic: Arithmetic is a branch of mathematics in which problems are solved by calculating with numbers, using any one or a combination of the following operations: addition, subtraction, multiplication, division. Two types of problems are solved with arithmetic. Counting, grouping, or regrouping objects solves one type. Measuring or comparing quantities solves the other type. Logic: Logic is the laws that govern valid thinking patterns and the structure of statements. Order of operations: Order of operations follows these rules: (1) If grouping symbols are used, perform the operations within the grouping symbols first. (2) Perform all multiplications and divisions in order from left to right. (3) Then, perform all additions and subtractions in order from left to right. COMMON CORE MATH INTEGRATION ACTIVITY: BMM C6 4: Financial Statements and Reports Page 1

2 Percent: Percent is per hundred. It is the ratio of a number to 100 with a percent sign. For example, 20% means 20 out of 100 or 20 / 100. Problem solving: Problem solving is understanding what a problem is asking and applying formulas to complete the calculation. Ratio: Ratio is a comparison of two quantities by division. Ratio analysis: Ratio analysis is an evaluation of relationships between elements of financial statement information used to identify trends over time. Ratio analysis focuses on liquidity (cash), profitability, and solvency (wealth). Business, Marketing, and Computer Education Concepts: Accountants and financial analysts review financial statements to assess a company s strength and performance. One component of this review involves conducting ratio analysis comparing various line items in a financial statement to a particular item and comparing the calculations from period to period. As a requirement of many loans, certain minimum/maximum levels must be maintained for a financial institution to continue to offer its lending services or to maintain a specific interest rate. Account: An account is a chronological record of changes to assets, liabilities, or stockholder s equity. The Cash account is an example; all transactions related to cash would be recorded in the Cash account. Accounts Payable: Accounts Payable is the amount owed by a company to its vendors/ creditors. It is sometimes referred to as a current liability on a Balance Sheet. Accounts Payable Turnover: Accounts Payable Turnover is a ratio that determines how long it takes a business, on average, to pay its bills. Turnover Rate = Cost of Goods Sold Average Accounts Payable. Accounts Payable Turnover = 365 Turnover Rate. Accounts Receivable: Accounts Receivable is the amount owed to a company by its creditors (customers). Accounts Receivable Turnover: Accounts Receivable Turnover is an accounting measure that shows how efficiently a business uses its assets to extend credit and to collect debt. Turnover Rate = Sales Average Accounts Receivable. Accounts Receivable Turnover = 365 Turnover Rate. This ratio indicates how long it takes a business, on average, to be paid by its customers. Asset: An asset is something valuable, such as a resource, owned or controlled by a business as a result of past events and from which future economic benefits are expected. Balance Sheet: A Balance Sheet is a financial statement that lists all a business s accounts, capital, assets, liabilities, and shareholders equity at a point in time. Balance Sheets detail the balance of income and expenditures over the prior period. The statement is called a Balance Sheet because the two sides balance out. COMMON CORE MATH INTEGRATION ACTIVITY: BMM C6 4: Financial Statements and Reports Page 2

3 Cash: Cash is the amount of ready money residing in a company s financial accounts, such as petty cash, bank account balances, customer checks, and marketable securities. Cost of Goods Sold (COGS): Cost of Goods Sold is an Income Statement figure that reflects the cost of obtaining raw materials and producing finished goods sold to consumers. Cost of Goods Sold = Beginning Merchandise Inventory + Net Purchases of Merchandise Ending Merchandise Inventory. For example: Beginning Merchandise Inventory = $180,000 Net Purchases of Merchandise = $650,000 Ending Merchandise Inventory = $205,000 COGS = 180, , ,000 = $625,000 Current assets: Current assets are those assets that will be consumed within one year or will be used to pay for the business s current liabilities. Current liabilities: Current liabilities are those obligations due to be paid within one year. Current ratio: Current ratio is a financial indicator of a company s ability to repay its shortterm debt (within 12 months). Current Ratio = Current Assets Current Liabilities. Debt-to-equity ratio: Debt-to-equity ratio is an indicator of how much of a business s financing is through debt (borrowing); it is a type of financial ratio found on Balance Sheets, Income Statements, and Statements of Cash Flows. Debt-to-Equity Ratio = Total Debt Total Stockholders Equity. Financial ratios: Financial ratios evaluate the overall financial condition of an organization. Examples include return on investment (ROI), return on assets (ROA), and debt-to-equity. Financial statements: Financial statements are records that summarize the monetary activities of a business. The four main financial statements are Balance Sheet, Income Statement, Statement of Cash Flows, and Statement of Retained Earnings. Gross Margin: Gross Margin is the amount of money generated from selling a product after the product costs are deducted. The formula is Gross Margin = Sales Cost of Goods Sold. Gross Margin ratio: Gross Margin ratio (gross profit margin) is a measure of a company s profitability, specifically the costs related to purchasing a product for resale. It is expressed as a percentage of gross profit. The formula is Gross Margin Ratio = Gross Profit Sales Revenue. Income Statement: An Income Statement is a financial document that reports revenue and expenses over a designated period (usually one month or one year). Inventory Turnover: Inventory Turnover is a measure of how long inventory sits, on average, in stock how many times inventory is sold and replaced during a given period. Turnover Rate = Cost of Goods Sold Average Inventory. Inventory Turnover = 365 Turnover Rate. COMMON CORE MATH INTEGRATION ACTIVITY: BMM C6 4: Financial Statements and Reports Page 3

4 Long-term assets: Long-term assets are the value of a business s property, facility, equipment, and other capital assets minus depreciation. Included, also, are long-term investments and other assets the business uses for more than 12 months. Long-term assets provide economic benefit for an extended period. Long-term liabilities: Long-term liabilities are a category of debt; they are obligations that become due after one year or more. Net Income/Loss: Net Income/Loss is the overall profit or loss after all expenses are deducted from the Gross Margin. Profit Margin: Profit Margin is the ratio of profits earned to total sales receipts over a specific period. It measures the financial health of a business. For example, a company that makes a profit of $10 on a $100 cell phone has a Profit Margin of 10%. The formula to calculate Profit Margin is Earnings Product Cost = Profit Margin. In this case, $10 $100 = COMMON CORE MATH INTEGRATION ACTIVITY: BMM C6 4: Financial Statements and Reports Page 4

5 1. a. $60,000 Guided Practice Exercises: ANSWER KEY b. $152,600 c. $39,250 d. $2,000 e. $215,000 f. $221,800 g. $55,000 h. $394,450 i. $572,300 j. $350, a. Current Assets Current Liabilities 152,600 51,500 = 2.96 ANALYSIS: A result >1 suggests the business s strong ability to repay its current obligations. A 2.96 current ratio means that there are $2.96 of current assets to cover each $1.00 of current liabilities. b. Gross Margin Sales 221, ,300 = 38.76% ANALYSIS: The result of this performance ratio calculation means that the company has 38.76% of its funds left over to cover other non-sales related expenses. c. Net Income Sales 18, ,300 = 3.15% ANALYSIS: A 3.15% Profit Margin is rather low. This means that only 3.15% of funds are available to reinvest in the business and that the company profited only $3.15 for every $ of sales. Although industry averages may vary, anything below 10% is considered critical. d. Cost of Goods Sold Average Inventory 350,500 [(32, ,800) 2] = = Turnover Rate = 31.77, or 32 days in inventory COMMON CORE MATH INTEGRATION ACTIVITY: BMM C6 4: Financial Statements and Reports Page 5

6 ANALYSIS: The result of this calculation means that the company s inventory is turned over, or sold, every 32 days. This number varies based on the type of business (i.e., fast-food restaurant versus furniture store). e. Cost of Goods Sold Average Accounts Payable 350,500 [(42, ,000) 2] = 8.93 = Turnover Rate = 40.87, or 41 days ANALYSIS: The result means that, on average, this company pays its bills in 41 days. f. Sales Average Accounts Receivable 572,300 [(20, ,000) 2] = = Turnover Rate = 15.3, or 16 days ANALYSIS: The result means that, on average, customers pay the company in 16 days. This number 16 days should be compared with the company s payment terms (i.e., invoices due in 10 days? 30 days?). Independent Practice Exercises: ANSWER KEY 1. a. Current Assets Current Liabilities 140,500 27,500 = 5.11 ANALYSIS: A result >1 suggests a strong ability of a business to repay its current obligations. A 5.11 current ratio means that there are $5.11 of current assets to cover each $1.00 of current liabilities. b. Gross Margin Sales 152, ,000 = 38% ANALYSIS: The result of this performance ratio calculation means that the company has 38% of its funds left over to cover other non-sales related expenses. c. Net Income Sales 27, ,000 = 6.88% ANALYSIS: A 6.88% Profit Margin is rather low. This means that only 6.88% of funds are available to reinvest in the business and that the company profited only $6.88 for every $ of sales. Although industry averages may vary, anything below 10% is considered critical. d. Cost of Goods Sold Average Inventory 248,000 [(72, ,000) 2] = 3.65 = Turnover Rate = 100 days in inventory COMMON CORE MATH INTEGRATION ACTIVITY: BMM C6 4: Financial Statements and Reports Page 6

7 ANALYSIS: The result of this calculation means that the company s inventory is turned over, or sold, every 100 days. This number varies based on the type of business (i.e., fast-food restaurant versus furniture store). This number 100 days is considered high. e. Cost of Goods Sold Average Accounts Payable 248,000 [(24, ,000) 2] = 8.13 = Turnover Rate = 44.90, or 45 days ANALYSIS: The result means that, on average, this company pays its bills in 45 days. f. Sales Average Accounts Receivable 400,000 [(41, ,000) 2] = 9.94 = Turnover Rate = 36.72, or 37 days ANALYSIS: The result means that, on average, customers pay the company in 37 days. This number 37 days should be compared with the company s payment terms (i.e., invoices due in 10 days? 30 days?). COMMON CORE MATH INTEGRATION ACTIVITY: BMM C6 4: Financial Statements and Reports Page 7

8 Guided Practice Exercises: Name: 1. Use the information on the West Company, Inc., Balance Sheet and Income Statement dated December 31, (Current Year), to locate and/or calculate the following account balances. a. Land b. Total Current Assets c. Advertising Expense d. Interest Payable e. Total Stockholders Equity f. Gross Margin g. Retained Earnings h. Average Total Assets [HINT: Compare last year and this year.] i. Sales j. Cost of Goods Sold COMMON CORE MATH INTEGRATION ACTIVITY: BMM C6 4: Financial Statements and Reports Page 8

9 West Company, Inc. Comparative Balance Sheet December 31, (Current Year) Current Year Last Year Assets Cash 98, , Accounts Receivable 20, , Inventory 32, , Supplies 2, , Total Current Assets 152, , Buildings 155, , Vehicles 35, , Land 60, , Total Assets 402, , Liabilities Accounts Payable 42, , Interest Payable 2, , Salaries Payable 7, , Total Current Liabilities 51, , Long-Term Debt 130, , Interest on Long-Term Debt 6, , Total Liabilities 187, , Stockholders Equity Common Stock 100, , Preferred Stock 60, , Retained Earnings 55, , Total Stockholders Equity 215, , Total Liabilities and Stockholders Equity $402, $386, COMMON CORE MATH INTEGRATION ACTIVITY: BMM C6 4: Financial Statements and Reports Page 9

10 West Company, Inc. Income Statement For the year ended December 31, (Current Year) Current Year Revenue Sales 572, Cost of Goods Sold 350, Gross Margin 221, Expenses Advertising Expense 39, Communications Expense 6, Interest Expense 2, Miscellaneous Expense 1, Salaries Expense 135, Utilities Expense 19, Total Expenses 203, Net Income 18, Use the information on the West Company, Inc., Balance Sheet and Income Statement dated December 31, (Current Year), presented in Exercise 1, to calculate the following performance ratios. Then, analyze the results. a. Current Ratio (Find these line items on the Balance Sheet. Round your answer to two decimal places.) ANALYSIS: What does a result >1 suggest about a business s ability to repay its current obligations? What does the West Company, Inc. s current ratio mean in relation to current assets with which it can cover current liabilities? COMMON CORE MATH INTEGRATION ACTIVITY: BMM C6 4: Financial Statements and Reports Page 10

11 b. Gross Margin Ratio (Find these line items on the Income Statement. Round your answer to two decimal places.) ANALYSIS: What does the calculated Gross Margin ratio mean? c. Profit Margin (Find these line items on the Income Statement. Round your answer to two decimal places.) ANALYSIS: What does the calculated Profit Margin mean? d. Inventory Turnover (Find these line items on the Income Statement and Balance Sheet. [HINT: For an Inventory Turnover ratio, the Income Statement account is always in the numerator position.] Round the turnover rate to two decimal places and your final answer up to the nearest full day.) ANALYSIS: What does the calculated Inventory Turnover ratio mean? COMMON CORE MATH INTEGRATION ACTIVITY: BMM C6 4: Financial Statements and Reports Page 11

12 e. Accounts Payable Turnover (Find these line items on the Income Statement and Balance Sheet. Round the turnover rate to two decimal places and your final answer up to the nearest full day.) ANALYSIS: What does the calculated Accounts Payable Turnover rate mean? f. Accounts Receivable Turnover (Find these line items on the Income Statement and Balance Sheet. Round the turnover rate to two decimal places and your final answer up to the nearest full day.) ANALYSIS: What does the calculated Accounts Receivable Turnover rate mean? COMMON CORE MATH INTEGRATION ACTIVITY: BMM C6 4: Financial Statements and Reports Page 12

13 Name: Independent Practice Exercises: 1. Use the information on the East Company, Inc., Balance Sheet and Income Statement dated December 31, (Current Year) to calculate the following performance ratios. Then, analyze the results. East Company, Inc. Comparative Balance Sheet December 31, (Current Year) Current Year Last Year Assets Cash 22, , Accounts Receivable 41, , Inventory 72, , Supplies 5, , Total Current Assets 140, , Buildings 160, , Vehicles 43, , Total Assets 343, , Liabilities Accounts Payable 24, , Salaries Payable 3, , Total Current Liabilities 27, , Long-Term Debt 100, , Interest on Long-Term Debt 6, , Total Liabilities 134, , Stockholders Equity: Common Stock 60, , Preferred Stock 20, , Retained Earnings 129, , Total Stockholders Equity 209, , Total Liabilities and Stockholders Equity 343, , COMMON CORE MATH INTEGRATION ACTIVITY: BMM C6 4: Financial Statements and Reports Page 13

14 East Company, Inc. Income Statement For the year ended December 31, (Current Year) Current Year Revenue Sales 400, Cost of Goods Sold 248, Gross Margin 152, Expenses Advertising Expense 39, Communications Expense 2, Interest Expense 15, Miscellaneous Expense 1, Salaries Expense 40, Rent Expense 15, Utilities Expense 11, Total Expenses 124, Net Income 27, a. Current Ratio (Find these line items on the Balance Sheet. Round your answer to two decimal places.) ANALYSIS: What does a result >1 suggest about a business s ability to repay its current obligations? What does the East Company, Inc. s current ratio mean in relation to current assets with which it can cover current liabilities? COMMON CORE MATH INTEGRATION ACTIVITY: BMM C6 4: Financial Statements and Reports Page 14

15 b. Gross Margin Ratio (Find these line items on the Income Statement.) ANALYSIS: What does the calculated Gross Margin ratio mean? c. Profit Margin (Find these line items on the Income Statement. Round your answer to two decimal places.) ANALYSIS: What does the calculated Profit Margin mean? d. Inventory Turnover (Find these line items on the Income Statement and Balance Sheet. [HINT: For an Inventory Turnover ratio, the Income Statement account is always in the numerator position.] Round the turnover rate to two decimal places.) ANALYSIS: What does the calculated Inventory Turnover ratio mean? COMMON CORE MATH INTEGRATION ACTIVITY: BMM C6 4: Financial Statements and Reports Page 15

16 e. Accounts Payable Turnover (Find these line items on the Income Statement and Balance Sheet. Round the turnover rate to two decimal places and your final answer up to the nearest full day.) ANALYSIS: What does the calculated Account Payable Turnover rate mean? f. Accounts Receivable Turnover (Find these line items on the Income Statement and Balance Sheet. Round the turnover rate to two decimal places and your final answer up to the nearest full day.) ANALYSIS: What does the calculated Accounts Receivable Turnover rate mean? COMMON CORE MATH INTEGRATION ACTIVITY: BMM C6 4: Financial Statements and Reports Page 16

Income Measurement and Profitability Analysis

Income Measurement and Profitability Analysis PROFITABILITY ANALYSIS The following financial statements for Spencer Company will be used to demonstrate the calculation of the various ratios in profitability analysis. Spencer Company Comparative Balance

More information

* * * Chapter 15 Accounting & Financial Statements. Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

* * * Chapter 15 Accounting & Financial Statements. Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall Chapter 15 Accounting & Financial Statements Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall Bookkeeping vs. Accounting Bookkeeping Accounting The recording of business transactions.

More information

Financial Statements Tutorial

Financial Statements Tutorial Financial Statement Review: Financial Statements Tutorial There are four major financial statements used to communicate information to external users (creditors, investors, suppliers, etc.) - 1. Balance

More information

Learning Objectives: Quick answer key: Question # Multiple Choice True/False. 14.1 Describe the important of accounting and financial information.

Learning Objectives: Quick answer key: Question # Multiple Choice True/False. 14.1 Describe the important of accounting and financial information. 0 Learning Objectives: 14.1 Describe the important of accounting and financial information. 14.2 Differentiate between managerial and financial accounting. 14.3 Identify the six steps of the accounting

More information

Understanding Financial Statements. For Your Business

Understanding Financial Statements. For Your Business Understanding Financial Statements For Your Business Disclaimer The information provided is for informational purposes only, does not constitute legal advice or create an attorney-client relationship,

More information

FINANCIAL MANAGEMENT

FINANCIAL MANAGEMENT 100 Arbor Drive, Suite 108 Christiansburg, VA 24073 Voice: 540-381-9333 FAX: 540-381-8319 www.becpas.com Providing Professional Business Advisory & Consulting Services Douglas L. Johnston, II djohnston@becpas.com

More information

Using Accounts to Interpret Performance

Using Accounts to Interpret Performance Using s to Interpret Performance ing information is used by stakeholders to judge the performance and efficiency of a business Different stakeholders will look for different things: STAKEHOLDER Shareholders

More information

Guide to Financial Ratios Analysis A Step by Step Guide to Balance Sheet and Profit and Loss Statement Analysis

Guide to Financial Ratios Analysis A Step by Step Guide to Balance Sheet and Profit and Loss Statement Analysis Guide to Financial Ratios Analysis A Step by Step Guide to Balance Sheet and Profit and Loss Statement Analysis By BizMove Management Training Institute Other free books by BizMove that may interest you:

More information

Accounts Payable are the total amounts your business owes its suppliers for goods and services purchased.

Accounts Payable are the total amounts your business owes its suppliers for goods and services purchased. Accounts Payable are the total amounts your business owes its suppliers for goods and services purchased. Accounts Receivable are the total amounts customers owe your business for goods or services sold

More information

Ratio Analysis. A) Liquidity Ratio : - 1) Current ratio = Current asset Current Liability

Ratio Analysis. A) Liquidity Ratio : - 1) Current ratio = Current asset Current Liability A) Liquidity Ratio : - Ratio Analysis 1) Current ratio = Current asset Current Liability 2) Quick ratio or Acid Test ratio = Quick Asset Quick liability Quick Asset = Current Asset Stock Quick Liability

More information

Engineering Economics 2013/2014 MISE

Engineering Economics 2013/2014 MISE Problem: JS, Inc. shows the following accounting records for 2011: Sales commissions 15000 Beginning merchandise inventory 16000 Ending merchandise inventory 9000 Sales 185000 Advertising 10000 Purchases

More information

Plan and Track Your Finances

Plan and Track Your Finances Plan and Track Your Finances 9.1 Financing Your Business 9.2 Pro Forma Financial Statements 9.3 Recordkeeping for Businesses Lesson 9.1 Financing Your Business Goals Estimate your startup costs and personal

More information

PROFESSOR S NAME ACC 255 FALL 2011 COVER SHEET FOR COMPREHENSIVE PROBLEM 2 (CHAPTERS 2, 5-8)

PROFESSOR S NAME ACC 255 FALL 2011 COVER SHEET FOR COMPREHENSIVE PROBLEM 2 (CHAPTERS 2, 5-8) COMPREHENSIVE PROBLEM 2 (CHAPTERS 2, 5-8) Page 137 NAME ANSWER KEY PROFESSOR S NAME SECTION SCORE ACC 255 FALL 2011 COVER SHEET FOR COMPREHENSIVE PROBLEM 2 (CHAPTERS 2, 5-8) INSTRUCTIONS: COMPLETE ALL

More information

Liquidity analysis: Length of cash cycle

Liquidity analysis: Length of cash cycle 2. Liquidity analysis: Length of cash cycle Operating cycle of a merchandising firm: number of days it takes to sell inventory + number of days until the resulting receivables are converted to cash Acquisition

More information

Financial Statements

Financial Statements Financial Statements The financial information forms the basis of financial planning, analysis & decision making for an organization or an individual. Financial information is needed to predict, compare

More information

The Basic Framework of Budgeting

The Basic Framework of Budgeting Master Budgeting 1 The Basic Framework of Budgeting A budget is a detailed quantitative plan for acquiring and using financial and other resources over a specified forthcoming time period. 1. The act of

More information

ICAP GROUP S.A. FINANCIAL RATIOS EXPLANATION

ICAP GROUP S.A. FINANCIAL RATIOS EXPLANATION ICAP GROUP S.A. FINANCIAL RATIOS EXPLANATION OCTOBER 2006 Table of Contents 1. INTRODUCTION... 3 2. FINANCIAL RATIOS FOR COMPANIES (INDUSTRY - COMMERCE - SERVICES) 4 2.1 Profitability Ratios...4 2.2 Viability

More information

Gross Sales (Gross Revenue): the total amount of money received from customers

Gross Sales (Gross Revenue): the total amount of money received from customers Chapter 17 Financial Statements and Ratios 17.1: The Income Statement 17.1.1: Learn the terms used with income statements Income Statement: a financial statement used to summarize all income and expenses

More information

Ratios and interpretation

Ratios and interpretation Unit Ratios and interpretation As we learnt in our earlier studies, accounting information is used to answer two key questions about a business: Is it making a profit? Are its assets sufficient to meet

More information

Chapter Financial Forecasting

Chapter Financial Forecasting Chapter Financial Forecasting PPT 4-2 Chapter 4 - Outline What is Financial Forecasting? 3 Financial Statements for Forecasting Constructing Pro Forma Statements Basis for Sales Projections Steps in a

More information

Performance Review for Electricity Now

Performance Review for Electricity Now Performance Review for Electricity Now For the period ending 03/31/2008 Provided By Mark Dashkewytch 780-963-5783 Report prepared for: Electricity Now Industry: 23821 - Electrical Contractors Revenue:

More information

Account Numbering. By separating each account by several numbers, many new accounts can be added between any two while maintaining the logical order.

Account Numbering. By separating each account by several numbers, many new accounts can be added between any two while maintaining the logical order. Chart of Accounts The chart of accounts is a listing of all the accounts in the general ledger, each account accompanied by a reference number. To set up a chart of accounts, one first needs to define

More information

Financial Statements and Ratios: Notes

Financial Statements and Ratios: Notes Financial Statements and Ratios: Notes 1. Uses of the income statement for evaluation Investors use the income statement to help judge their return on investment and creditors (lenders) use it to help

More information

STATEMENT OF CASH FLOWS AND WORKING CAPITAL ANALYSIS

STATEMENT OF CASH FLOWS AND WORKING CAPITAL ANALYSIS C H A P T E R 1 0 STATEMENT OF CASH FLOWS AND WORKING CAPITAL ANALYSIS I N T R O D U C T I O N Historically, profit-oriented businesses have used the accrual basis of accounting in which the income statement,

More information

ACC 255 FINAL EXAM REVIEW PACKET (NEW MATERIAL)

ACC 255 FINAL EXAM REVIEW PACKET (NEW MATERIAL) Page 1 ACC 255 FINAL EXAM REVIEW PACKET (NEW MATERIAL) Complete these sample exam problems/objective questions and check your answers with the solutions at the end of the review file and identify where

More information

What is a business plan?

What is a business plan? What is a business plan? A business plan is the presentation of an idea for a new business. When a person (or group) is planning to open a business, there is a great deal of research that must be done

More information

6. Financial Planning. Break-even. Operating and Financial Leverage.

6. Financial Planning. Break-even. Operating and Financial Leverage. 6. Financial Planning. Break-even. Operating and Financial Leverage. Financial planning primarily involves anticipating the impact of operating, investment and financial decisions on the firm s future

More information

Chapter. How Well Am I Doing? Financial Statement Analysis

Chapter. How Well Am I Doing? Financial Statement Analysis Chapter 17 How Well Am I Doing? Financial Statement Analysis 17-2 LEARNING OBJECTIVES After studying this chapter, you should be able to: 1. Explain the need for and limitations of financial statement

More information

Understanding Financial Information for Bankruptcy Lawyers Understanding Financial Statements

Understanding Financial Information for Bankruptcy Lawyers Understanding Financial Statements Understanding Financial Information for Bankruptcy Lawyers Understanding Financial Statements In the United States, businesses generally present financial information in the form of financial statements

More information

RENAISSANCE ENTREPRENEURSHIP CENTER First Finance Class (FIN-1)

RENAISSANCE ENTREPRENEURSHIP CENTER First Finance Class (FIN-1) Finance 1 (FIN-1) RENAISSANCE ENTREPRENEURSHIP CENTER (FIN-1) Learning Outcomes At the conclusion of this class, you should: Know what will be covered in the six finance class sessions. Have reviewed some

More information

GVEP Workshop Finance 101

GVEP Workshop Finance 101 GVEP Workshop Finance 101 Nairobi, January 2013 Agenda Introducing business finance Understanding financial statements Understanding cash flow LUNCH Reading and interpreting financial statements Evaluating

More information

CASH FLOW STATEMENT (AND FINANCIAL STATEMENT)

CASH FLOW STATEMENT (AND FINANCIAL STATEMENT) CASH FLOW STATEMENT (AND FINANCIAL STATEMENT) - At the most fundamental level, firms do two different things: (i) They generate cash (ii) They spend it. Cash is generated by selling a product, an asset

More information

Financial Statement Ratio Analysis

Financial Statement Ratio Analysis Management Accounting 319 Financial Statement Ratio Analysis Financial statements as prepared by the accountant are documents containing much valuable information. Some of the information requires little

More information

Instructions for E-PLAN Financial Planning Template

Instructions for E-PLAN Financial Planning Template Instructions for E-PLAN Financial Planning Template The EPLAN template will assist you in preparing financial projections for your existing business. The template uses Microsoft Excel to prepare your projected

More information

Model is used to calculate Financial Statements on a Quarterly Basis for a One Year period. Model provides the ability to:

Model is used to calculate Financial Statements on a Quarterly Basis for a One Year period. Model provides the ability to: ADDITIONAL REFERENCES AND FINANCIAL MODELS: For more information about financial statements and terms refer to e book, How to Read Financial Statements. Advanced financial models providing 5 year projections

More information

Chapter Review Problems

Chapter Review Problems Chapter Review Problems Unit 17.1 Income statements 1. When revenues exceed expenses, is the result (a) net income or (b) net loss? (a) net income 2. Do income statements reflect profits of a business

More information

Report Description. Business Counts. Top 10 States (by Business Counts) Page 1 of 16

Report Description. Business Counts. Top 10 States (by Business Counts) Page 1 of 16 5-Year County-Level Financial Profile Industry Report Architectural Services (SIC Code: 8712) in Prince George County, Maryland Sales Range: $500,000 - $999,999 Date: 11/07/08 Report Description This 5-Year

More information

Understanding A Firm s Financial Statements

Understanding A Firm s Financial Statements CHAPTER OUTLINE Spotlight: J&S Construction Company (http://www.jsconstruction.com) 1 The Lemonade Kids Financial statement (accounting statements) reports of a firm s financial performance and resources,

More information

Financial Ratios and Quality Indicators

Financial Ratios and Quality Indicators Financial Ratios and Quality Indicators From U.S. Small Business Administration Online Women's Business Center If you monitor the ratios on a regular basis you'll gain insight into how effectively you

More information

UNDERSTANDING WHERE YOU STAND. A Simple Guide to Your Company s Financial Statements

UNDERSTANDING WHERE YOU STAND. A Simple Guide to Your Company s Financial Statements UNDERSTANDING WHERE YOU STAND A Simple Guide to Your Company s Financial Statements Contents INTRODUCTION One statement cannot diagnose your company s financial health. Put several statements together

More information

Financial Statements LESSON 15. What are Financial Statements?

Financial Statements LESSON 15. What are Financial Statements? Financial Statements LESSON 15 Main Idea Business owners must have accurate and timely information about the fi nancial status of their business to make the best decisions. Most of this fi nancial information

More information

BUSINESS BUILDER 2 HOW TO PREPARE AND ANALYZE A BALANCE SHEET

BUSINESS BUILDER 2 HOW TO PREPARE AND ANALYZE A BALANCE SHEET BUSINESS BUILDER 2 HOW TO PREPARE AND ANALYZE A BALANCE SHEET zions business resource center 2 how to prepare and analyze a balance sheet Examine the concepts of assets, liabilities, and net worth in a

More information

FI3300 Corporation Finance

FI3300 Corporation Finance Learning Objectives FI3300 Corporation Finance Spring Semester 2010 Dr. Isabel Tkatch Assistant Professor of Finance Explain the objectives of financial statement analysis and its benefits for creditors,

More information

Preparing a Successful Financial Plan

Preparing a Successful Financial Plan Topic 9 Preparing a Successful Financial Plan LEARNING OUTCOMES By the end of this topic, you should be able to: 1. Describe the overview of accounting methods; 2. Prepare the three major financial statements

More information

Please NOTE This example report is for a manufacturing company; however, we can address a similar report for any industry sector.

Please NOTE This example report is for a manufacturing company; however, we can address a similar report for any industry sector. Please NOTE This example report is for a manufacturing company; however, we can address a similar report for any industry sector. Performance Review For the period ended 12/31/2013 Provided By Holbrook

More information

Fill-in-the-Blank Equations. Exercises

Fill-in-the-Blank Equations. Exercises Chapter 1 Introduction to Accounting and Business Study Guide Solutions Fill-in-the-Blank Equations 1. Stockholders equity 2. Net income or net loss 3. Net income (or subtract if a net loss) 4. Cash flows

More information

The Statement of Cash Flows Direct Method

The Statement of Cash Flows Direct Method 23 The Statement of Cash Flows Direct Method DEMONSTRATION PROBLEM The financial statements of Bolero Corporation follow. Copyright Houghton Mifflin Company. All rights reserved. 1 Bolero Corporation Income

More information

Plan and Track Your Finances

Plan and Track Your Finances Chapter 9 Plan and Track Your Finances 9.1 Finance Your Business 9.2 Pro Forma Financial Statements 9.3 Record Keeping for Businesses Ideas in Action Electronic Safekeeping Katelin Shea addressed the unmet

More information

Working Capital Concept & Animation

Working Capital Concept & Animation Working Capital Concept & Animation Meaning A measure of both a company's efficiency and its short-term financial health. The working capital is calculated as: Working Capital = Current Assets Current

More information

Foundations of Accounting Thought When You Add You Subtract

Foundations of Accounting Thought When You Add You Subtract Foundations of Accounting Thought When You Add You Subtract Accounting: the recording, measurement, and interpretation of financial information Accounting Accounting is the collection, analysis, and communication

More information

Guide to Financial Statements Study Guide

Guide to Financial Statements Study Guide Guide to Financial Statements Study Guide Overview (Topic 1) Three major financial statements: The Income Statement The Balance Sheet The Cash Flow Statement Objectives: Explain the underlying equation

More information

Chapter 002 Financial Statements, Taxes and Cash Flow

Chapter 002 Financial Statements, Taxes and Cash Flow Multiple Choice Questions 1. The financial statement summarizing the value of a firm's equity on a particular date is the: a. income statement. B. balance sheet. c. statement of cash flows. d. cash flow

More information

Financial Statement Preparation Webinar. Presented by Nick Chapman VEI Program Coordinator New York City

Financial Statement Preparation Webinar. Presented by Nick Chapman VEI Program Coordinator New York City Financial Statement Preparation Webinar Presented by Nick Chapman VEI Program Coordinator New York City 122 Amsterdam Ave. New York, NY 10023 Phone: 212-769-2710 www.veinternational.org Objectives: Review

More information

RAPID REVIEW Chapter Content

RAPID REVIEW Chapter Content RAPID REVIEW BASIC ACCOUNTING EQUATION (Chapter 2) INVENTORY (Chapters 5 and 6) Basic Equation Assets Owner s Equity Expanded Owner s Owner s Assets Equation = Liabilities Capital Drawing Revenues Debit

More information

Financial Ratio Cheatsheet MyAccountingCourse.com PDF

Financial Ratio Cheatsheet MyAccountingCourse.com PDF Financial Ratio Cheatsheet MyAccountingCourse.com PDF Table of contents Liquidity Ratios Solvency Ratios Efficiency Ratios Profitability Ratios Market Prospect Ratios Coverage Ratios CPA Exam Ratios to

More information

BUSINESS PLAN TEMPLATE

BUSINESS PLAN TEMPLATE iplanner.net Small Business Plans Online BUSINESS PLAN TEMPLATE For a start-up company 18/01/2012 12:33:19(GMT) Executive Summary... 3 Business Overview... 3 Products and Services... 3 Sales Forecast...

More information

Summary of Financial Report for the FY ending March 2015 (Non-Consolidated)

Summary of Financial Report for the FY ending March 2015 (Non-Consolidated) Summary of Financial Report for the FY ending March 2015 (Non-Consolidated) April 30, 2015 Listed Company Name: Japan Tissue Engineering Co., Ltd. Listed Securities Exchange: JQ Stock Code: 7774 URL http://www.jpte.co.jp

More information

9. Short-Term Liquidity Analysis. Operating Cash Conversion Cycle

9. Short-Term Liquidity Analysis. Operating Cash Conversion Cycle 9. Short-Term Liquidity Analysis. Operating Cash Conversion Cycle 9.1 Current Assets and 9.1.1 Cash A firm should maintain as little cash as possible, because cash is a nonproductive asset. It earns no

More information

CH 23 STATEMENT OF CASH FLOWS SELF-STUDY QUESTIONS

CH 23 STATEMENT OF CASH FLOWS SELF-STUDY QUESTIONS C H 2 3, P a g e 1 CH 23 STATEMENT OF CASH FLOWS SELF-STUDY QUESTIONS (note from Dr. N: I have deleted questions for you to omit, but did not renumber the remaining questions) 1. The primary purpose of

More information

Performance Review. Sample Company

Performance Review. Sample Company Performance Review Sample Company For the period ended 12/31/2017 Provided By Page 1 / 18 This report is designed to assist you in your business' development. Below you will find your overall ranking,

More information

Preparing Financial Statements

Preparing Financial Statements Preparing Financial Statements Understanding financial statements is essential to the success of a small business. They can be used as a roadmap to steer you in the right direction and help you avoid costly

More information

Sample Test for entrance into Acct 3110 and Acct 3310

Sample Test for entrance into Acct 3110 and Acct 3310 Sample Test for entrance into Acct 3110 and Acct 3310 1. Which of the following financial statements could properly have the following in the date line: For the Year Ended December 31, 2010"? a. Balance

More information

FSA Note: Summary of Financial Ratio Calculations

FSA Note: Summary of Financial Ratio Calculations FSA Note: Summary of Financial Ratio Calculations This note contains a summary of the more common financial statement ratios. A few points should be noted: Calculations vary in practice; consistency and

More information

Study Guide - Final Exam Accounting I

Study Guide - Final Exam Accounting I Study Guide - Final Exam Accounting I True/False Indicate whether the sentence or statement is true or false. 1. Entries in a sales journal affect account balances in both the accounts receivable ledger

More information

CHAPTER 14: THE ROLE OF ACCOUNTANTS AND ACCOUNTING INFORMATION

CHAPTER 14: THE ROLE OF ACCOUNTANTS AND ACCOUNTING INFORMATION CHAPTER 14: THE ROLE OF ACCOUNTANTS AND ACCOUNTING INFORMATION I. What Is Accounting and Who Uses Accounting Information? Accounting is a comprehensive system for collecting, analyzing, and communicating

More information

Glossary of Accounting Terms

Glossary of Accounting Terms Glossary of Accounting Terms Account: A record that holds the results of financial transactions. Accountant's Equation: The equation that is the basis of the Balance Sheet: Assets = Liabilities + Owners'

More information

Article Accounting Terminology

Article Accounting Terminology Article Accounting Terminology Contents Page 1. Accounting Period... 4 2. Accounts Payable (Sundry Creditors)... 4 3. Accounts Receivable (Sundry Debtors)... 4 4. Assets... 4 5. Benchmarks... 4 6. B.O.S.

More information

Financial Statements. Chapter 19 Study Guide

Financial Statements. Chapter 19 Study Guide Financial Statements Chapter 19 Study Guide Financial Statements Discuss the nature of a consolidated financial statement? Understand the relationship between the work sheet and the financial statements.

More information

Chapter 1. Introduction to Accounting and Business

Chapter 1. Introduction to Accounting and Business 1 Chapter 1 Introduction to Accounting and Business Learning Objective 1 Describe the nature of a business, the role of accounting, and ethics in business. Nature of Business and Accounting A business

More information

What Do Short-Term Liquidity Ratios Measure? What Is Working Capital? How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated?

What Do Short-Term Liquidity Ratios Measure? What Is Working Capital? How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated? What Do Short-Term Liquidity Ratios Measure? What Is Working Capital? HOCK international - 2004 1 HOCK international - 2004 2 How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated? HOCK

More information

Glossary of Accounting Terms Peter Baskerville

Glossary of Accounting Terms Peter Baskerville Glossary of Accounting Terms Peter Baskerville Account for or 'bring to account': An accounting phrase used to describe the recording of a financial transaction that is required under the generally accepted

More information

IGCSE Business Studies revision notes Finance Neil.elrick@tes.tp.edu.tw

IGCSE Business Studies revision notes Finance Neil.elrick@tes.tp.edu.tw IGCSE FINANCE REVISION NOTES Table of contents Table of contents... 2 SOURCES OF FINANCE... 3 CASH FLOW... 5 HOW TO CALCULATE THE CASH BALANCE... 5 HOW TO WORK OUT THE CASH AVAILABLE TO THE BUSINESS...

More information

Accounting Practice Questions

Accounting Practice Questions Accounting Practice Questions 1) The fundamental accounting equation states that: a) assets = liabilities + owner s equity b) assets = liabilities + drawings c) assets = liabilities + net income d) assets

More information

CC.2.1.HS.F.5 -- Essential Choose a level of accuracy appropriate to limitations on measurement when reporting quantities. 1 -- Essential. them.

CC.2.1.HS.F.5 -- Essential Choose a level of accuracy appropriate to limitations on measurement when reporting quantities. 1 -- Essential. them. Topic: 04-Business Expense Management Know: Understand: Do: CC.2.1.HS.F.5 -- Essential Choose a level of accuracy appropriate to limitations on measurement when reporting quantities. CC.2.2.HS.D.8 -- Essential

More information

Associated Files: Ratios worksheet

Associated Files: Ratios worksheet Unit 4 Business accounting Ratios Instructions and answers for Teachers These instructions should accompany the OCR resource Ratios which supports the OCR Level 3 Cambridge Technicals in Business Unit

More information

Financial Terms & Calculations

Financial Terms & Calculations Financial Terms & Calculations So much about business and its management requires knowledge and information as to financial measurements. Unfortunately these key terms and ratios are often misunderstood

More information

1. A set of procedures for controlling cash payments by preparing and approving vouchers before payments are made is known as a voucher system.

1. A set of procedures for controlling cash payments by preparing and approving vouchers before payments are made is known as a voucher system. Accounting II True/False Indicate whether the sentence or statement is true or false. 1. A set of procedures for controlling cash payments by preparing and approving vouchers before payments are made is

More information

Rural Loan Financial Indicator Ratios 1

Rural Loan Financial Indicator Ratios 1 Rural Loan Financial Indicator Ratios 1 The parameters used in loan analysis describe and compare the situation of a business or project. None in itself is complete but when several are used together,

More information

6.3 PROFIT AND LOSS AND BALANCE SHEETS. Simple Financial Calculations. Analysing Performance - The Balance Sheet. Analysing Performance

6.3 PROFIT AND LOSS AND BALANCE SHEETS. Simple Financial Calculations. Analysing Performance - The Balance Sheet. Analysing Performance 63 COSTS AND COSTING 6 PROFIT AND LOSS AND BALANCE SHEETS Simple Financial Calculations Analysing Performance - The Balance Sheet Analysing Performance Analysing Financial Performance Profit And Loss Forecast

More information

Components of a Business Model Core Strategy 1-5 Strategic 1-5 Partnership 1-5 Customer 1-5 Resources Network Interface

Components of a Business Model Core Strategy 1-5 Strategic 1-5 Partnership 1-5 Customer 1-5 Resources Network Interface ENGI 8607: Business Planning and Strategy in an Entrepreneurial Environment ZipCar Dr. Amy Hsiao Lecture 5 Memorial University of Newfoundland ZipCar Components of a Business Model How It Works http://www.zipcar.com/cambridge/findcars?zipfleet_id=94396

More information

Construction Economics & Finance. Module 6. Lecture-1

Construction Economics & Finance. Module 6. Lecture-1 Construction Economics & Finance Module 6 Lecture-1 Financial management: Financial management involves planning, allocation and control of financial resources of a company. Financial management is essential

More information

ABOUT FINANCIAL RATIO ANALYSIS

ABOUT FINANCIAL RATIO ANALYSIS ABOUT FINANCIAL RATIO ANALYSIS Over the years, a great many financial analysis techniques have developed. They illustrate the relationship between values drawn from the balance sheet and income statement

More information

Farmer-to-Consumer Marketing: The Series

Farmer-to-Consumer Marketing: The Series Farmer-to-Consumer Marketing #6 Financial Management Scope of Financial Management Managing the financial affairs of a direct marketing operation includes: Raising capital Identifying financial objectives

More information

2. More important - provide a profile of firm s economic characteristics and competitive strategies.

2. More important - provide a profile of firm s economic characteristics and competitive strategies. RATIO ANALYSIS-OVERVIEW Ratios: 1. Provide a method of standardization 2. More important - provide a profile of firm s economic characteristics and competitive strategies. Although extremely valuable as

More information

Gold Run Snowmobile. Adjusting Entries and Closing Entries For The Quarter Ended December 31. Final Project Evaluation. 5 th Edition.

Gold Run Snowmobile. Adjusting Entries and Closing Entries For The Quarter Ended December 31. Final Project Evaluation. 5 th Edition. Gold Run Snowmobile 5 th Edition Adjusting Entries and Closing Entries For The Quarter Ended December 31 and the Final Project Evaluation Page 1 ADJUSTING ENTRIES FOR THE QUARTER Using a copy of the December

More information

Essentials of Financial Statement Analysis

Essentials of Financial Statement Analysis Essentials of Financial Statement Analysis An Introduction to Financial Statement Analysis Gregory Mostyn, CPA Worthy and James Publishing www.worthyjames.com Essentials of Financial Statement Analysis

More information

Chapter 9 E-Commerce: Digital Markets, Digital Goods

Chapter 9 E-Commerce: Digital Markets, Digital Goods 1 Chapter 9 E-Commerce: Digital Markets, Digital Goods LEARNING TRACK #: 2: BUILD BUSINESS PLAN There are lots of different ways to lay out a business plan. The sample

More information

ACCOUNTING DICTIONARY

ACCOUNTING DICTIONARY ACCOUNTING DICTIONARY A Account a record summarizing all the information pertaining to a single item in the accounting equation Account balance the amount in an account Account number the number assigned

More information

Statement of Cash Flows

Statement of Cash Flows THE CONTENT AND VALUE OF THE STATEMENT OF CASH FLOWS The cash flow statement reconciles beginning and ending cash by presenting the cash receipts and cash disbursements of an enterprise for an accounting

More information

Ratio Analysis 0.75. Fixed Assets Fixed Assets + Net Working Capital =0.75 Fixed Assets

Ratio Analysis 0.75. Fixed Assets Fixed Assets + Net Working Capital =0.75 Fixed Assets Ratio Analysis CA Past Years Exam Answer Answer to Q.1: (Nov, 009) Fixed assets ` 18,00,000 Proprietor s funds ` 4,00,000 Note: 1 Ratio of fixed assets to proprietor s funds 0.75 Properietors Fund 0.75

More information

Chapter 9 Solutions to Problems

Chapter 9 Solutions to Problems Chapter 9 Solutions to Problems 1. a. Cash and cash equivalents are cash in hand and in banks, plus money market securities with maturities of 90 days or less. Accounts receivable are claims on customers

More information

Module 2: Preparing for Capital Venture Financing Financial Forecasting Methods TABLE OF CONTENTS

Module 2: Preparing for Capital Venture Financing Financial Forecasting Methods TABLE OF CONTENTS Module 2: Preparing for Capital Venture Financing Financial Forecasting Methods Module 2: Preparing for Capital Venture Financing Financial Forecasting Methods 1.0 FINANCIAL FORECASTING METHODS 1.01 Introduction

More information

PREPARING FINAL ACCOUNTS. part

PREPARING FINAL ACCOUNTS. part 15_1312MH_CH09 27/1/05 8:38 am Page 87 PREPARING part 3 FINAL ACCOUNTS 9 The final accounts of sole traders 10 Accounting principles, concepts and policies 11 Depreciation and fixed assets 12 Bad debts

More information

Financial/Accounting Analysis Ratios Excel Calculator

Financial/Accounting Analysis Ratios Excel Calculator User Guide Financial/Accounting Analysis Ratios Excel Calculator Dec 2008 Version 2 copyright 2008 Business Tools Templates Financial/Accounting Analysis Ratios Excel Calculator Financial Analysis Ratios

More information

In this chapter, we build on the basic knowledge of how businesses

In this chapter, we build on the basic knowledge of how businesses 03-Seidman.qxd 5/15/04 11:52 AM Page 41 3 An Introduction to Business Financial Statements In this chapter, we build on the basic knowledge of how businesses are financed by looking at how firms organize

More information

Business Plan. In completing the following proposal provide as much detailed information as possible.

Business Plan. In completing the following proposal provide as much detailed information as possible. Business Plan A business plan is an integral part of a financing request. It is an introduction to your business, and it provides us with the initial information that we require to start to an application.

More information

Return on Equity has three ratio components. The three ratios that make up Return on Equity are:

Return on Equity has three ratio components. The three ratios that make up Return on Equity are: Evaluating Financial Performance Chapter 1 Return on Equity Why Use Ratios? It has been said that you must measure what you expect to manage and accomplish. Without measurement, you have no reference to

More information

Cash is King. cash flow is less likely to be affected

Cash is King. cash flow is less likely to be affected Reading 27: Understanding Cash Flow Statements Relevance of Cash Flow The primary purpose of the statement of cash flows (SCF) is to provide: Info about a firm s cash receipts & cash payments during an

More information

Accounts payable Money which you owe to an individual or business for goods or services that have been received but not yet paid for.

Accounts payable Money which you owe to an individual or business for goods or services that have been received but not yet paid for. A Account A record of a business transaction. A contract arrangement, written or unwritten, to purchase and take delivery with payment to be made later as arranged. Accounts payable Money which you owe

More information

Analyzing the Statement of Cash Flows

Analyzing the Statement of Cash Flows Analyzing the Statement of Cash Flows Operating Activities NACM Upstate New York Credit Conference 2015 By Ron Sereika, CCE,CEW NACM 1 Objectives of this Educational Session u Show how the statement of

More information