# BUSINESS BUILDER 7 HOW TO ANALYZE PROFITABILITY

Save this PDF as:

Size: px
Start display at page:

## Transcription

1 BUSINESS BUILDER 7 HOW TO ANALYZE PROFITABILITY

2 zions business resource center 2 how to analyze profitability Although pride of ownership and career satisfaction are healthy goals, generating profit is the most likely reason you started your business. This guide introduces you to several methods for analyzing your company s operations and calculating the profitability of your business. What You Should Know Before Getting Started 3 Profitability Ratios 4 Gross Profit Margin 6 Operating Profit Margin Ratio 7 Net Profit Margin Ratio 7 Other Common Size Ratios 7 Break-Even Analysis 9 What is Break-Even Analysis? 9 Break-Even Analysis for Sales 9 Using Break-Even Analysis for Profit Planning 11 Break-Even Analysis for Units Sold 12 Calculating Return on Assets and Return on Investment 13 Return on Assets 13 Return on Investment 14 Checklist 15 Resources 16

5 how to analyze profitability 5 As you can see, each of these three terms is simply a way of expressing profit when different categories of expense are included. Gross profit is the difference between sales and the cost of goods sold. Operating profit is the difference between sales and the cost of goods sold plus selling and administrative expenses. And finally, net profit is the difference between net sales and all expenses, including income taxes. The three ways of expressing profit can each be used to construct what are known as profitability ratios. This is done by dividing each item by net sales and expressing it as a percentage. For example, if your company had gross sales of \$1 million last year, and net profits were \$50,000, that s a ratio of 50,000/1,000,000 or 5%. There are several reasons ratios are expressed as percentages. Ratios make it easy to compare your company s results at different time periods. Ratios also allow you to compare your company s results with those of your peers or competitors, and with industry benchmark ratios. It s easier to discuss these ratios using actual numbers, so we ve included the following income statement from a fictional company - From the Roots Up. We will use From the Roots Up s gross profit (item 3), operating profit (item 10) and net profit (item 13) numbers to compute the three profitability ratios. From the Roots Up Income Statement For the Quarter Ended December 31, 200X (In Thousands) 1. Sales \$8, Cost of Sales/Revenues 4, Gross Profit 3, General & Administration Expense Lease/Rent Expense Personnel Expense Bad Debt Expense Operating Expense 1, Total Operating Expense 2, Net Operating Profit Interest Expense Total Other Income (Expenses) (122) 13. Net Profit \$269

7 how to analyze profitability 7 Operating Profit Margin The operating profit margin is an indicator of your company s earning power from its current operations. This is the core source of your company s cash flow, and an increase in the operating profit margin from one period to the next is considered a sign of a healthy, growing company. If your company s operating income is not sufficient to generate the cash you need to keep operating, you must find other sources of cash. Here is the formula to compute the operating profit margin ratio: Operating Profit Margin = Operating Profit / Sales x 100% Using the income statement data for From the Roots Up, we can compute the following operating profit margin: From the Roots Up operating profit margin ratio: \$391,000 / \$8,158,000 = x 100% = 4.8% The operating profit margin ratio for From the Roots Up is 4.8%. In general, the operating profit margin is an indicator of management skill and operating efficiency. It measures your company s ability to turn sales into pre-tax profits. It is a ratio that you can use to compare your company s competitive position to others in the same industry. Because it looks at a company s operating income before taxes are subtracted, the operating profit margin is sometimes considered a more objective evaluator than the net profit margin ratio. Net Profit Margin Ratio The formula for the net profit margin ratio is as follows: Net Profit Margin Ratio = Net Profit / Sales x 100% From the Roots Up net profit margin ratio: \$269,000 / \$8,158,000 = x 100% = 3.3% The net profit operating margin ratio is 3.3%. Now you know how to calculate the gross profit margin ratio, the operating profit ratio, the net profit margin ratio and why they are used. Take a break from reading this guide and calculate these ratios for your own company. Other Common Size Ratios While the calculation and evaluation of the gross profit margin ratio, the operating profit ratio, and the net profit margin ratio are important, there are many other helpful tools you can use to get real information from the data in your company s income statement.

11 how to analyze profitability 11 Fixed expense of \$2,839,000 is calculated based on data from the From the Roots Up income statement: General and Administrative Expense = \$367,000; Rent Expense = \$188,000; Personnel Expense = \$816,000; Operating Expense = \$1,468,000. These expenses total \$2,839,000. Variable expense for From the Roots Up is the cost of goods sold as a percentage of sales. Looking at the From the Roots Up common size income statement, we see that the cost of goods sold is \$4,895,000, or.60 of sales. A current ratio can be improved by increasing current assets or by decreasing current liabilities. Now we can solve the equation: S = \$2,839, S (Where S stands for Sales at the Break-Even Point. ) Move the.60s to the other side of the equal sign. Remember, it becomes a negative.60s when you move it to the other side of the equation. So now we have, on one side of the equation, 1S minus.60s, as shown below: 1S -.60S = \$2,839,000 or.40s = \$2,839,000 Now we can easily solve for S by dividing.40s into \$2,389,000. S = \$7,097,500 From the Roots Up is at its break-even point when sales total \$7,097,500. The next dollar of sales will include some profit. Calculate the Sales Break-Even Point for your business. Using Break-Even Analysis for Profit Planning Now that you understand how to calculate the break-even point, by making one small adjustment to the breakeven analysis formula you can do some what if planning about profitability. After all, you don t want to just know where you are today in terms of break-even, you certainly want to know how to attain a given amount of profit. You can easily calculate the amount of sales necessary for a desired amount of net income before taxes. Revise the formula slightly by adding the amount of net income you want your company to earn, as follows: Sales at the Break-Even Point = Fixed Expenses + Variable Expenses as a Percentage of Sales + Desired Net Income.

12 zions business resource center 12 Let s say the owners of From the Roots Up have a goal of \$300,000 in net income before taxes, and want to know what level of sales will be required to generate that net income. Make the following calculation: Sales at the Break-Even Point = \$2,839, S + 300,000 We solve the formula in these steps: S = \$2,839, S + \$300,000 S = \$3,139, S 1S -.60S = \$3,139,000.40S = \$3,139,000 S = \$7,847,500 From the Roots Up must generate sales of \$7,847,500 to produce a net income before taxes of \$300,000. Use Break-Even Analysis to calculate a specified amount of net income for your business. Break-Even Analysis for Units Sold Depending on the type of business, it may be useful to calculate break-even in terms of the number of units sold as well by revenues. In other words, you want to know the number of units which must be sold to reach the breakeven point. This can be calculated using this formula: Break-Even for Units to be Sold = Fixed Expenses / (Unit Sales Price - Unit Variable Expenses) This formula needs two new bits of information: the unit sales price and the unit variable expense. If you know the sales price for your company s products, you can compute the unit variable expense, using the variable expense as a percentage of sales. We developed that figure earlier in this guide. Let s assume that From the Roots Up has a cost of \$20 per unit. For From the Roots Up, the variable expense was.60. So the unit variable sales expense is \$20 multiplied by.60, which equals \$12. This means that each unit has a variable cost of \$12. Plugging the data into the formula, it looks like this: S = Break-Even for Units to be Sold S = \$2,389,000/(\$20 - \$12) S = \$2,389,000/8 S = 289,625

13 how to analyze profitability 13 From the Roots Up must sell 289,625 units to break even. If it sells just the 289,625, it is not yet generating any profits. Part of the revenue on the 289,626th unit will go to profit. If appropriate for your business, calculate the number of units that must be sold to reach the break-even point. calculating return on assets and return on investment Return on Assets You use the return on assets ratio to measure the relationship between the profits your company generates and assets that are being used. Compute it using data from both the income statement and the balance sheet. Let s use an abridged From the Roots Up balance sheet to see how these ratios are calculated and used: From the Roots Up Balance Sheet For the Year Ending December 31, 200X (In Thousands) Assets Current Assets \$2,463 Fixed Assets 510 Total Assets 2,973 Liabilities Current Liabilities 773 Long-term Liabilities 850 Owner s Equity (Net Worth) 1,350 Total Liabilities and Equity \$2,973

15 how to analyze profitability 15 checklist This guide has introduced several different methods of evaluating profitability. Used alone or in combination, they can give a small business owner a good picture of the financial viability of his or her business. As a management tool, objective profitability measures such as the ones shown here are invaluable tools for financial management. They are also important to the small business owner because these common profitability measures will be used by others, such as bank loan officers, investors, or merger and acquisition specialists to evaluate the management skill and potential for success of a company. Profitability Ratios Has your gross profit margin been stable over the last few periods? If not, why? What common size ratios are most important to your business? Did you consult at least one source of compiled financial ratios to evaluate how your ratios compare to others in your industry? Break-Even Analysis Did you include depreciation and overhead as fixed costs? Do all the variable costs you listed truly vary with sales volume? Return on Assets and Return on Investment When you calculated return on assets and return on investment, did you use net profit before tax? Is your company producing a return on investment that s acceptable to you, given the resources employed and the rates of interest you could earn on alternative investments?

16 zions business resource center 16 resources Books and Websites Zions Business Resource Center, Healthy Business Guide, Zions First National Bank Edward Lowe Foundation, Sources of Information on Profitability Analysis How to Read and Interpret Financial Statements. American Management Association, Budgeting and Finance (First Books for Business) by Peter Engel. (McGraw-Hill, 1996). The Credit Process: A Guide for Small Business Owners by Tracy L. Penwell. (Federal Reserve Bank of New York, 1994). Sources of Information on Financial Ratios RMA Annual Statement Studies. RMA The Risk Management Association. Data for 325 lines of business, sorted by asset size and by sales volume to allow comparisons to companies of similar size in the same industry. The common size (percentage of total assets or sales) is provided for each balance sheet and income statement item. Almanac of Business and Industrial Financial Ratios, annual, by Leo Troy. (Prentice-Hall, Inc.) Information for 150 industries on 22 financial categories. Data is usually three years prior to the publication date. Financial Studies of the Small Business by Karen Goodman. (Financial Research Associates.) Focusing on business with capitalizations under \$1 million, providing financial ratios and other information. Industriscope: Comprehensive Data for Industry Analysis. (Media General Financial Services.) Compare company-to-company, company-to-industry & industry-to-industry; 215 industry groups; over 9,000 companies grouped within their industry; over 40 key items listed on each company & industry; price, price change & relative price data; shareholdings data; revenue, earnings & dividend data; ratio analysis; historical archives available back to May 1973.

17 b-7 Zions Business Resource Center Utah com Idaho com zionsbank.com Member FDIC

### How to Analyze Profitability

How to Analyze Profitability Peoples Bank Business Resource Center Business Builder 7 peoplesbancorp.com 800.374.6123 Table of Contents What to Expect... 4 What You Should Know Before Getting Started...

### how to prepare a cash flow statement

business builder 4 how to prepare a cash flow statement zions business resource center zions business resource center 2 how to prepare a cash flow statement A cash flow statement is important to your business

### 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

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,

### 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

### BUSINESS BUILDER 3 HOW TO PREPARE A PROFIT AND LOSS (INCOME) STATEMENT

BUSINESS BUILDER 3 HOW TO PREPARE A PROFIT AND LOSS (INCOME) STATEMENT zions business resource center 2 how to prepare a profit and loss (income) statement A Profit and Loss (P&L) or income statement measures

### Financing Entrepreneurial Ventures Part 1 Financial Plan & Statements

Financing Entrepreneurial Ventures Part 1 Financial Plan & Statements Barbara Peitsch Program Director, Univ. of Michigan Peter Scott Professor of Entrepreneurship/Consultant August 2015 Economic Empowerment

### 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

### BUSINESS BUILDER 5 HOW TO PREPARE A CASH BUDGET

BUSINESS BUILDER 5 HOW TO PREPARE A CASH BUDGET zions business resource center 2 how to prepare a cash budget At its most basic level, a budget is a plan for owners and managers to achieve their goals

### Breakeven Analysis. Breakeven for Services.

Dollars and Sense Introduction Your dream is to operate a profitable business and make a good living. Before you open, however, you want some indication that your business will be profitable, if not immediately

### 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:

### Introduction to Accounting

Introduction to Accounting Text File Slide 1 Introduction to Accounting Welcome to SBA s online training course, Introduction to Accounting. This program is a product of the agency s Small Business Training

### MAN 4720 STRATEGIC MANAGEMENT AND POLICY FORMULATION FINANCIAL ANALYSIS GUIDE

MAN 4720 STRATEGIC MANAGEMENT AND POLICY FORMULATION FINANCIAL ANALYSIS GUIDE Revised -December 13, 2011 1 FINANCIAL ANALYSIS USING STRATEGIC PROFIT MODEL RATIOS Introduction Your policy course integrates

### 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

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

### 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

### 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

### 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

### 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,

### 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

### Financial Statements for Manufacturing Businesses

Management Accounting 31 Financial Statements for Manufacturing Businesses Importance of Financial Statements Accounting plays a critical role in decision-making. Accounting provides the financial framework

### Your Guide to Profit Guard

Dear Profit Master, Congratulations for taking the next step in improving the profitability and efficiency of your company! Profit Guard will provide you with comparative statistical and graphical measurements

### 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

### Discussion Board Articles Ratio Analysis

Excellence in Financial Management Discussion Board Articles Ratio Analysis Written by: Matt H. Evans, CPA, CMA, CFM All articles can be viewed on the internet at www.exinfm.com/board Ratio Analysis Cash

### GCSE Business Studies. Ratios. For first teaching from September 2009 For first award in Summer 2011

GCSE Business Studies Ratios For first teaching from September 2009 For first award in Summer 2011 Ratios At the end of this unit students should be able to: Interpret and analyse final accounts and balance

### Information About Financial Statements for Intrastate Household Goods Movers

Instructions for Page 4 of Application (FINANCIAL STATEMENTS) Part of determining whether an applicant is fit to become a household goods mover involves provision of information about financial capability.

### Chapter 6 The cash flow statement

Chapter 6 The cash flow statement The last four chapters have been spent looking at the balance sheet and income statement and how to use them. In this chapter, we will move on to arguably the most revealing

### The Nature of Accounting Systems

Basic Accounting & Budgeting February 4, 2009 The Nature of Accounting Systems Accounting is the process of recording, classifying, summarizing, reporting and interpreting information about the economic

### 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

### Understanding Accounting Reports. www.brightpearl.com

Understanding Accounting Reports Whats inside You ll often hear the term management accounts - but how often do you use this information to actually manage your business on a day to day basis? It may well

### Cash Flow Forecasting & Break-Even Analysis

Cash Flow Forecasting & Break-Even Analysis 1. Cash Flow Cash Flow Projections What is cash flow? Cash flow is an estimate of the timing of when the cash associated with sales will be received and when

Ratio Analysis CBDC, NB February, 2008 Presented by ACSBE Financial Analysis What is Financial Analysis? What Can Financial Ratios Tell? 7 Categories of Financial Ratios Significance of Using Ratios Industry

### Financial. Management FOR A SMALL BUSINESS

Financial Management FOR A SMALL BUSINESS Welcome 1. Agenda 2. Ground Rules 3. Introductions FINANCIAL MANAGEMENT 2 Objectives Explain the concept of financial management and its importance to a small

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

### 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

### Financial Planning. Presented by Emma's Garden

+ Financial Planning Presented by Emma's Garden Financial Planning A comprehensive financial plan helps you to forecast and set your financial goals and milestones. Your financial forecasts are an essential

### 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

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...

### MODULE 6 Financial Statements

Introduction. 102 Projected Outcomes 103 Facilitators Notes. 104 What is Accounting. 104 The Accounting Equation.. 105 Accounting Terminology 106 Assets 106 Liabilities. 106 Owner s Equity, Partner s Equity,

THE BUSINESS ENTERPRISE CENTRE S GUIDE TO PROJECTING YOUR CASH FLOW The Business Enterprise Centre is a member of Last updated 16 Jan 2015 TD Page 1 of 26 Preface A cash flow statement reports the outflow

### 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,

### 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:

Basic Business Plan Outline A business plan needs to be a well thought out, honest, appraisal of the business and opportunity. This outline is meant to be used for your road map. It should be a living

### HEWLETT- PACKARD Management Acceleration Program. BUILDING BUSINESS ACUMEN Terminology

HEWLETT- PACKARD Management Acceleration Program BUILDING BUSINESS ACUMEN Terminology CASH DEFINITIONS: 1. Cash is the total amount of all cash and near-cash on hand at any given point in time, such as

### GUIDE TO ACQUIRING STARTUP FINANCING. To make your business #CPAPOWERED, call today and let s get started.

GUIDE TO ACQUIRING STARTUP FINANCING To make your business #CPAPOWERED, call today and let s get started. It s no secret that you will need capital money to launch your new business. In fact, many entrepreneurs

### Ending inventory: Ending Inventory = Goods available for sale Cost of goods sold Ending Inventory = \$16,392 - \$13,379 Ending Inventory = \$3,013

BE7 1 CHAPTER 7 MERCHANDISE INVENTORY BRIEF EXERCISES The inventory purchases made by Hewlett-Packard during 2008 can be calculated as follows: Beginning inventory \$ 8.0 billion + Purchases X Cost of Goods

### 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

### 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

### how to prepare a profit and loss (income) statement

business builder 3 how to prepare a profit and loss (income) statement amegy bank business resource center how to prepare a profit and loss (income) statement 2 how to prepare a profit and loss (income)

### A Simple Model. Introduction to Financial Statements

Introduction to Financial Statements NOTES TO ACCOMPANY VIDEOS These notes are intended to supplement the videos on ASimpleModel.com. They are not to be used as stand alone study aids, and are not written

### 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

### 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

### Business Start Up Basics III

Business Start Up Basics III Intro to Accounting Presented by: Suzie Dills SBDC Business Consultant Agenda Key Objectives of the Course Brief History & Definition of Accounting General Ledger Double Entry

### ACCOUNTING I Income Statement. Fall 2015 Comp Week 3

ACCOUNTING I Income Statement Fall 2015 Comp Week 3 CODE: COMPW3 Administrative Stuff The location of all lectures will be Yenching Auditorium, located at 2 Divinity Avenue. Send an email to trentnelson@college.harvard.edu

### 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

### 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

### Financial. Management FOR A SMALL BUSINESS

Financial Management FOR A SMALL BUSINESS 1 Agenda Welcome, Pre-Test, Agenda, and Learning Objectives Benefits of Financial Management Budgeting Bookkeeping Financial Statements Business Financing Key

### University of Rio Grande Fall 2010

University of Rio Grande Fall 2010 Financial Management (Fin 20403) Practice Questions for Midterm 1 Answers the questions. (Or Identify the letter of the choice that best completes the statement if there

### STATEMENT OF CHANGES IN FINANCIAL POSITION

Home Page - Statement of Changes in Financial Position STATEMENT OF CHANGES IN FINANCIAL POSITION by Dr. J. Herbert Smith/ACOA Chair Technology Management and Entrepreneurship Faculty of Engineering University

### Chapter 14. 1 Copyright 2012 Pearson Education, Inc. Publishing as Prentice Hall.

Chapter 14 1 Identify the purposes of the statement of cash flows Distinguish among operating, investing, and financing cash flows Prepare the statement of cash flows by the indirect method Identify noncash

### Multiple Choice Questions (45%)

Multiple Choice Questions (45%) Choose the Correct Answer 1. The following information was taken from XYZ Company s accounting records for the year ended December 31, 2014: Increase in raw materials inventory

### Solutions to Chapter 3. Accounting and Finance

Solutions to Chapter 3 Accounting and Finance 1. Sophie s Sofas Liabilities & Assets Shareholders Equity Cash \$ 10,000 Accounts payable \$ 17,000 Accounts receivable 22,000 Long-term debt 170,000 Inventory

### Creating a Successful Financial Plan

Creating a Successful Financial Plan Basic Financial Reports Balance Sheet - Estimates the firm s worth on a given date; built on the accounting equation: Assets = Liabilities + Owner s Equity Income Statement

### 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

### 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

### 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

### 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

### PRODUCTIVITY & GROWTH

Productivity Financial Tools There are a number of financial tools that can be used to measure the financial performance and potential contribution of improvement projects to the productivity of a business.

### Accounting Principles Critical to Success Presented By: C. P. Krishnan. www.cakintl.com

Accounting Principles Critical to Success Presented By: C. P. Krishnan Basic Accounting You Need to Know Assets, Liabilities, Equity, Income, & Expenses Assets Includes what you have and what people owe

### 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

### Review of the Accounting Process THE BASIC MODEL

THE BASIC MODEL The accounting information system is designed to collect and organize data into information that is useful for stakeholders. The Accounting Equation The basic accounting equation is what

### ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT 6E

CHAPTER 11 Creating a Successful Financial Plan The Importance of a Financial Plan Financial planning is essential to running a successful business and is not that difficult! Common mistake among business

### Financial Statements for a Corporation

CHAPTER 19 Financial Statements for a Corporation BEFORE YOU READ 1. 2. 3. 4. 5. 6. What You ll Learn Explain how to record ownership of a corporation. Explain the relationship between the work sheet and

### 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

### Financial Statement Consolidation

Financial Statement Consolidation We will consolidate the previously completed worksheets in this financial plan. In order to complete this section of the plan, you must have already completed all of the

### Finance and Accounting For Non-Financial Managers

Finance and Accounting For Non-Financial Managers Accounting/Finance Recording, classifying, and summarizing financial transactions in terms of dollars and their interpretation 1 Key Accounting Terms Accounting

Planning your cash flow Business Coach series Preparing the cash flow forecast Keeping on track Business Coach series The cash flow process The situation Money goes out earlier and faster than it comes

### 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

### 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

Your Small Business Scorecard David Oetken, MBA CPM 1 Being a successful entrepreneur takes a unique mix of skills and practices. You need to generate exciting ideas, deliver desirable products or services,

### Bob s Pretty Good Architectural Firm. G Neil Harper

Bob s Pretty Good Architectural Firm G Neil Harper Getting Started On December 31, 2004, Bob opens a bank account, and deposits \$10,000 to get his firm started. Balance Sheet 12/31/04 Assets Cash 10,000

### Creating a Successful Financial Plan

CHAPTER 11 Creating a Successful Financial Plan The Importance of a Financial Plan Financial planning is essential to running a successful business and is not that difficult! Common mistake among business

### EXERCISES. The cash from operating activities detail is provided as follows for class discussion:

EXERCISES Ex. 14 1 There were net additions, such as depreciation and amortization of intangible assets of \$389 million, to the net loss reported on the income statement to convert the net loss from the

### 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

### Having cash on hand is costly since you either have to raise money initially (for example, by borrowing from a bank) or, if you retain cash out of

1 Working capital refers to liquid funds used to purchase materials and pay workers. This is in contrast to long term capital such as buildings and machinery. Part of working capital management is cash

### Developing Financial Statements

New York StartUP! Business Plan Competition Developing Financial Statements Presented by Paisley Demby, CEO PBN Consulting, LLC www.pbnconsulting.com 1 Invitation to Tweet #2015NYStartUp PaisleyDemby Contents

### RISK ASSESSMENT FOR SMALL BUSINESS. Terry S. Campbell, Community Development Officer Department of Development & Technology

RISK ASSESSMENT FOR SMALL BUSINESS Terry S. Campbell, Community Development Officer Department of Development & Technology Date: March 25, 2004 1 Counseling Tool Outline - Cover Page - Outline - Introduction

### 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

### Double Entry Accounting Workbook. Erin Lawlor

Double Entry Accounting Workbook Erin Lawlor Double Entry Accounting Workbook Table of Contents Introduction... 2 Financial Statement Introduction... 3 Financial Transactions... 4 Debits and Credits...