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Year 4 - Management > 19 - Finance > Flashcards

19 - Finance Flashcards

1
Q

What are financial statements/ reports? What are the 2 main statements used?

A
  • Provide critical financial information to internal (management w/in the company) and external users (stockholders, lenders and potential investors)
  • Financial statement is a written report that details the financial “health” of an organization
  • 2 main statements used are -> balance statement and income statement
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2
Q

What is a balance statement?

A
  • Reports the financial status of a business
    • Snapshot and summary of business
    • Shows net worth of the business
    • Yearly or monthly
  • Assets (what the business owns)
  • Liabilities (what the business owes)
  • Owners equity (equity left over for owner/ shareholders)
  • *Assets = liabilities + owner’s equity (must equal each other!)
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3
Q

Examples of assets

A
  • Cash
  • Accounts receivable
  • Computers
  • Inventory
  • Short term investments
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4
Q

Examples of liabilities

A
  • Purchasing goods or services through credit or through borrowing money
  • Accounts payable, short-term notes, accrued expenses and long-term debt
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5
Q

What are current assets?

A

Assets that will be sold or consumed w/in 1 year

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6
Q

____ is the most liquid of assets

A

Cash

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7
Q

What are accounts receivable?

A
  • Amount owed as a result of credit

- Ex: 3rd party sales, amount charged by customers

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8
Q

What are the 2 types of inventory?

A
  • Merchandise inventory (goods purchased for resale)

- Supplies inventory (goods purchased for use in the business)

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9
Q

What are fixed assets?

A

Assets that are not sold, consumed or converted to cash and benefit the company over several years

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10
Q

Examples of fixed assets

A
  • Buildings (owned or in the process of being owned), computers, fixtures, equipment
  • Acquisition costs, depreciation of the asset (usually an estimate of value lost), and the net value (rough estimate of the market value or amount that it could be sold for)
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11
Q

What are current liabilities?

A

Debt that is owed to others and must be paid off w/in 1 year

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12
Q

Examples of current liabilities

A
  • Accounts payable -> debts from the purchase of goods or services on credit (inventory, cleaning services on credit)
  • Short-term notes/loan -> bank loan including interest to be paid
  • Accrued expenses -> goods or services that occur during the accounting period but have not yet been paid (salaries)
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13
Q

What are long-term liabilities? Examples?

A
  • Liabilities that are paid off over a longer period of time

- Mortgages, leases, long-term loans

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14
Q

What is owners’ equity?

A
  • Amount left over after liabilities are subtracted from assets (total net worth)
  • Assets – liabilities = owner’s equity
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15
Q

Other names for owners’ equity?

A
  • Shareholder’s equity
  • Stockholders’ equity
  • Capital
  • Net worth
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16
Q

What are the 2 sources of owners’ equity?

A
  • Invested capital (cash invested into the business also referred to as common or capital stock)
  • Retained earnings (profits or losses made that have been left in the business)
17
Q

Another name for income statement?

A

Profit and loss statement

18
Q

What is an income statement?

A
  • Detailed report that shows the net income of a business during a specific time period and the expenses that have gone out (can be 1 month, quarterly or 1 year)
  • Monthly statement will allow an owner to closely monitor sales (income) and expenses
  • “Bottom line” shows the pharmacy’s profit or loss
  • *Revenues (income) – expenses = net income
19
Q

What is sales revenue?

A
  • Money generated from selling products or services over a specific period of time (monthly, quarterly, yearly)
  • *Sales revenue = # of units sold * sale price (price charged)
  • Sales of merchandise sold by the business
20
Q

Examples of sales revenue

A
  • Rx drugs, OTC drugs, health and beauty aids
  • Cash and credit sales would be revenues
  • Cash invested by the owner would not be considered a revenue (cash invested is not a result of normal business operation)
21
Q

What are expenses? Examples?

A
  • Costs required to make sales or to earn revenues
  • Includes costs of operating the business
    • Costs of merchandise/ goods sold (COGS)
    • Salaries, utilities, interest payments, employee payments, taxes
22
Q

What is cost of goods sold (COGS)? Examples?

A
  • Cost of the items directly associated w/ producing or selling products or services
  • Amount paid to purchase the product in order to sell the product
  • Costs involved:
    • Cost of the actual product or materials used to create the product
    • Direct labour costs
    • Indirect costs (distribution or sales force costs)
23
Q

What is return on investment (ROI)?

A
  • Net benefit divided by the total amount invested into the service
  • Determines if the implementation of a service or technology will result in a positive or negative return
    ROI = (gain from investment – cost of investment) / cost of investment
24
Q

What is a break-even analysis? (know this!!)

A
  • Break-even point where total revenue received = total cost associated w/ selling the product
  • # of units required to cover the costs involved in managing/ selling the product/ service
  • Determines the profitability of selling a product or service
  • Point where total revenue = total costs
25
Q

What is a cost-benefit analysis? (know this!!)

A
  • Process used to determine the costs associated w/ a decision or project against the benefits that may occur if implemented
  • Utilized when determining if the project or decision should proceed
  • Can be useful when evaluating the need for new hires, purchasing new equipment, pursue a new project
26
Q

What should be considered in a cost-benefit analysis?

A
  • Costs associated w/ the project/ service/ plan
    • Known or intended costs (direct costs)
    • Potential unexpected costs (indirect costs)
  • Assign a monetary value to each of the costs identified
    • Physical resources (new technology, renovations)
    • Human resources (hiring, training)
  • Assign a monetary value to the benefits
27
Q

Advantages of performing a cost-benefit analysis?

A
  • Helps w/ decision making
  • Creates awareness of other issues and roles and responsibilities
  • Can prevent expensive mistakes
  • Can determine break-even point of a project
  • Helps promote idea of the decision makers
28
Q

Disadvantages of performing a cost-benefit analysis?

A
  • Real value of the project could be distorted
  • Difficult to add a monetary value to non-tangible costs and benefits
  • Large projects may be cancelled or only parts of the project would be implemented b/c of costs

Year 4 - Management (18 decks)

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