1. Arts, culture, and humanities 2. Education 3. Environment and animals 4. Health 5. Human services 6. International and foreign affairs 7. Public and societal benefit 8. Religion related 9. Mutual/membership benefit 10. Unknown, unclassified

Business Finance Flashcards by Kyla Dabu

It is a branch of economics concerned with resource allocation as well as resource acquisition, management, and investment

FINANCE

How well did you know this?

Not at all

Perfectly

It is the business discipline concerned with managing money efficiently

FINANCE

How well did you know this?

Not at all

Perfectly

It is the study of fund management and asset allocation over time

FINANCE

How well did you know this?

Not at all

Perfectly

deals with the acquisition, management, and investment of financial resources to enable a business company to attain its predetermined objectives toward growth, stability, profitability, and liquidity

Finance

How well did you know this?

Not at all

Perfectly

identifies the financing requirements of the firm at its estimated time and value. It determines if such financing requirements are needed short-term or long term.

Finance

How well did you know this?

Not at all

Perfectly

Three Areas of Finance

Financial Institutions and markets
Investments
Financial Management

How well did you know this?

Not at all

Perfectly

are where the providers and users of funds interact with the help of the financial intermediary. Here, the providers of funds are willing to lend their money for the purpose of generating interest or profits, while the users of funds are willing to use the funds either electronically or manually and the providers and users do not necessarily meet face to face to execute the transactions.

Financial Institutions and markets

How well did you know this?

Not at all

Perfectly

is more concerned with raising, allocating, and controlling the firm’s funds. In times of financial trouble, the finance manager must find ways for the firms to meet

Financial Management

How well did you know this?

Not at all

Perfectly

involve the buying and selling of financial securities, the analysis on making an investment, and risk management. The parties here are investors and users of funds, both individuals and institutions.

Investments

How well did you know this?

Not at all

Perfectly

covers applications of finance other than public finance.

Private finance

How well did you know this?

Not at all

Perfectly

is concerned with the government revenues and spending and their general effect on the economy.

Public finance

How well did you know this?

Not at all

Perfectly

Categories of Finance

Public finance
Private finance

How well did you know this?

Not at all

Perfectly

finance manager should answer are the following:

What are the project proposals to accept to maintain or improve the firm’s stock price?
In financing the acceptable project, should the firm borrow money or issue equity?
If not from the borrowing, did the firm generate enough funds to finance its activities? Should they issue additional shares of stocks, preferred or common?
In case there are no investment prospects and the firm has enough cash to declare as dividends, how much dividends should be declared?

How well did you know this?

Not at all

Perfectly

Private finance is divided as:

a. Personal finance
b. Nonprofit organization
c. Business finance

How well did you know this?

Not at all

Perfectly

Just like firms, individuals must consider the types, benefits, and risks of investments that they intend to make such as banking products, insurances, retirement plans, stock market, and mutual funds to name a few.

Personal finance

How well did you know this?

Not at all

Perfectly

deals primarily with the management of the finances of individuals and households. It involves budgeting, saving, investing, and spending the finances to maintain, sustain, or enhance the unit’s well-being.

Personal finance

How well did you know this?

Not at all

Perfectly

Fields of NPOs

Arts, culture, and humanities
Education
Environment and animals
Health
Human services
International and foreign affairs
Public and societal benefit
Religion related
Mutual/membership benefit
Unknown, unclassified

How well did you know this?

Not at all

Perfectly

provides goods and services to the public without necessarily gaining profit for its owners or investors.

Non Profit Organization

How well did you know this?

Not at all

Perfectly

Its uses whatever profit it gains to support its operations.

Non Profit Organization

How well did you know this?

Not at all

Perfectly

It is basically funded by donations from individuals, corporations, foundations, and the government.

Non Profit Organization

How well did you know this?

Not at all

Perfectly

Diff of Accounting and Finance:
Accounting

It deals with assets, liabilities, income, and expenses. It involves recording the past transactions, analyzing the past performance, and preparing and interpreting the financial statements of the business of the past year.

How well did you know this?

Not at all

Perfectly

is the management of funds and other valuable assets to be used in the conduct of business. It is concerned with the acquisition, allocation, and accumulation of funds. Finance is commonly interchanged with accounting, but they have distinct differences. Both are concerned with managing the money of the business but in different ways.

BUSINESS FINANCE

How well did you know this?

Not at all

Perfectly

Diff of Accounting and Finance:
Finance

Covers accounting, economics, taxation, and business laws. It involves using the accounting data and information in running the business and ensuring the sufficiency of its funds for future operations. The results of finance decisions make up the accounting data. This makes accounting and finance closely interrelated.

How well did you know this?

Not at all

Perfectly

Reasons for Studying Finance

come up with financial plans as to how their funds can be acquired, managed, and allocated;
become better investors; and
make informed financial and economic decisions.

How well did you know this?

Not at all

Perfectly

questions that finance manager must answer in dealing with financing.

1. Should the firm borrow money? 2. Is it short-term or long-term? 3. If they will not borrow, how will they generate enough funds? 4. Should they issue additional shares of stocks, preferred or common?

Role of Finance Manager

Financing Decision Investment Decision Operating Dividend Policy Decision

Definition of Finance by Mejorada

Acquisition, management, and investment of financial resources to enable a business company to attain its predetermined objectives toward growth, stability, profitability, and liquidity

Definition of Finance by AttractCapital

Study of the money and assets coupled with the management and use of those assets to build wealth

Definition of Finance by WebFinance, Inc

Branch of economics concerned with the resource allocation as well as resource acquisition, management, and investment

Definition of Finance by Kolakowski

Business discipline concerned with managing money efficiently

Definition of Finance by Lumen Learning

Study of fund management and asset allocation over time

It consists of the diversified financial activities being performed by the different economic units whose activities are so closely related to each other, considering the use of money, credit and different instruments associated with money.

THE FINANCIAL SYSTEM

A mathematical relationship between two numbers

Financial Ratio

Commonly expressed in percentages and decimals

Financial Ratio

basic functions of the financial system

a) Promote savings b) Payment c) Protection against risk d) Means wealth e) Provide liquidity f) Credit facility

Categories of Bank Institutions

* Universal Bank * Thrift Bank * Cooperative Bank * Islamic Bank * Government Bank * Investment Bank * Investment Company * Securities Dealers/brokers * Insurance Company * Credit Union * Pawnshop

is part of the financial market where lending and borrowing takes place for the medium-term and long term.

Capital Market

refers to an institution that acts as a middleman between two parties in order to facilitate a financial transaction.

FINANCIAL INTERMEDIARY

It is the part of financial market where lending and borrowing takes place for short-term up to one year

Money Market

How are financial ratios commonly expressed?

In **percentages** and **decimals**

Financial data is in such a way that it can be compared and trends identified and thus questions for analysis can be raised

Financial Ratio

TYPES OF CAPITAL MARKET

Primary market Secondary market

* Issuers * Financial instruments * Financial intermediaries * Investors

Primary market

It is also called aftermarket. The securities are sold by the investor to another investor for the purpose of profit or cutting loss in the.

Secondary market

Definition of Financial Ratio by Jones and Ernest

Financial data is in such a way that it can be compared and trends identified and thus questions for analysis can be raised

What are the three areas of financial ratios?

1. Liquidity Ratios 2. Solvency Ratios 3. Profitability Ratios

Ability to convert assets into spendable form

Liquidity

It dtermines a company's ability to cover short-term obligations and cash flows.

Liquidity Ratios

Types of liquidity ratios

1. Current Ratio 2. Quick Ratio 3. Receivable Turnover 4. Inventory Turnover

The overall liquidity of a company by comparing current assets to current liabilities

Current Ratio

Another term for current ratio

Working Capital Ratio

Another term for working capital ratio

Current Ratio

More conservative in the sense that it does not include all current assets in the computation

Quick Ratio

Another term for quick ratio

Acid Test Ratio

Another term for acid test ratio

Quick Ratio

Measures how efficiently a company collects its outstanding credit sales

Accounts Receivable Turnover

It indicates how many times a company converts its accounts receivable into cash during a specific period

Accounts Receivable Turnover

The process of listing the unpaid invoices and other receivables by their due dates

Average Receivables

The number of times that inventory is sold during the accounting

Inventory Turnover

Where you can see how long the goods have been stored in the stockroom

Age of Inventory

The key metric used to measure an enterprise's ability to meet its debt obligations and its use often by prospective business lenders

Solvency Ratios

It indicates whether a company's cash flow is sufficient to meet its short- and long-term liabilities.

Solvency Ratios

Types of solvency ratios

1. Time-Interest earned 2. Debt Ratio 3. Equity Ratio 4. Debt to Equity Ratio 5. Equity to Debt Ratio

It evaluates the ability of a company to pay the interest on its debt

Time-Interest Earned

Measures the percentage of assets funded by creditors

Debt Ratio

Indicates the percentage of assets funded by the owners

Equity Ratio

Refers to the financial ratio indicating the relative proportion of shareholders' equity and debt use in the finance of a company's asset

Debt to Equity Ratio

Refers to the proportion of owner's equity to debt

Equity to Debt Ratio

Show how efficiently a company generates profits and value for shareholders

Profitability Ratios

Types of Profitability Ratios

1. Gross Profit Margin 2. Operating Profit Margin 3. Net Profit Margin

Measures the company’s profitability, calculated as the gross profit as a percentage of revenue

Gross Profit Margin

The amount remaining deducting the cost of goods sold (COGS) or direct cost of earning revenue from revenue

Gross

Measures the average markup on every peso sale of each product

Gross Profit

Computed by deducting operating expenses from the gross profit

Operating Profit Margin

Overall measure of profitability

Net Profit Margin

The capacity of goods and services to satisfy wants

Utility or Expected Satisfaction

The final product of the whole accounting process

Financial Statement Analysis

Users of financial statements

1. External 2. Internal

Process preparing financial statements

1. Analyzing business transactions 2. Recording in the journals 3. Posting to ledger accounts 4. Preparing the unadjusted 5. Making the adjusting entries 6. Preparing the adjusted trial balance 7. Preparing the financial statements 8. Making the closing entries 9. Post-closing trial balance

Types of financial statements

1. Statement of Financial Position 2. Statement of Comprehensive Income 3. Statement of Changes in Owner’s Equity 4. Statement of Cash Flow

A snapshot of a company’s financial position at a specific point in time, showing assets, liabilities, and equity

Statement of Financial Position

Another term for statement of financial position

Balance Sheet

Another term for balance sheet

Statement of Financial Position

It shows a company's financial position at a specific point in time

Statement of Financial Position

What is the purpose of statements of financial position?

It shows a company's financial position at a specific point in time

What are the components of a statement of financial position?

**Assets*, **liabilities**, and **equity**

What the company owns

Assets

What the company owes

Liabilities

The owner's claim after liabilities are subtracted from assets

Equity

A report that shows a company’s financial performance over a specific period, detailing revenues, expenses, and net income or loss

Statement of Comprehensive Income

Another term for statement of comprehensive income

Income Statement

Another term for income statements

Statement of Comprehensive Income

It reports a company's financial performance over a specific period

Statement of Comprehensive Income

What is the purpose of statements of comprehensive income?

It reports a company’s financial performance over a specific period

What are the components of statements of comprehensive income?

**Revenue**, **expenses**, and **net income**

A financial statement that details the changes in the equity section of the balance sheet over a specific period

Statement of Changes in Owner's Equity

Another term for statement of changes in owner's equity

Statement of Changes in Equity

Another term for statement of changes in equity

Statement of Changes in Owner's Equity

Shows the movement in the owner’s equity during the accounting period

Statement of Changes in Owner's Equity

Provides transparency about how equity has changed due to various factors

Statement of Changes in Owner's Equity

What are the purposes of Statement of Changes in Owner's Equity?

1. To show the movement in the owner’s equity during the accounting period 2. To provide transparency about how equity has changed due to various factors

What are the components of Statement of Changes in Owner’s Equity?

**Opening balance**, **owner contributions**, **net income/loss**, **dividends or withdrawals**, **other comprehensive income**, and **closing balance**

The equity balance at the beginning of the period

Opening Balance

Additional investments made by the owner

Owner Contributions

Profit or loss from the income statement

Net Income or Loss

Amounts paid out to the owner or shareholders

Dividends or Withdrawals

Gains or losses not included in net income (e.g. revaluation surplus)

Other Comprehensive Income

Equity balance at the end of the period

Closing Balance

A statement that tracks the inflows and outflows of cash over a period, categorized into operating, investing, and financing activities

Statement of Cash Flow

Shows the inflows and outflows of cash over a period

Statement of Cash Flow

What is the purpose of Statements of Cash Flows?

Shows the inflows and outflows of cash over a period

What are the components of Statements of Cash Flows?

**Operating activities**, **investing activities**, and **financial activities**

It is the process of selecting related data from financial statements to evaluate the entity’s past financial position and operating performance and predict the outcome of future operations

Financial Statement Analysis

What are the methods of analyzing the financial statements?

1. Horizontal or Comparative approach 2. Vertical or Common-Size approach

An analytical tool that evaluates the present performance of an entity compared to last year’s

Horizontal or Comparative Analysis Approach

The analysis reflects the differences in absolute amount and in percentage between two periods only, namely the present year and previous year

Horizontal or Comparative Analysis Approach

The ability of the company to pay for the obligation in relation to the assets it has

Horizontal or Comparative Approach

Allocation of resources and management priorities

Vertical or Common-Size Approach

An analytical tool that determines the size or proportion of an item in the financial statements in relation to the total

Vertical or Common-Size Approach

Setting the goals of an organization and identifying ways to meet its goals

Planning

Planning may be broken down into _____ and ____?

**Long-term plans** and **short-term plans**

Involves strategies that focus on the results within a short period of time, say a year

Short-term plan

Mission

Short-term plan

Vision

Long-term plan

Plans are reflected in a company’s business strategy

Long-term plan

Includes monitoring and comparing actual performance with plans

Controlling

What are the steps in planning?

1. Set goals or objectives 2. Identify the resources 3. Identify the goal related tasks 4. Establish responsibility centers for accountability and timeline 5. Establish an evaluation system for monitoring and controlling 6. Determine the plans

An important financial statement account in forecasting because almost all other accounts in the financial statement are affected by this

Sales Budget

It analyzes the statement of profit or loss, such as cost of sales, gross profit, and variable operating expenses based on the sales figure

Sales Budget

Provides information regarding the number of units to be produced over a given accounting period based on expected sales and target level of ending inventories

Production Budget