Chapter 8a: Using Financial Statements to Guide a Business Flashcards
What are the Four Basic Financial Statements?
Income Statements
Statement of Owners’ Equity
Balance Sheet
Cash Flow Statement
Cash Flow Statement
-Shows concise financial picture
Income Statement
-Shows whether the difference between sales and costs is a profit/loss
Parts of an Income Statement
Net Revenue COGS Gross Profit Expenses Operating Income before interest/taxes Other Expenses/Income Income before taxes Taxes Net Income/Profit
The Balance Sheet
Shows assets, liabilities, and net worth of a business.
Parts of Balance Sheet
Assets
Liabilities
Owner’s Equity
Balance Sheet Equation
Assets= Liabilities + Capital
Net Worth being positive/negative
If Assets>Liabilities, Net Worth= positive
If Assets
Analyzing a Balance Sheet
Done by Comparing balance sheets from two points in time
Depreciation
A certain portion of an asset is subtracted each year until the asset’s book value=0
-Balance sheets with Long-Term Assets, less depreciation
Income Statement Ratios- (ROI)
(Net Profit/Start-Up Investment) x 100
Wealth
The value of assets owned vs value of liabilities owned.
Things you need to know to find ROI
Total Investment: Start-up + all later funding on investment
Period for calculating ROI- Typically 1 month/year.
Return on Sales
(Net Income/Sales for particular time period) x 100
Balance Sheet Ratios- Liquidity
Current Ratio: Current Assets/Current Liabilities
Quick Ratio: (Cash + Marketable Securities)/Current Liabilities
- Assess current cash to cover current debts
