fINANCIAL MAGANEMENT Flashcards
One of the most important responsibilities of owners and architects in managerial positions.
FINANCIAL MANAGEMENT
the process of planning, organizing, and controlling an organization’s finances to achieve specific goals.
FINANCIAL MANAGEMENT
The process of analyzing a company’s financial statements for decision-making purposes.
FINANCIAL STATEMENT ANALYSIS
External stakeholders use it to understand the overall health of an organization and to evaluate financial performance and business value.
FINANCIAL STATEMENT ANALYSIS
KEY TYPES OF FINANCIAL STATEMENTS
Cash Flow Statement
Balance Sheet
Income Statement
Tracks cash inflows and outflows.
Cash Flow Statement
: Shows assets, liabilities, and equity.
Balance Sheet
Details revenue and expenses.
Income Statement
Must follow strict GAAP rules, including accrual accounting.
Public Companies
Have more flexibility; can choose accrual or cash accounting.
Private Companies
COMMON ANALYSIS TECHNIQUES
DIFFERENT TYPES OF FINANCIAL STATEMENT ANALYSIS
Horizontal Analysis
Vertical Analysis
Ratio Analysis
Compares data horizontally, by analyzing values of line items across two or more years.
Horizontal Analysis
Looks at the vertical effects that line items have on other parts of the business and the business’s proportions.
Vertical Analysis
Uses an important ratio metrics to calculate statistical relationships.
Ratio Analysis
TYPES OF FINANCIAL STATEMENTS
Balance Sheet
Cash Flow Statement
Income Statement
Free Cash Flow and Valuation Statement
A report of a company’s financial worth based on book value.
Balance Sheet
3 key parts of balance sheet
Assets
Liabilties
Shareholder Equity
Includes short-term items like cash and accounts receivable, reflecting operational efficiency.
Assets
Covers expenses and debts.
Liabilities:
Details equity investments and retained earnings.
Shareholder Equity
Shows revenue earned minus expenses to determine net profit or loss.
Income Stetment
3 key parts of income statement
Revenue & Direct Costs
Operating Profit
Net Income
Identifies gross profit.
Revenue & Direct Costs:
Subtracts indirect costs like marketing and depreciation.
Operating Profit
Final profit after interest and taxes
Net Income
Summarizes cash flows from operating, investing, and financing activities
CASH FLOW STATEMENT
Key Components of CASH FLOW STATEMENT
Operating Activities
Investing Activities
Financing Activities
Starts with net income as the top line.
Operating Activities
Covers cash flows from company investments.
Investing Activities
Includes cash flows from debt and equity financing.
Financing Activities
Evaluate a company’s worth by estimating and discounting future free cash flows.
FREE CASH FLOW AND VALUATION STATEMENTS
Purpose: Assess a company’s value.
FREE CASH FLOW AND VALUATION STATEMENTS
Calculate net present value by discounting projected free cash flows.
FREE CASH FLOW STATEMENTS
Used by private companies preparing for potential public offerings.
Valuation Statements:
tools that companies use to establish a plan for where management wants to take the business— budgeting—and whether it is heading in the right direction—financial forecasting.
Budgeting and financial forecasting
quantifies the expected revenues that a business wants to achieve for a future period.
Budgeting
estimates the amount of revenue or income achieved in a future period.
financial forecasting
the financial direction of where management wants to take the company
Budgeting
creates a baseline to compare actual results to determine how the results vary from the expected performance.
- Budgeting
tells whether the company is headed in the right direction, estimating the amount of revenue and income that will be achieved in the future.
- Financial forecasting
is used to determine how companies should allocate their budgets for a future period.
- Financial forecasting
An outline of expectations for what a company wants to achieve for a particular period, usually one year.
- Budgeting
- Estimates a company’s future financial outcomes by examining historical data.
- Financial forecasting
does not analyze the variance between financial forecasts and actual performance.
- Financial forecasting
COMMON TYPES OF FINANCIAL FORECASTING
- Sales Forecasting
- Cash Flow Forecasting
- Budget Forecasting
- Income Forecasting
Entails predicting the amounts of products/services you expect to sell within a projected fiscal period.
- Sales Forecasting
Entails estimating the flow of cash in and out of the company over a set fiscal period.
Based on factors such as income and expenses.
- Cash Flow Forecasting
- As a financial guide for your business’ future, a budget creates certain expectations about your company’s performance.
- Aims to determine the ideal outcome of the budget, if everything proceeds as planned.
- Relies on the budget’s data, which relies on financial forecasting data.
- Budget Forecasting
- Most companies do forecasts for one fiscal year.
- Financial forecasts change over time as factors such as business and market trends change.
- Financial forecasting is more accurate in the short term than in the long term.
- Income Forecasting
Process of recording financial transactions, assessing the information and summarizing it to produce financial statements.
Provides information useful for making financial and economic decisions.
Accounting
TWO TYPES OF ACCOUNTING
Internal Accntng
External Accntng
Also called Management Accounting
Done within the architectural practice, often by staff, a bookkeeper, or other professional such as an accountant.
Internal Accntng
Usually performed by an independent accountant.
Frequently includes the preparation and examination of financial statements to express an opinion on the financial position of the practice.
Can be in the form of an audit, a review, or a compilation, depending on which criteria the company falls in as stated in corporate bylaws.
External Accntng
THREE LEVELS OF ACCOUNTING SERVICE
Audit
Review
Compilation
An independent and objective examination of accounting records and other necessary documentation to express an opinion on the fairness of a balance sheet and other financial statements.
Audit
Less extensive (and less expensive) compared to an audit.
Provides a lower level of assurance that the financial statements are free of material misstatements.
Review
Lowest level, where the external accountant compiles the financial data from the company’s system and puts together the financial statements.
In compilation, the financial data is not examined in detail.
Compilation
tool that helps businesses track and manage their financial information.
ACCOUNTING SYSTEM
statutory requirements.
Records of accounting
Two Types of Accounting System
Cash Basis System
Accrual System
recognizes revenues when cash is received, and expenses when they are paid. This method does not recognize accounts receivable or accounts payable.
All transactions are recorded when the money changes hands.
Cash Basis System
Records all income — including work-in-progress — and expenses as they occur in the general ledger.
Shows the current financial position of the architectural practice, usually monthly.
Accrual System
Using the accrual system, two types of financial reports are prepared:
Statement of income and expenses (also known as Income Statement or Profit and Loss Statement)
Balance sheet (also known as Statement of Position)
Accountng softwares
MS EXcel
quickbook
Xero
Beppo
JuanTAx
It is the inherent power of the state to demand contributions for public purposes.
Taxation
Compulsory financial contribution imposed by the government on individuals and entities, primarily used to fund public goods and services such as infrastructure, education, and defense.
Taxation
THREE INHERENT POWERS OF STATE
Power of Tax
Police Power
Eminent Domain
It is the power of the state to exact proportional contribution from its people to cover the cost of government expenditures.
Power of Tax
It is the power of the state of promoting public welfare by restraining and regulating the use of liberty and property.
Police Power
It is the power to take private property for public purposes upon payment of just compensation.
Eminent Domain
THEORY OF TAXATION
Necessity Theory
Lifeblood Doctrine
Benefits-Protection Theory
The existence of government is a necessity. The government cannot continue to perform of serving and protecting its people without means to pay its expenses.
Necessity Theory
Taxes are the lifeblood of the government without which it can neither exits nor endure.
Lifeblood Doctrine
The basis of taxation is the reciprocal duties of protection and support between the state and its inhabitants.
Benefits-Protection Theory
PURPOSE OF TAXATION
Primary
-Revenue Generation
-Redistribution of Wealth
Secondary
Regulation of Economic Activities
Economic Stabilization
Enforced proportional contributions from persons and property, levied by the State by virtue of its sovereignty for the support of the government and for all its public needs.
Taxes
Types of Taxes
CAPITAL GAINS TAX
DOCUMENTARY STAMP
DONOR’S TAX
ESTATE TAX
PERCENTAGE TAX
VALUED-ADDED TAX (VAT)
INCOME TAX
WITHHOLDING TAX
It is a tax imposed on the gains presumed to have been realized by the seller from the sale, exchange, or other disposition of capital assets located in the Philippines.
CAPITAL GAINS TAX
It is a tax on documents, instruments, loan, agreements and paper evidencing the acceptance, assignment, sale or property incident thereto.
DOCUMENTARY STAMP
It is a tax on a donation or gift and is imposed on the gratuitous transfer of property between two or more persons who are living at the time of the transfer.
DONOR’S TAX
It is a tax on the right of deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers which are made by law as equivalent to testamentary disposition.
ESTATE TAX
It is a business tax imposed on persons or entities who sell or lease goods, properties or services in the course of trade or business whose gross annual sales or receipts do not exceed a certain threshold and are not VAT-registered.
PERCENTAGE TAX
It is a business tax imposed and collected from the seller in the course of trade or business on every sale of properties, goods and services.
VALUED-ADDED TAX (VAT)
It is a tax imposed on all yearly profits arising from property, profession, trades or offices or as a tax on a person’s income and profits.
INCOME TAX
It is the tax withheld from individuals receiving purely compensation income.
WITHHOLDING TAX
TAX and REGULATORY COMPLIANCE
NATIONAL INTERNAL REVENUE CODE OF 1997
REPUBLIC ACT NO. 9266
The law provides, among others, the lowering of the personal income tax rates; simplification of the estate and donor’s tax; repeal of several non-essential exemptions to the value-added tax (VAT)
NATIONAL INTERNAL REVENUE CODE OF 1997
An Act providing for a more responsive and comprehensive regulation for the registration, licensing, and practice of architecture, repealing for the purpose Republic Act No. 545, as amended, otherwise known as “An Act to regulate the practice of architecture in the Philippines,” and for other purposes.
REPUBLIC ACT NO. 9266
A business that is solely owned by one individual and for tax and business purposes it is treated as the same as your personal taxes.
SOLE PROPRIETORSHIP
Also referred to as General Partnership. The process involves dividing income or losses among partners, who then individually pay taxes on their share, introducing more complexity in reporting and management.
PARTNERSHIP
Most common for big American companies and could be a good fit for larger architecture firms. Managed by a board of directors and their mission is to make decisions that benefit the shareholders (owners).
CORPORATION
REGISTRATION PROCESS
DTI
SEC
PRC
Entrepreneurs who wish to open a business through a sole proprietorship business entity must register with the __________
DTI
The government agency registration is primarily for corporations and partnerships and provides legal standing and a corporate personality.
SEC
Procedure of registration of firm, company, partnership.
Corporation or association for various profession, including the practice of architecture.
Professional Regulation Commission (PRC)
