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ENTREPRENEURSHIP > Financial Projections > Flashcards

Financial Projections Flashcards

1
Q

based on the collected internal and external accounting data already used in the day-today management of the business

A

FINANCIAL PROJECTIONS

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2
Q

owner’s value in an asset or group of assets

A

EQUITY

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2
Q

measures the short-term solvency of the financial position of a firm (short-term capacity to pay or to meet current obligations).

A

LIQUIDITY RATIO

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2
Q

ratio of current assets to its current liabilities (most-widely used test). Measures ability of the business to repay debts over the period of the next 12 mos.

Formula:

Current ratio=Current assets / current liabilities

A

CURRENT RATIO

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2
Q

process of identifying financial strengths and weaknesses of the firm by properly establishing relationships between items of the balance sheet and the profit and loss account.

A

FINANCIAL STATEMENT ANALYSIS

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2
Q

statement of financial investments for startup business development, implementation, and maintenance to establish business initiative and make venture fully operational.

A

TOTAL PROJECTED COST

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2
Q

assessed by giving summary of how the business incurs its revenues and expenses thru both operating & non-operating activities.

A

FINANCIAL PERFORMANCE

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3
Q

financial statement that measures a company’s financial performance over a specific accounting period.

Also known as the “Profit and loss statement” or “statement of revenue and expense”

A

INCOME STATEMENT

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3
Q

refers to set of financial statements intended to show future financial result

A

PROJECTED FINANCIAL STATEMENTS

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3
Q

day-to-day business (selling products, purchasing inventory, paying wages, paying operating expenses.

-Current Assets and Current Liabilities sections of the Balance sheet.

-Revenue and Expenses section of the Income statement.

A

OPERATING ACTIVITIES

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3
Q

Types of projected financial statements

A
  1. Income statement
  2. Balance sheet
  3. Statement of Cash flow
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3
Q

buying & selling (property, equipment, lending money, collecting principal, buying/selling investment securities.

Associated with Long-Term Assets section of the Balance sheet

A

INVESTING ACTIVITIES

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3
Q

amount of net cash generated by an investment or a business during a specific period.

Most important financial statistic

A

CASH FLOW

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3
Q

-Ratio of liquid assets to current liabilities.

  • It measures the firm’s capacity to pay off current obligations immediately.
A

ACID TEST RATIO

(INFO)
Usually a high liquid ratio is an indication that the firm is liquid and has the ability to meet its current or liquid liabilities in time.

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4
Q

item of value owned by company (important, tangible/intangible)

A

ASSETS

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4
Q

most important lie of cash flow statement because it is associated with:

-Current Assets and Current Liabilities sections of the Balance sheet.

-Revenue and Expenses section of the Income statement.

A

NET CASH FLOW

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4
Q

obligations of the company to transfer something of value to another party

A

LIABILITIES

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4
Q

include borrowing from creditors and repaying loans, issuing and repurchasing stock, collecting money from owners/inventors, payment of cash dividends

  • Associated with Long-Term Liabilities and Owners’/Stockholders’ Equity from the Balance Sheet
A

FINANCING ACTIVITIES

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4
Q

a financial statement that summarizes a company’s assets, liabilities and shareholders’ equity at a specific period.

Formula: Assets = Liabilities + Equity

A

BALANCE SHEET

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5
Q

Assets of a business expected to be converted to cash or used up in the next 12 months or within the normal operating cycle of the business

A

CURRENT ASSETS

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5
Q

obligations of the business which needs to be settled within the next 12 months or within the normal operating cycle

A

CURRENT LIABILITIES

6
Q

(INFO)

Current ratio matches current assets with current liabilities and tells us whether the current assets are enough to settle current liabilities.

General rule: The higher the current ratio, the better it is (but there is a limit to this). Abnormally high value of current ratio may indicate may indicate existence of idle or underutilized resources in the company.

A
7
Q

It refers to the ability of the firm to pay its short-term obligations as and when they become due.

A

TRUE LIQUIDITY

7
Q

Formula of Balance Sheet

A

Assets = Liabilities + Equity

7
Q

Formula of Current Ratio

A

Current ratio= current assets / current liabilities

8
Q

Two components of acid test ratio

A
  • Liquid assets
  • Liquid liabilities

(INFO)
Liquid assets: include cash, bank, sundry debtors, bills receivable, marketable securities, temporary investments

9
Q

Formula of Return on Equity

A

ROE = Annual Net income

9
Q

Formula of Working Capital

A

Working capital = Current assets - current liabilities

10
Q

Formula of Acid Test Ratio

A

Acid Test Ratio = Liquid Assets / Current liabilities

10
Q

Measure of liquidity of a business.

A

Working Capital

11
Q

(INFO)

If current assets of a business at a point in time are more than its current liabilities, the working capital is POSITIVE (company will not suffer in the future)

If current assets are less than current liabilities, the working capital is NEGATIVE (business might not be able to pay its liabilities when due)

A
11
Q

(INFO)

The net income figure is obtained from income statement and the shareholders’ equity is found on balance sheet.

The computation will need year ending balance sheets of 2 consecutive years to find average shareholders’ equity.

Higher value of ROE is favored (the company is efficient in generating income on new investment)

A
11
Q

This measures the results of business operations or overall performance and effectiveness of the fir,

A

PROFITABILITY RATIOS

12
Q

It is the ratio of net income of a business during a year to its stockholders’ equity during that year.

It is a measure of profitability of stockholders’ investments

A

ROE: RETURN ON EQUITY (return on capital)

13
Q

It is the income after tax has been deducted (income after tax)

A

NET INCOME

14
Q

It is the most common profitability ratio.

It is the money you invest in the company and the return you realize on that money based on the net profit of the business.

To determine: divide net profit by total assets (Net profit / total assets)

A

RETURN ON INVESTMENT (ROI)

Formula: Net profit / Total assets

15
Q

It used to measure the performance of a business

A

PROFIT

16
Q

It expresses the relationship between gross profit and sales

It is the ratio of gross profit to net sales expressed as a percentage.

It is found by deducting cost of goods sold from net sales.

A

GROSS PROFIT RATIO

16
Q

(INFO)

> NET SALES - sales minus sales returns

> GROSS PROFIT - difference between net sales and cost of goods sold

A
17
Q

It is the sales minus sales returns

A

NET SALES

18
Q

It is the difference between net sales and cost of goods sold

A

GROSS PROFIT

19
Q

Formula of Gross Profit

A

Gross Profit Ratio = (Gross Profit / net Sales) x 100

19
Q

It is used to measure the OVERALL profitability of the business.

This ratio also indicates the firms’ capacity to face adverse economic conditions such as price competition, low demand, etc.

It is the ratio of net profit (after taxes) to net sales.

A

NET PROFIT RATIO

(INFO)
2 basic components of net profit ratio are the: (1) Net profit & (2) Sales.

Net profit - obtained after deducting income-tax

The higher this ratio is, the better is the profitability.

Formula: Net Profit Ratio = (Net Profit / Net Sales) x 100

19
Q

Formula of Net Profit Ratio

A

NP Ratio = (Net profit / Net sales) x 100

20
Q

It measures the cost of operations per peso of sales.

It shows the operational efficiency of the business.

It is the ratio of cost of goods sold plus operating expenses to net sales.

A

OPERATING RATIO

(INFO)
Lower operating ratio shows higher operating profit and vice versa

Formula:

Operating ratio = [(cost of goods sold + operating expenses) / Net sales] x 100

20
Q

It is the long term counterpart of liquidity. It investigates how much debt can be supported by the company and whether debt and equity are balanced

A

STABILITY ANALYSIS

21
Q

It is a measure of the relationship between the capital contributed by creditors and the capital contributed by the shareholders.

It also demonstrates the level to which shareholders’ equity can fulfill a company’s obligations to creditors in the event of liquidation.

A

DEBT-TO-ASSET RATIO

(INFO)
High debt-to-equity ratio indicates that a company may not be able to generate enough cash to satisfy its debt obligations.

Lower debt-to-equity ratios may also indicate that a company is not taking advantage of the increased profits.

Leaders and investors usually prefer low debt-to-equity ratios because their interests are better protected in the event of a business decline.

Formula: Debt-to-equity ratio = Total debt / Total equity

22
Q

Formula of Debt-to-equity ratio

A

DEBT-TO-EQUITY RATIO = TOTAL DEBT / TOTAL EQUITY

23
Q

This indicates the relationship between the external equities or outsiders funds and the internal equities or shareholders’ funds. It is also known as the external internal equity ratio.

It is determined to ascertain soundness of the long term financial policies of the company.

A

DEBT-TO-EQUITY RATIOS

24
Q

It is a small variation of return on equity capital ratio. It is a good measure of profitability and when compared with the EPS of other company, it gives a view of the comparative earnings or earning power of the firm.

A

EARNING PER SHARE RATIO (EPS)

ENTREPRENEURSHIP (1 decks)

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