financial statement material Flashcards
balance sheet
outlines where a business stands in terms of what it owns, what it owes, and how much investment the owners have in the business. It is the statement of the financial position of a business at particular point in time.
income statement
shows the sales of the business over a period of time, what it cost to conduct business during that period, and how much profit (or loss) resulted during that period. It is the statement of a business’s profit or loss over a given period of time.
cash flow statement
presents the same period as the income statement and given details of cash coming into the business, cash going out of the business. This is usually broken down on a monthly basis.
pro forma balance sheet
these shows where the business with stand financially on opening day, at the end of first year, at the end of the second year, and at the end of the third year.
pro forma income statement
3 of these, one for each of the first three years of business. They will show the years expected sales, costs, expenses, and profit (or loss). In a sense, they will explain why the balance sheet (the company’s financial position) will have changed each year.
pro forma cash flow statement
three covering the same periods as the income statements. By planning when cash comes in and goes out of your business, you will demonstrate that you will always be able to pay the bills that are due.
fixed assets
o Things that are owned and that tend to keep their value or form for long periods (in excess of a year). Examples are buildings, machinery, and equipment.
current assets
o Things that are owned and tend to be impermanent in value or form examples are cash, inventory, and prepaid expenses.
accounts receivable
o Assets in the form of money that is owed to a company by its customers.
liabilities
legal debts with monetary value.
current liabilities
any debts that will be paid off within a year. Including things like short-term loans, credit terms from suppliers, and even the final 12 months’ worth of payments on a long-term loan.
long term liabilities
debts that will take more than a year to pay off and include things like long-term loans for buying vehicles or equipment as well as mortgages on land and buildings.
equity
the amount of financial claim an owner has on asset. It measures wealth
equity = assets - liabilities
assets
a persons equity + their liabiites
gross profits =
sales of a business - costs of goods sold
net profits =
gross profit - expenses
deprication
the loss in value of an asset over time
fixed expenses
things you would have to pay regardless of what goods you are selling. These include: rent, insurance, utilities, etc.
variable expenses
these tend to vary with your sales (or go up as your sales go up) examples include packaging, delivery, travel, casual labour, and often advertising.
In order to calculate an annual break-even value, you must first figure out the contribution ratio. This just means the portion of each sale that is left after paying its cost of goods sold and variable expenses. This is the amount that can be used to either pay off the fixed expenses, or, when they are paid off, can be kept as profit
contribution ratio =
gross profit - variable expenses /sales
break even =
fixed expenses/ contribution ratio
return on equity (profitability) =
Return on equity = net profit / owners’ equity
current ratio (the position of a firm to keep paying the bills that are due) =
o Current ratio = current assets/ current liabilities
quick ratio (when inventory is not counted because it may take some time to turn inventory into cash) =
♣ Quick ratio = current assets – inventory/ current liabilities
return on assets =(indicate how efficiently the company is able to use its assets, as well as its purchasing and sales efficiency.)
Return on assets = net profit/ total assets
gross margin = (indicate how efficiently the company is able to use its assets, as well as its purchasing and sales efficiency)
o Gross margin = gross profit/ sales
debt to equity =
indicate the companies ability to pay all of its financial obligations.
o Debt to equity = total liabilities/ owners’ equity
debt ratio = (indicate the companies ability to pay all of its financial obligations.)
- Debt ratio = total liabilities/ total assets
average collection period =
how long it takes a company to collect money that is owed to it can affect its ability to pay the bills.
o Average collection period = accounts receivable/ average sales per day.
