financial statements Flashcards
reporting financial statements
corps and individuals need to report their financial results for creditors, investors and governments
finance
all activities included in raising and managing financial resources
corporate finance
- raising funds through debt, equity or venture capital
- managing those funds for greater efficiency
- reporting on those funds
public finance
- determining policies on individual and corp taxation
- developing budgets to allocate funds to various programs
- insuring proper distribution of social programs
personal finance
- managing the purchase of various financial products
- the proper management of those funds to ensure long-term viability
personal debt in Canadian households (2020)
mortgage: $280,000
non-mortgage: $23,000
credit card debt: $3,000
why are some countries so much poorer than Canada?
- the lack of factors of production (natural resources and infrastructures)
- corruption
- difficulty for entrepreneurs to find capital
muhammad yunus
economist and pioneer of the concept of micro-credits (microloans) and 2006 Nobler Price winner
what do finance managers do?
- plan short and long-term needs
- set strategic goals for growth and expansion
- forecast future revenues and expenses to determine required investment and capital needs
- oversee the raising of capital
- invest extra cash
incentives and benefits
comissions and bonuses
stock options
perverse effect
managers concentrate on the short-term to benefit themselves over the long-term viability of the company
corporate governance
- corporate executives may publish misleading statements
- new laws to hold executives accountable
- strengthen auditors’ and directors’ independence
- disclose relationships with securities and analysts
corporations and producers
companies need money to finance business activities
savers and investors
people need a place to deposit their savings (returns)
financial markets
banks and stock market
connect the corps needs for money with investors’ available savings
equity financing: common vs preferred shares
common: right to vote
preferred: dividends, but no right to vote
stock market
vehicle through which investors can partake in the profits of the companies for which they are shareholders
- shareholders receive money by either receiving dividends or selling shares
- some level of risk
primary market
the first shares go public
initial public offering (IPO)
money goes to the company
secondary market
subsequent trading
doesn’t affect the companies’ fiances
reflection of the company’s finances
stock exchanges
stocks are traded through exchanges
canada: toronto stock exchange
u. s.: new york stock exchange (1972) and nasdaq (1971)
indexes
to get a sense of how the market is doing
- sample of a few companies
- TSX, dow jones industrial average, nasdaq index
stock fluctuations
bull: price rising
bear: price falling
investors and financial analysts
analysts interpret information about companies to make recs to investors
lenders and vendors
use financial information to determine if the firm is expected to make good loans
management
use financial information to pinpoint strengths and weaknesses in operations
sources of financial information
annual report (positive light) brokerage firms and investment services
the annual report
letter to shareholders
management discussion and analysis
audited financial statements
notes to financial statements
financial statements
income statement (sales, cogs, expenses, etc.) balance sheet (assets, liabilities and equity) cash flow statement
types of operating expenses
selling expenses: payroll and benefits of sales staff, advertising, sales, etc.
general and administrative: payroll and benefits of administrative staff, insurance, depreciation of office equipment, etc.
amortization/ depreciation: paying off debt by payments
statement of cash flow
shows cash inflow or outflow from three different activities (investing, financing and operating)
investing activities
all activities dealing with the acquisition or sale of capital assets
- purchasing or selling capital and long-term assets
financing activities
all activities dealing with the securing of funds
- borrowing money, selling shares, repaying bonds and loans, repurchasing shares, paying dividends, etc.
operating activities
all activities dealing with day-to-day activities
- cash sales, collecting credit sales, buying inventory, etc.
constructing the statement of cash flow
the cash account: sum of cash flows from operating, financing and investing activities must equal the change in cash flow
the cash flow that comes from operating activities should be used to
- replace equipment or other capital assets that need to be modernized
- invest in various areas to make sure the firm remains competitive
- pay dividends
extra cash (free cash flow)
allows a firm to aggressively develop new business opportunities
