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Intro to FP > Financial Statements > Flashcards

Financial Statements Flashcards

1
Q

Personal Statements

A

1.Statement of financial position
2. Statement of cash flow

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2
Q

Business Statements

A
  1. Balance Sheet
  2. Income Statement
  3. Statement of Cash Flows
  4. Pro Forma Statements
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3
Q

3 Types of Debt Ratios

A
  1. Consumer Debt
  2. Housing Costs
  3. Total Debt
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4
Q

Personal Balance Sheet

A

Statement of indiv fin. position at a particular point in time, usually at the end of the year

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5
Q

Wealth is known as

A

net worth or equity

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6
Q

An asset

A

Anything owned by a business or individual that has market value

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7
Q

current assets

A

can be converted into cash in one year

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8
Q

non-current assets

A

long term cant be converted to cash in 1 year

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9
Q

On a balance sheet assets are listed in

A

Order of liquidity starting with most liquid current asset

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10
Q

assets are listed as what (what value)

A

fair market value

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11
Q

Cash and cash equivs

A

checking accts, savings, CDs, MMs, T bills that are highly liquid and reasonably risk-free

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12
Q

Personal Investment assets

A

-less liquid, used to fun longer-term financial goals

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13
Q

Investments (examples)

A

Stocks, bonds, mutual funds, investment real estate (produces income), vested amounts in IRAs or 401k. ALSO value of biz, cash val LI, stock options, collectibles

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14
Q

Personal use assets (2 types)

A

-Use assets of real property
-Use assets of personal property

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15
Q

Personal use assets examples

A

-primary residence 🏡, vacation home, autos 🚗, furnishings, jewelry💍 and equipment 🚜
- valuation of some use assets may be difficult to determine

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16
Q

current liability

A

Debt must be paid in one year

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17
Q

long term liability

A

debt that continues past one year

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18
Q

long term liabilities are typical incurred to

A

purchase assets

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19
Q

liabilities are listed in order of

A

payment priority

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20
Q

report which liability balances?

A

unpaid only

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21
Q

net worth is best estimate of

A

wealth/financial strength, what is left over if you sold everything you had and paid off all liabilities

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22
Q

net worth can be changed by

A
  1. positive or negative contribution to SAVINGS
  2. increase or decrease to ASSETS
  3. reduction or increase in DEBT
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23
Q

do contributions made to retirement plans from salary deferral add to net worth?

A

Yes because they come directly FROM CASH FLOW as opposed to diff part of balance sheet

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24
Q

Is transferring $ from checking to IRA increase in net worth?

A

No, cash is reduced equal to amount contributed to savings

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25
Q

invested assets change net worth how

A

as value rises or falls due to market conditions

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26
Q

does the payment of cash value ins. premiums increase net worth?

A

-Not right away assuming made from checking acct.
- will eventually as cash value grows, if/when grows higher than amount of premiums paid

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27
Q

Home affects net worth how?

A

as Fair Market Value increases or decreases based on purchase price

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28
Q

Do payments to outstanding debt like credit card or car payment affect net worth?

A

No, it offsets assets and liabilities equally.

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29
Q

Cash flow statement

A

detailed breakdown of all cash inflows ⬅️ and outflows ➡️ over a period of time⏰

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30
Q

excess of income over expenses increses net worth if

A

the excess is used for savings or to reduce debt

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31
Q

Personal inflows

A

wages, salary, bonus, tips, royalties, commissions, govt payments (veterans benefits, welfare, SS), pension, rental income, investment income

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32
Q

Personal outflows

A

typically expense items that are fixed or variable

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33
Q

fixed outflows (personal)

A

regular expenses that must be paid, mortgage 🏡, auto loan 🚗

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34
Q

personal variable outflows

A

occur at irregular intervals - discretionary like how much they spend on new furniture each year

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35
Q

business balance sheet

A

statement of financial position at specific date in time, typically end of year

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36
Q

biz balance sheet lists

A

assets, liabilities, shareholders equity

37
Q

biz assets

A

-goods, property, intangibles that the co. owns
-can be sold, or used to make products or services the co. can sell

38
Q

what generates the cash used for biz operations and liabilities?

A

current assets

39
Q

Shareholders equity

A

remaining value if co. sold its assets and pay off liabilities today

40
Q

Biz BALANCE SHEET formula

A

Assets = liabilities + shareholders equity

41
Q

liability

A

debt or financial obligation to others

42
Q

biz income statement

A

-how much REV 💸a co earned or lost
-operational COSTS 🛒associated w/that rev.

43
Q

Income statement shows

A

“bottom line”
🤼‍♂️
-operating results expressed as NET INCOME 🥅
-reports EPS

44
Q

EPS

A

what shareholders receive for each share, if net earnings were distributed to them

45
Q

Gross sales and what are they reduced by

A

TOTAL REV from sale of products or services.
reduced by SALES DISCOUNTS and RETURNS to get NET sales

46
Q

cost of sales

A

$ the co. spent on producing a finished product from raw materials

47
Q

product costs

A

-DIRECT MATERIALS 🪵 and DIRECT LABOR 👷‍♀️ to manufacture
-OVERHEAD 🏭including plant ops, utilites, maintenance & supplies

48
Q

gross margin

A

gross sales - cost of sales = gross margin (profit or loss)

49
Q

technical terms operating expenses

A

annual DEPRECIATION of LT assets, AMORTIZATION of intangibles, R&D, sales and marketing expenses, admin

50
Q

how to find income from operations

A

gross margin 📏 - operating expenses 🏣

51
Q

business dividend and interest income

A

companies investments stocks, bonds, other interest bearing accts.

52
Q

business interest expense

A

interest co. pays annually on borrowed $

53
Q

net income

A

resulting profit or loss co made @ year end

54
Q

EPS calc

A

net income divided by # of outstanding common shares

55
Q

cash flow statement shows what

A

-inflow ⬅️and outflow ➡️ of cash over the accounting period
-is cash sufficient to pay for expenses, materials, and operations

56
Q

where is cash flow info from

A

balance sheet and income statements

57
Q

accrual basis

A

once a product or or service has been delivered 🚛 or an expense has occurred

58
Q

balance sheet and income statement report on what basis

A

ACCRUAL basis - once a service or product has been delivered 🚛 or expense occurred📊

59
Q

collection of cash typically does what

A

typically LAGS what is reported and doesn’t represent the actual cash receipts/disbursements over the period

60
Q

biz cash flow statement definition

A

net increase ⬆️ or decrease ⬇️ in cash 💵 as related to OPERATING activities, INVESTING activities and FINANCING activities

61
Q

biz financing activities

A

issuance or repayment of DEBT or SECURITIES and distribution of DIVIDENDS

62
Q

business Investing activities

A

acquisition or disposal of assets

63
Q

operating activities

A

cash💰 effects from producing 👷 and selling 💰 PRODUCTS or SERVICES

64
Q

pro forma statements

A

-planning future business ops

65
Q

what is needed to make a pro forma statement

A

CURRENT year’s 📆 income statement & estimates of final sales and expenses

66
Q

maximum consumer debt limit

A

20%

67
Q

formula for consumer debt ratio

A

non-mortgage debt payments/monthly take-home pay = debt limit ratio
NET Calculation

68
Q

PITI

A
  • principal
  • interest
  • taxes
    -homeowner’s insurance
69
Q

Max PITI percentage

A

28% of PRETAX monthly income

70
Q

Front-end Ratio (not a number)

A

compares monthly housing expenses to gross monthly income

71
Q

Gross income of 150k what is PITI limit

A

(150k / 12) x .28 = $3,500

72
Q

Yearly housing expense = 21,600
Property tax = 5k
Homeowner’s Ins = 1k
Income = 150k what is PITI ratio

A

27,600 / 150,000 = 18.4% which is less than 28%

73
Q

back end ratio

A

used by lenders to assess the TOTAL debt relative to income

target 36%

74
Q

back end ratio calc.

A

(PITI + any monthly installment or revolving credit payments) / gross monthly income

75
Q

Long term debt to net worth ratio

A

excluding short term debt

76
Q

long term debt/net worth max ratio

A

over 30% should be viewed with caution

77
Q

savings ratio

A

annual savings/annual gross income
AT LEAST 10%

78
Q

savings strategies

A
  • emergency fund
  • automatic savings acct
  • asset mgmt acct using dollar cost avg.
  • period investment plan
  • series EE bonds
  • pension and IRA contribs.
79
Q

clients goals emanate from

A
  • wants and needs 🏡🚗
  • life cycle events 🍼
  • life transitions 👵
80
Q

Current ratio

A

current assets/current liabilities

81
Q

Debt ratio

A

total debt/total assets

82
Q

Total long term debt ratio

A

long term debt/total assets

83
Q

Living expense ratio

A

monetary assets / [annual living expenditures debt ratio /12 ]

84
Q

Monthly Housing Cost ratio (this is important)

A

PITI (principal + interest + taxes + insurance / gross monthly income) should be less than 28% of gross monthly income

85
Q

Is it possible to not meet the front end ratio but hit the back end ratio?

A

Yes

86
Q

Does a cash flow statement show net worth?

A

No that is on the balance sheet

87
Q

Current liabilities

A

cc debt, accounts payable, bank operating credit, portion of long term debt paid in next 1 year, accrued expenses and taxes payable

88
Q

Current Assets include

A

cash, cash equiv, accounts receivable, stock investory, marketable securities, prepaid liabilities, other liquid assets

89
Q

Is home equity included in net worth?

A

Yes

Intro to FP (14 decks)

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