Introduction and Overview

Question 1

financial accounting

Answer 1

reporting financial position and performance to external users (developing financial statements)

Question 2

Managerial accounting

Answer 2

focus on providing financial and non-financial data and information to assist managers (operations - short/long term)

data to assist managers

Question 3

Financial management

Answer 3

focus on planning and controlling financial resources

Controlling resources

Question 4

types of finance and what they are (4)

Answer 4

1, Finance - science of money management

2. Corporate - focus on companies/corporations
3. Managerial - focus on any typt of organization
4. Public - role of Govt in economy

Question 5

Four financial objectives

Answer 5

1. Efficiency - how does your business leverage assets and investors money to make money?
2. Liquidity - are you able to cover your short-term obligations
3. Prosperity - how’s your growth of the business?
4. Stability - how is your company funded? (Debt {borrowed} and Equity {invested})

Question 6

Financing decisions - how to finance assets

Answer 6

Financing mix - what type?
Cost - what interest rate/weighted average cost of capital
Sources and forms - where does funding come from? what type?

Question 7

Basic set of financial statements

Answer 7

1. Statement of Financial Position - Balance sheet - snapshot of business’ value/wealth
2. Statement of Income - business profit/wealth creating during given period
3. Statement of changes in Equity - accumulated wealth retained by business
4. Statement of ash Flow - sources/uses of funds (cash) during given period

think of 2-4 as record performances over time

Question 8

Statement of cash flows

Answer 8

Focused on cash accounting - data regarding inflow/outflow of cash within company

Question 9

Horizontal Analysis

Answer 9

Technique for Financial Statement Analysis - compares historical data over accounting periods (in $ or %)

Question 10

Vertical Analysis

Answer 10

Technique for Financial Statement Analysis. Line items is listed as % of base figure w/in statement (used for all statements)

Question 11

Income Statement

Answer 11

% of gross sales or revenue

Question 12

Cash Flow Statement

Answer 12

each cash inflow/outflow as a percentage of the total cash inflows

Question 13

Ratio Analysis

Answer 13

Measures liquidity, profitability, debt, operating performance and investment valuation

Question 14

Break-even Analysis

Answer 14

Determines the point at which revenue received equals the costs associated with receiving the revenue

Question 15

Operational Analysis

Answer 15

studies operational systems with the aim of identifying opportunities for improving operation of a company

Question 16

Investing

Answer 16

• no risk, no reward – Risk and return (higher risk could = higher reward)

investments

• real assets - PPE, Vehicles, house, gold
• Financial assets - cash, stock, bonds

Question 17

Evolution of Financial Management

Answer 17

Past

• focus on becoming large (eg mergers)
• Raising funds to support activities
• legal matters related to activities

Now (more focuses)

• internal operational activities
• Economy, efficiency and effectiveness
• Operational and financial matters

Question 18

External Factors impacts

Answer 18

Changes in external environment

• Economic
• Political
• Global and open world economics
• Faster technological changes
• shorter product life cycle
• Pressure for innovation and quality

Question 19

Role of Financial Management

Answer 19

Answering questions like:

• How are we doing
• How much cash do we have on hand
• how can we fun new products development
• where will the cash come from
• how will investors interest be protected

Question 20

Triple Bottom Line

Answer 20

Aligning goals of the firm with ALL Stakeholders

Question 21

Types of Business Decisions (3)

Answer 21

1. Operating
2. Financing
3. Investing – comes after first two

Done by planning:

• Short-term – One year or less.
• Long-term – Beyond. (top two are Debt. Bottom two Equity)

Question 22

Operating Decisions

Answer 22

have to do with the daily operations or functioning of the business.
- current assets and liabilities and some expenses and revenue from the income statement.

• Balance sheet
• Statement of Income

Question 23

Investing Decisions

Answer 23

have to do with Non-Current Assets on the balance sheet.

• Research and Development
• Expansions
• New plants
• Modernization
• Acquisitions

Question 24

Financing Decisions

Answer 24

how you finance your assets to support the operations of your business.

• Financing Mix – What type of financing should we take on?
• Cost – What is the interest rate or weighted average cost of capital?
• Sources and forms – Where does our funding come from and in what type of form?