L03-04 - Foundations, Financials

Question 1

Porter’s Five Forces

Answer 1

1: Supplier Power
2: Buyer Power (consumers perceptions and preferences)
3: Threat of Substitutes
4: Barriers to Entry
5: Industry Rivalry

Question 2

What is a stakeholder?

Answer 2

Everyone with an interest in the issue

Question 3

Primary vs Secondary Research

Answer 3

Primary: Users, customers, other stakeholders

Secondary: Market research, census data, indirect stuff

Question 4

Total Available Market (TAM)

Answer 4

Entire market possible

Question 5

Serviceable Available Market (SAM)

Answer 5

Customers in TAM who can be served by a particular offering

Question 6

Service Obtainable Market (SOM)

Answer 6

Realistic market size

Question 7

Cash Flow Table

Answer 7

Period of year makes up each row of spreadsheet
For each period (row) it is…
revenue - expenses = available cash

Question 8

Time value of Money

Answer 8

The value of a dollar to be received in the future is
less than the value of a dollar on hand today

cus of inflation, risk, and security

Question 9

Net Present Value (NPV)

Answer 9

Net Present Value = Anticipated cash inflows - Initial investment

Good if NPV is positive or zero

Question 10

Target Rate of Return

Answer 10

Return rate you want to make on your investment

Question 11

Break Even Time (BET)

Answer 11

BET is the amount of time needed for the discounted
cash flows of an investment to equal the initial cost of
the investment.

Question 12

Internal Rate of Return (IRR)

Answer 12

The discount rate at which the NPV of an investment becomes zero

Only accept project if IRR is NOT less than the target internal rate of return

Pick project with highest IRR

Question 13

Return on Investment (ROI)

Answer 13

Percentage value

measures the gain or loss generated on an investment

ROI = (Net Profit / Cost of Investment) * 100

ROI does not consider time

Question 14

Generally accepted accounting principles (GAAP)

Answer 14

System of accounting rules

Question 15

Capital equipment

Answer 15

Costs > $5k
Life span over 1 year
Made of non expendable material
Not for consumption

Question 16

Depreciation

Answer 16

depreciation (expense per year) = cost of capital equipment / years used

5 year depreciation

Question 17

Income

Answer 17

Income = (revenue - expenses)

aka profit

Question 18

income statement

Answer 18

spreadsheet

total revenue - cost to make goods that have been sold = gross profit

Then calculate total operating expenses (including depreciation)

Operating profit = total revenue - operating expenses

Then subtract interest expense

Earnings before tax

Then subtract tax

LEFT WITH NET INCOME

Earnings per share = Number of shares / Net income

Question 19

Balance Sheet

Answer 19

Assets - Liabilities = Owners equity

Liabilities: Debt, mortgage, etc

Owners Equity = stock shares * Price per share

Question 20

Retained earnings

Answer 20

profit reinvested into company instead of stock holders