Midterms Flashcards
system that enables lenders and borrowers to exchange funds
Financial system
it links the savers and the users of funds
Financial system
households, individuals, companies, government agencies, or any other entity whose cash inflows are greater than their cash outflows
savings
provides a mechanism by which these savings can be channeled to users of funds, borrowers, and investors
financial intermediaries
provide mechanism where savers can put their excess funds through deposits, which will earn interests as incentives
Banks
lend the money to borrowers after performing a credit investigation
Banks
serve as conduits of investors in buying and selling both government securities and corporate bonds.
Banks
offer different products, which may be broadly categorized into life insurance and non-life insurance products.
Insurance companies
Insured pays this to insurance companies
used to fund claims
premiums
provides a system for the trading of equity securities of publicly listed companies.
Philippine Stock Exchange (PSE)
equity securities
common stocks and preferred stocks.
links individuals to PSE
Stock Brokerage Firms
Types of Stock Brokerage Firms
Online brokers
Live brokers
one can trade in the stock market through the Internet.
Online brokers
one needs a telephone to call brokers and place orders.
Live brokers
provide opportunities for big and small investors to invest in financial instruments which they would not have considered on their own, or they may have considered but do not have the time or the expertise to do it including investments in the stock market, bonds, treasury notes, and other money market instruments like treasury bills.
Mutual funds
who invests funds for a fee
Fund Managers/ Professional Managers
What different INVESTMENT OBJECTIVES do mutual funds cater to?
limited only to stocks
restricted to fixed income instruments
both
GSIS
Government Service Insurance System
SSS
Social Security System
UITF
Unit Investment Trust Fund
investing in the stock market has to be coursed through______
stock brokerage firms.
forms of evidence regarding the executed buy or sell transaction that a client placed with his/her broker
confirmation receipts
protect the insured from loss of life
Life insurance products
protect the insured from the loss of or damage to properties.
non-life insurance products
the highest policy-making body in a corporation
Board of Directors
Setting policies on investments, capital structure, and dividends;
Approving company’s strategies, goals, and budgets;
Appointing and removing members of the top management including the president;
Determining top management’s compensation; and
Approving the information and other disclosures reported in the financial statements.
Board of Directors
to ensure that the corporation is operating to serve the best interest of the stockholders
board’s primary responsibility
elected by the stockholders
Directors
Overseeing the operations of a company and ensuring that the strategies as approved by the board are implemented as planned;
Performing all areas of management: planning, organizing, staffing, directing, and controlling; and
Representing the company in professional, social, and civic activities.
President
Formulating marketing strategies and plans;
Directing and coordinating company sales;
Performing market and competitor analysis;
Analyzing and evaluating the effectiveness and cost of marketing methods applied;
Conducting or directing research that will allow the company to identify new marketing opportunities, for example, variants of the existing products/services already offered in the market; and
Promoting good relationships with customers and distributors.
VP for Sales & Marketing
Ensuring production meets customer demands;
Identifying production technology/process that minimizes production cost and makes the company cost competitive;
Coming up with a production plan that maximizes the utilization of the company’s production facilities; and
Identifying adequate and competitively priced raw material suppliers.
VP for Production
Coordinating the functions of administration, finance, and sales and marketing departments;
Assisting other departments in hiring employees;
Providing assistance in payroll preparation;
Determining the location and the maximum amount of office space needed by the company; and
Identifying means, processes, or systems that will minimize the operating costs of the company.
VP for Administration
Helping to determine how much cash dividends a company should declare
- Financing
- Operating
- Investing
- Dividend Policies
VP for Finance
provides information regarding the liquidity position and capital structure of a company as of a given date.
Statement of Financial Position
refers to the ability of a company to pay maturing obligations
Liquidity
provides information regarding the amount of assets financed by debt or liabilities and equity.
Capital structure
Previous Name of Statement of Financial Position ( 2009 )
Balance Sheet
provides information regarding the revenues or sales, expenses, and net income of a company over a given accounting period, a period which may be for a month, a quarter, or a year.
The Statement of Profit or Loss
Previous Name of The Statement of Profit or Loss
Income Statement
two options in presenting the Statement of Profit or Loss:
The first option is to present it as a separate financial statement; and
The second option is to present it together with other comprehensive income (OCI)
represents transactions that are not reported in the profit or loss statement but affects the stockholders’ equity.
other comprehensive income (OCI)
provides an explanation regarding the change in cash balance from one accounting period to another.
The Statement of Cash Flows
Cash Flows are classified into three main categories
Operating;
Investing; and
Financing.
In the cash flows from operating activities, the income reported from the statement of profit or loss which is based on accrual principle is converted to cash.
Operating
The cash flows from investing activities provide information regarding the future direction of the company; it shows how much investment the company is making over a given accounting period.
Investing
The cash flows from financing activities provide information whether there is a proper matching of investing and financing activities.
Financing
provides information that explains the changes in the stockholders’ equity account from one accounting period to another.
The Statement of Changes in Stockholders’ Equity
The changes may be due to the following:
Profit or loss for the accounting period;
Cash dividend declaration;
Issuance of new shares of stocks; and
Other transactions that affect the stockholders’ equity such as other comprehensive income, treasury stocks, and revaluation of assets.
What are the additional pieces of information that the NOTES TO FINANCIAL STATEMENTS provide?
Brief Description of the Company
Summary of Significant Accounting Policies
Breakdown of Amounts Found in the Financial Statements
What are the USES of FINANCIAL STATEMENT ANALYSIS?
It is used for investment and credit decisions.
It is also used for regulating companies.
It used by management for monitoring performance.
It is used in identifying strategies to further improve the company’s operations.
can be used by managers, equity investors, creditors, regulators, labor unions, employees, the public, and potential investors and creditors.
financial statement analysis
Financial Ratios
Profitability ratios
Liquidity ratios
Leverage ratios
Efficiency ratios
Different Profitability Ratios
Return on Equity (ROE) Return on Assets (ROA) Gross Profit Margin Operating Profit Margin Net Profit Margin
measures the amount of net income earned in relation to stockholders’ equity.
Return on Equity (ROE)
measures the ability of a company to generate income out of its resources.
Return on Assets (ROA)
is a profitability ratio that measures the ability of a company to cover its cost of goods sold from its sales.
Gross Profit Margin
measures the amount of income generated from the core business of a company.
Operating Profit Margin
measures how much net profit a company generates for every peso of sales or revenues that it generates.
Net Profit Margin
computed as the difference between revenues and the sum of cost of revenues or sales and operating expenses.
Operating Profit Margin
is the amount left after all expenses including income taxes are deducted from sales or revenues.
Net income
Different Liquidity Ratios
Current Ratio
Acid-Test Ratio
Acid-Test Ratio other term
Quick Asset Ratio
stricter measure of a company’s liquidity position.
Acid-Test Ratio/ Quick Asset Ratio
include cash and other assets which are expected to be converted to cash within 12 months such as accounts receivable and inventories.
Current assets
include obligations that are expected to be settled or paid within 12 months such as accounts payable, accrued expenses payable such as accrued salaries, and current portion of long-term debt.
Current liabilities
principal amount of a long-term loan expected to be paid within the next 12 months from the balance sheet date.
current portion of long-term debt
Different Leverage Ratios
Debt Ratio
Debt to Equity Ratio
Interest Coverage Ratio
measures how much of the total assets are financed by liabilities.
Debt Ratio
a variation of the Debt Ratio
Debt to Equity Ratio
provides information if a company has enough operating income to cover interest expense.
Interest Coverage Ratio
show the capital structure of a company, that is, how much of the total assets of a company is financed by debt and how much is financed by stockholders’ equity.
leverage ratios
stands for earnings before interest and taxes.
EBIT
