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FINANCIAL MANAGEMENT > MODULE 2 > Flashcards

MODULE 2 Flashcards

1
Q

deals with the understanding of the relationship between financial concepts and daily decision-making

A

Financial Analysis

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2
Q

both analytical and judgmental process used in the
managerial context

A

Financial Analysis

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3
Q

end purpose is to help people make sound
decisions and judgments

A

Financial Analysis

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4
Q

product of financial accounting, show the results of
operation, financial position, changes in owner’s
equity, sources and uses of funds

A

Financial Statements

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5
Q

Basic Financial Statements

A

A. Income Statement/ Statement of Comprehensive Income
B. Balance sheet/ statement of financial position/statement of financial condition
C. Statement of changes in owner’s/partners’/stockholders’ equity
D. Cash flow statement/ Statement of Cash Flows

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6
Q

Shows the results of the operations of the business. It details the operating revenues/ sales and operating expenses, other income and other expenses. It shows the profitability of the firm

A

Income Statement

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7
Q

Shows the assets of the firms, along with its liabilities and equity. It presents the liquidity and solvency of the firm.

A

Balance Sheet

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8
Q

shows the investments made by the owners of the
business decreased by the withdrawals made and
increased by the net profit made

A

Statement of Changes in Owner’s Equity

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9
Q

Details all sources or inflow of cash and expenditures or outflows of cash to show net income or decrease in cash

A

Cash Flow Statement

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10
Q

Three Basic Decision Areas

A

Operating Decisions
Investment Decisions
Financing Decisions

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11
Q

deal with the day to day operations of the firm
include decisions such as pricing, selecting markets,
choosing the appropriate process or technology,
outsourcing payroll, among others

A

Operating Decisions

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12
Q

deciding on what assets to acquire or projects to
pursue

A

Investment Decisions

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13
Q

refers to decisions that involve funding investments
and operations over the long run

A

Financing Decisions

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14
Q

Steps in Analyzing Financial Statements (UDM)

A
  1. Understanding the information provided in the financial statements
  2. Drawing logical conclusion based on the data presented
  3. Making the appropriate decision on the course of action to take
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15
Q

any reader of the financial statements, especially
the financial manager who makes decisions for the
firm needs to have a basic knowledge of finance in
its contextual meaning to avoid confusion and
misleading or wrong decisions, which are sometimes
fatal to the business

A

Understanding the information provided in the
financial statements

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16
Q

managers must be able to make inferences based
on the data on the financial statements of which
may be presented in two comparative years

A

Drawing logical conclusion based on the data
presented

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17
Q

after conclusions are drawn managers will able to
determine the course of action to take to correct
what needs correction and the steps necessary to
redirect company efforts toward the goals that the
firm has set to achieve

A

Making the appropriate decision on the course of
action to take

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18
Q

Account Concepts (12)

A

Current Asset
Fixed Asset
Market Value
Replacement Cost
Current liabilities
Accounts Payable
Notes Payable
Accruals
Taxes Payable
Long-term liabilities
Common Stock
Retained Earnings

19
Q

is one that can be converted into cash in the normal operation of the firm within one year.

A

Current Asset

20
Q

are permanent assets that will not normally be
converted into cash. On the balance sheet, ______ are shown at historical cost, which is the
amount actually paid for the asset.

A

Fixed Asset

21
Q

is the price the asset could command in the market.

A

Market Value

22
Q

is the price that would be required to replace the asset if it had to be acquired today.

A

Replacement Cost

23
Q

are those that the firm reasonably expects to pay
within the next year

A

Current liabilities

24
Q

are obligations that the firm has for goods it has
received from others

A

Accounts Payable

25
Q

are short-term debt that the firm must pay-off within
the next year

A

Notes Payable

26
Q

are debts the firm owes because payment has not
yet been made, such as salaries owed to
employees

A

Accruals

27
Q

are taxes that are owned, but that have not yet been paid

A

Taxes Payable

28
Q

are continuing obligations that will not be
completely repaid next year

A

Long-term liabilities

29
Q

are account that reflects capital that were contributed by the equity holders of the firm.

A

Common Stock

30
Q

account shows the amount of net income that the
firm has not paid out dividends to its shareholders.

A

Retained Earnings

31
Q

Types of Analysis

A

Vertical Analysis
Horizontal Analysis
Ratio Analysis

32
Q

Evaluates financial statement by expressing each
item in a financial statement as a percent of the
base amount (key figure)
Key-figure (such as sales in IS and total assets on BS)
are set to 100%
Other items are then expressed as percentage of
100

A

Vertical Analysis

33
Q

Comparing key figures in financial statement
Evaluates a series of financial statement over a
period of time.

A

Horizontal Analysis

34
Q

It expresses the relationship among selected items of financial statement data.

A

Ratio Analysis

35
Q

A percentage analysis can be used to show the relationship of each component to a total within a single statement

A

Vertical Analysis

36
Q

It’s an analysis of the percentage increases and decreases of related items in comparative financial statements

A

Horizontal Analysis

37
Q

Importance of Ratio Analysis (QAR)

A
  1. Quick and easy snapshot of an organization’s
    achievements
  2. Aid for comparisons
  3. Ratio provide benchmark to compare on
    company with another (inter-firm comparison) or to
    compare the same company over period of time
    (intra-firm comparison).
38
Q

Types of Ratio Analysis

A

Profitability Ratio
Liquidity Ratio
Quick Ratio
Solvency Ratio

39
Q

Limitations of the Accounting Information

A

Estimates
Cost
Alternative Accounting Method
Diversification of firms

40
Q

Limitations

The financial statement contains numerous estimates. Eg. Provision for doubtful debt, depreciation and contingent loss.

A

Estimates

41
Q

Limitation

The traditional financial statements are based on historical cost, it is not adjusted for price-level
change. Eg. Inflation affects the sales growth.

A

Cost

42
Q

Limitation

A comparison may be misleading as different
companies use different accounting method. Eg.
FIFO and LIFO.

A

Alternative Accounting Method

43
Q

Limitation

This diversification of activities of companies limit the
usefulness of financial analysis. (no specific industry).

A

Diversification of firms

FINANCIAL MANAGEMENT (2 decks)

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