MODULE 2 Flashcards
deals with the understanding of the relationship between financial concepts and daily decision-making
Financial Analysis
both analytical and judgmental process used in the
managerial context
Financial Analysis
end purpose is to help people make sound
decisions and judgments
Financial Analysis
product of financial accounting, show the results of
operation, financial position, changes in owner’s
equity, sources and uses of funds
Financial Statements
Basic Financial Statements
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
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
Income Statement
Shows the assets of the firms, along with its liabilities and equity. It presents the liquidity and solvency of the firm.
Balance Sheet
shows the investments made by the owners of the
business decreased by the withdrawals made and
increased by the net profit made
Statement of Changes in Owner’s Equity
Details all sources or inflow of cash and expenditures or outflows of cash to show net income or decrease in cash
Cash Flow Statement
Three Basic Decision Areas
Operating Decisions
Investment Decisions
Financing Decisions
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
Operating Decisions
deciding on what assets to acquire or projects to
pursue
Investment Decisions
refers to decisions that involve funding investments
and operations over the long run
Financing Decisions
Steps in Analyzing Financial Statements (UDM)
- Understanding the information provided in the financial statements
- Drawing logical conclusion based on the data presented
- Making the appropriate decision on the course of action to take
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
Understanding the information provided in the
financial statements
managers must be able to make inferences based
on the data on the financial statements of which
may be presented in two comparative years
Drawing logical conclusion based on the data
presented
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
Making the appropriate decision on the course of
action to take
Account Concepts (12)
Current Asset
Fixed Asset
Market Value
Replacement Cost
Current liabilities
Accounts Payable
Notes Payable
Accruals
Taxes Payable
Long-term liabilities
Common Stock
Retained Earnings
is one that can be converted into cash in the normal operation of the firm within one year.
Current Asset
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.
Fixed Asset
is the price the asset could command in the market.
Market Value
is the price that would be required to replace the asset if it had to be acquired today.
Replacement Cost
are those that the firm reasonably expects to pay
within the next year
Current liabilities
are obligations that the firm has for goods it has
received from others
Accounts Payable
