Overall

Question 1

Time Value of money

Answer 1

dollar today is worth more tomorrow

Question 2

Starting a business - where to get money

Answer 2

Loan/mortgage (debt)

shareholder (equity)(investor)

Question 3

Risk and Reward Relation

Answer 3

Higher the risk the higher the reward

no risk, no reward

Question 4

External Factors

Answer 4

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

Question 5

Financial Objective

Answer 5

1. Efficiency – How does your business leverage assets and investor money to make money?
2. Liquidity – Are you able to cover your short-term obligations (i.e. things you owe soon)?
3. Prosperity – How’s the growth of the business? Is revenue increasing?
4. Stability – How is your company funded? Two main ways – Debt (borrowed money) and Equity (money invested in the business)

Question 6

Efficiency

Answer 6

Productivity of assets- How does your business leverage assets and investor money to make money?

Return on Assets (R.O.A) %
Return on Equity (R.O.E) %

Question 7

Liquidity

Answer 7

Ability to meet short-term commitments - Are you able to cover your short-term obligations (i.e. things you owe soon)?

Current Assets - Current Liabilities = Working Capital

Question 8

Prosperity

Answer 8

Ability to grow – How’s the growth of the business? Is revenue increasing?

Rev, working capital, non-CA, profit for year

Question 9

Stability

Answer 9

Financial Structure of Firm – How is your company funded? Two main ways – Debt (borrowed money) and Equity (money invested in the business)

Assets = Equity/Debt = %

Question 10

Triple Bottom Line

Answer 10

Aligning goals of the firm and financial decisions with investors, community, etc.

Econ, Social, Enviro.

Question 11

Operating Decisions

Answer 11

Can be found on Balance Sheet and Statement of Income

deals with daily operating/functioning of business (CA, CL, some Exp and Rev - income statement)

Question 12

Investing Decisions

Answer 12

deal with non-CA on balance sheet

Question 13

Financing Decisions

Answer 13

what pays for everything else

Risk?

Question 14

How Statements Connect

Answer 14

Balance sheet done at start and end of term. gives/takes info from other statements.

net income = retained earning
ending cash = CA = Beginning cash

Question 15

Financial Analysis

Answer 15

Statement of cash flows
Horizontal analysis
Vertical analysis
Ratio analysis
Break-even analysis
Operational analysis

Question 16

Cash flow activity by category

Answer 16

Operating - related to income
Investing - related to non-CA
Financing - related to non-CL and OE

Question 17

Vertical Analysis

Answer 17

portion of assets funded by X
Amount of COGS – growth
listed as %

Question 18

Horizontal Analysis

Answer 18

Compares historical data - annual changes

new-old)/old*100 (balance

Question 19

Market-Value Ratios

Answer 19

Based on ‘stock’
Investment analysis

profit/share = earning/share (low=less/share)
over/under value = value of share = above outcome/# shares

Question 20

Limits to Financial Ratios

Answer 20

only gives signals - not super detailed
ensure numbers are similar
business size makes diff
Nature of Operat. Diff

Question 21

Operating Leverage

Answer 21

Sensitivity of Net Income to changes in Sale Revenues (Variable and Fixed Costs)

Higher = higher variable cost - not great - lots of debt? risk high
Lower = higher fixed costs - typically better - risk low

cal: Earn before income tax/% in sale out put

Question 22

Contribution Margin (CM)

Answer 22

How much is ‘cash/rev’

Contribution margin = Revenue – Variable Costs

Question 23

Break-even Analysis

Answer 23

Where Sales meet Expense

Get CM
Get FC

$ = FC/CM%
# to sell = FC/CM$

Question 24

Budgeting and Financial Projections

Answer 24

First: Sales projections with Sensitivity Analysis!
Then: Operating Budgets: 
Production/Merchandising projections;
Sales and Administrative expenses projections;
Capital expenses projections
Next: Cash Flow projections
	Identify short-term financing needs
After: Pro-forma Income Statement
Finally: Pro-forma Balance Sheet