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Finales > PART 2: Financing the business > Flashcards

PART 2: Financing the business Flashcards

1
Q

The form economic resources or items of value that the firm owes are

A

assets

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2
Q

All the money that has ever been contributed to the company that never had to be paid back

A

owner’s equity

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3
Q

In a double entry book-keeping system, the loan from a bank must be recorded in the column of the

A

assets and liabilities

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4
Q

What is a financial statement

A

end result of accounting process

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5
Q

Shows the organization’s profitability over a period of time

A

income statement/P&L

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6
Q

If you want to see a “snapshot”of an organization’s financial position at a given moment, you would as for the

A

balance sheet

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7
Q

Accounting equation

A

Assets = Liabilities + Owners equity

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8
Q

Explains how the company’s cash changed from the beginning to the end of the accounting period

A

cash flow

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9
Q

What are the 3 categories of change in cash

A
  1. Cash used for operating activities
  2. Cash used for investing activities
  3. Cash from financing activities
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10
Q

In a balance sheet, an operating lease is shown up as

A

it does not show up

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11
Q

If you are an investor, which ratio or data would you use in order to compare the performance of one company with another on an equal?

A

per share data

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12
Q

If you are an investor, which ratio would you use in order to measure the amount of operating/net income an organization is able to generate relative to its assets?

A

profitability ratio

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13
Q

If you are an investor, which ratio would you use in order to measure how well the firm uses its assets to generate $1 of sales (efficient)?

A

asset utilization ratio

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14
Q

Liquidity ratio

A

measure the speed with which a company can turn its assets into cash to meet short term debts

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15
Q

Debt utilization ratio

A

indicates how much of the firm is financed by debt and how much by owner’s equity

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16
Q

If you want to ensure that enough cash flows through the organization quickly and efficiently, companies try to

A

speed up cash collectiveness from customers

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17
Q

Debt ratio (formula)

A

debt to assets = debt (total liabilities)/total assets

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18
Q

If you minimize the company investment in inventory without production cutbacks you are

A

managing current assets

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19
Q

What is accounting used for

A

use to record, measure and interpret their financial transactions and records

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20
Q

Role of accounting

A

make business decisions

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21
Q

What is the Financial Accounting Standard Board (FASB)

A

independent nonprofit organization responsible of establishing accounting and financial reporting standards for companies and nonprofit organizations in the US

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22
Q

What is GAAP

A

generally accepted accounting principles

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23
Q

The role of Governmental Accounting Standards Board (GASB)

A

set the rules for state and local governments

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24
Q

Why is a CPA needed for

A

to certify that the organization followed the accepted accounting principles in preparing the financial statement

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25
Q

What is Certified Public Accountants’s (CPA) opinion

A

they have an impartial opinion regarding the accuracy of the cllient’s financial statement

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26
Q

Who are private accountants

A

accountants employed by corporations, government agencies and other organizations

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27
Q

What are bookkeepers responsible for

A

limited to the routine day to day recording of business transactions

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28
Q

Role of accountants

A

analyze a firm’s financial position with the information recorded by the bookkeepers

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29
Q

What is a double entry bookkeeping

A

It’s a system of recording and classifying business transactions in separate accounts in order to maintain the balance of the accounting equation

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30
Q

Internal uses

A

for managers and owners in order to plan and control

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31
Q

External uses

A

for reporting results to stockholders, customers, employees, media, filing income taxes, obtaining credit etc.

32
Q

What does managerial accounting refers to

A

refers to the internal use of accounting statements by managers in planning and directing the organization’s activities

33
Q

Greatest single concern from management is…

A

cash flow

34
Q

Cash flow

A

the movement of money through an organization daily, weekly, montly or yearly basis. An organization needs to generate enough cash to pay its bills as they fall due

35
Q

Budget breakdowns of

A

cash inflows (entries) and outflows

36
Q

Shortfall and cash crunch refers to

A

struggle to make payments to employees, suppliers and lenders due to an inadequate cash flow

37
Q

Budget

A

internal financial plan that forecasts expenses and income over a set period of time

38
Q

Principal value of budget

A

forecast the expected operating expenses and the operating revenues

39
Q

Forecast expenses

A

anticipated costs that a business expects to incur over a specified future period

40
Q

Top down master budget

A

Financial plan for an entire organization. Involves breaking down the organization’s financial objectives into specific targets for each business unit, department or cost center

41
Q

Bottom-up budget

A

detailed budgets are prepared by individual departments within an organization and then aggregated to form the overall organizational budget

42
Q

Annual report

A

summary of the firm’s financial information, products and growth plans

43
Q

Who are interested in the annual report of a company

A

government agencies, owners, lenders, employees, suppliers, potential investors, etc.

44
Q

What does a short-term lender looks for in the annual report

A

examines cash flows to assess its ability to repay a loan with cash generated from sales

45
Q

What does a long-term lender look for in the annual report

A

examine the company profitability and debts to other lenders

46
Q

Why does labour unions use financial statements

A

to establish reasonable expectations for salary and other benefits

47
Q

Accounting process is the…

A

business language

48
Q

What are the 4 step procedure of an accounting system

A
  1. Gather and examine source documents (checks, receipts, sales slips, etc)
  2. Record transactions
  3. Post transactions (trial balance = summary of the balance of all the accounts in the general ledger)
  4. Prepare financial statement
49
Q

Liquidity

A

degree to which an asset or security can be quickly bought or sold in the market without affecting its price (how easily an asset can be converted into cash)

50
Q

Assets that are either cash or expected to be turn into cash within the next 12 months are…

A

current/short-term assets

51
Q

Have a minimum life expectancy that exceeds one year

A

non-current/fixed assets

52
Q

Short-term investments in securities that can be converted to cash quickly are…

A

marketable securities

53
Q

Obligations to short-term creditors which must be repaid whithin one year

A

current liabilities

54
Q

Represents amounts owed to suppliers for goods and services purchased with credit

A

accounts payable

55
Q

Managing short-term assets

A

company use them to generate sales and manage ordinary day-to-day business operations (cash, investing free cash, maximizing accounts receivable and optimizing inventory)

56
Q

Challenge of managing fixed assets

A

Obtain long-term finances

57
Q

What is capital lease

A

a long-term contract and shows up on the balance sheet as an asset and liability

58
Q

What is operating lease

A

short-term cancelable lease and does not show up on the balance sheet

59
Q

Solution for managing fixed assets

A

leasing assets involves paying a fee for usage rather than owning the asset

60
Q

Managing current liabilities

A

the sources of short-term funds used to finance the business (accounts payable, bank loans, non bank liabilities, etc)

61
Q

What are the 3 considerations when investing in a new project

A
  1. Capital budgeting and project selection
  2. Assesing risk
  3. Pricing long term money
62
Q

Managing long-term liabilities (debts)

A

the raise of low-cost long-term funds to finance the development of fixed assets

63
Q

What are bonds

A

debt instruments that larger companies sell to raise long-term funds

64
Q

The bond contract is called…and its specifies…

A

“indeture” and it specifies face value (initial price), maturity date, the annual interest rate (or cupon rate) and the procedures to be followed if organization fails to make the interest payments

65
Q

Types of bonds

A
  1. Unsecured bonds
  2. Secured bonds
  3. Floating rate bonds
  4. Junk bond (“bono basura”)
66
Q

Sole propietors and partners equity includes their…

A

money and assets

67
Q

Corporate owners own…

A

stocks and shares of the company

68
Q

Common stock is the single most important source of…

A

capital for most new companies

69
Q

Venture capital

A

a firm that invest in a company’s balance sheet and infraestructure until it reaches a sufficient size so that it can be sold to a corporation/have access to the capital markets

70
Q

Investment banking

A

specific division of banking related to the creation of capital for other companies, governments and other entities

71
Q

Investment banking activities include…

A

underwriting new debt and equity securities for all types of corporations, aiding in the sale of securities and helping to facilitate mergers and acquisitions, reorganizations and broker trades for both institutions and private investors

72
Q

A company needs more money to expand may be able to…

A

obtain financing by issuing stocks

73
Q

Issuing stocks

A

going public (Initial Public Offering - IPO), primary market and secondary market

74
Q

Security markets provide…

A

a mechanism for buying and selling securities. They make it possible for owners to sell their stocks and bonds to other investors

75
Q

B.E.P

A

incomes equal to total costs (FC + VC)

Finales (8 decks)

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