1 Daily Information 5/1 Objectives: 1.Identify the advantages and disadvantages of credit. 2.Create a budget for your business groups. Warm Up: 1.What is a credit card? 2.What does it allow customers to do? 3.How is a credit card different from a debit card? Agenda: 1.Warm up 2.Credit P.P. 3.Student notes 4.Business Group Budgets Daily Information: 6/2/2016

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Today’s Assignments  Read through the PowerPoint on credit and take notes. Turn this into the substitute.  Get in your business groups and create your budget. This should be completed today. Complete in google docs for my review 2

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Credit: Good or Bad? These are the topics you will read about throughout this PowerPoint.  Credit: The good, the bad, the ugly  Obtaining credit/capital for a business  Creditworthiness (Four C’s)  Customers paying on credit  Businesses borrowing on credit 3

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Is Credit for Everyone?  CASE 18-1 on page 504 Answer all questions in your notes 4

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Obtaining Capital for a Business  Equity Capital – owners contributions (property and funds)  Retained Earnings – profits from a business left in the business for use by the business  Debt Capital – loan from others 5

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Creditworthiness Character, Capacity, Capital, Conditions  Determine: Can the customer pay? Will the customer pay? 6

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Private Card System  Major Advantage Advertising Offer special promotions  Major Disadvantage Cost Inconvenience of operating this type of system -a business would have to hire a credit department 7

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Extending Credit to Customers Losses from uncollectable accounts  Well-managed companies can experience 2-4% in losses  Poor managed companies can experience 7-10% lost  Economic conditions play an important role 8

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9 Analyzing Credit Sales Key Points:  Accounts receivable relative to credit sales  Aging of accounts  Percentage of delinquent accounts relative to total outstanding accounts **Read the section on Analyzing Credit Sales (page 485 and 486) to create notes for this section.

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Approved to accept Credit Cards The business must be screened to make sure it is financially strong enough to offer credit through: Credit reports Financial statements 10

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Evaluating Financial Statements  Financial Ratios show profitability, ability to pay debts, and inventory turnover  Information can be found on the balance sheet, income statement, and statement of cash flows 15 11

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Ability to Earn Profits  Return on sales/Profit Margin  Higher returns are better  Average return 4-5%  Improve low returns: reduce expenses, increase sales or both Return on sales = Net income after taxes / Net sale

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Ability to Pay Debts  Current ratio  2.6 is $2.60 current assets for every $1 of current liabilities  Average current ratio 2.0  Improve low returns: repaying current liabilities, reducing dividend payments to stockholders, or obtaining additional cash from investors Current ratio = Current Assets / Current Liabilities

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Manage Inventory Effectively  Inventory turnover: The number of times the firm sells its merchandise inventory in one year  Average Inventory = (beginning inventory value + ending inventory value)/2  Average inventory turnover is 9 times per year but can vary Ex: food store (more) vs. furniture store (less)  Improve: Order merchandise in smaller quantities Inventory Turnover = Cost of Goods Sold / Average Inventory

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Using the Internet  There are many online sources for obtaining company information and annual reports. Here are just two

Copyright ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Creating a Budget  Review the Business Start-up costs handout along with the resources provided for the balance sheet, income statement, and cash flow statement. (on my website)  Review the three statements for your industry and two competitors or company’s that are similar to your business.  Take the average of your findings to create the numbers for your budget