Copyright by Paradigm Publishing, Inc. INTRODUCTION TO BUSINESS CHAPTER 15 Accounting and Financial Analysis.

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Presentation transcript:

Copyright by Paradigm Publishing, Inc. INTRODUCTION TO BUSINESS CHAPTER 15 Accounting and Financial Analysis

Rough Draft #3 Outline Library Research Exchange Rate Initial Costs Monthly Costs Sales Projections Break Even Professionalism (grammar and detail)

International Section Analysis and research – culture, economic conditions, economic system political risks, type of currency. (CITED) Currency Strategy (3 year): Spot or Forward contract and why (spot) MONTHLY purchase projection (changing currency) and then added into the financial plan. SAMPLE?!?

Purchase projections – See sample : Que Bella (NEEDS : 1.More variation on units: GROWTH & SEASONALITY 2. $200 per month MINIMUM import)

For Business Plan Initial Cost (Start up) Monthly Cost (FIXED & VARIABLE) Sales Projection (First 12 months or until break even point) Break Even (DEFINE) FEASIBILITY?!? In a few minutes( First, let’s do a “story problem”)

Break Even PB & J Cart Start up - $3000 ($2000 loan ; payment of$100 per month, _____ from investor(s)) Monthly Costs: Total fixed is $5000, Variable ($.50 per customer) Price (Avg. customer is $1.50) Break Even at _____ customers per month.

Copyright by Paradigm Publishing, Inc. How Firms Use Accounting Accounting: the summary and analysis of a firm’s financial condition. Public accountants vs. Certified Public Accountants (CPAs)?

Copyright by Paradigm Publishing, Inc. How Firms Use Accounting Reporting Bookkeeping: the recording of a firm’s financial transactions. Financial accounting: accounting performed for reporting purposes. Decision Support Managerial accounting: accounting performed to provide information to help managers of the firm make decisions. Control Auditing: an assessment of the records that were used to prepare a firm’s financial statements. Internal auditors: specialize in evaluating various divisions of a business to ensure that they are operating efficiently.

Users of Accounting info. Owners, stockholders, potential investors, creditors Management Employees, union officials, competitors Lenders, suppliers Government agencies, economic planners, consumer groups

Copyright by Paradigm Publishing, Inc. Responsible Financial Reporting The Role of Auditors in Ensuring Proper Reporting The Role of the Board of Directors in Ensuring Proper Reporting The Role of the Sarbanes-Oxley Act An auditing firm is allowed to provide nonaudit services when auditing a client only if the client’s audit committee preapproves these services before the audit begins.

Copyright by Paradigm Publishing, Inc. Responsible Financial Reporting The CFO and other managers of the firm must file an internal control report along with each annual report. The CEO and CFO must certify that the audited statements fairly represent the operations and financial conditions of the firm. Major fines or prison terms are imposed on employees who mislead investors or hide evidence.

Responsible Reporting Responsible Financial Reporting

Copyright by Paradigm Publishing, Inc. Interpreting Financial Statements Income statement: indicates the revenue, costs, and earnings of a firm over a period of time. Balance sheet: reports the book value of all assets, liabilities, and owner’s equity of a firm at a given point in time.

Copyright by Paradigm Publishing, Inc. Interpreting Financial Statements Income Statement Net sales: total sales adjusted for any discounts. Cost of goods sold: the cost of materials used to produce the goods that were sold. Gross profit: net sales minus the cost of goods sold. Operating expenses: composed of selling expenses and general and administrative expenses.

Example of Income Statement: Taylor, Inc. Copyright by Paradigm Publishing, Inc.

Interpreting Financial Statements Balance Sheet Asset: anything owned by a firm. Liability: anything owed by a firm. Basic accounting equation: Assets = Liabilities + Owner’s Equity.

Interpreting Financial Statements Breakdown of Balance Sheet for Taylor, Inc. Copyright by Paradigm Publishing, Inc.

Statement of Cash Flow (not in text) Used to determine operational flows Track “cash” – most vulnerable

Ratio Analysis Liquidity Efficiency Financial Leverage Profitability

Ratio Analysis A firm’s financial managers not only create financial statements for reporting purposes, but they apply ratio analyses and monitor trends in order to predict the future financial condition of the firm. Copyright by Paradigm Publishing, Inc.

Ratio Limitations Difficult Accounting Practices Seasonal Swings