1. CHAPTER 16 FINANCIAL ANALYSIS OF A BUSINESS

2. HOW DO YOU JUDGE THE SUCCESS OF A BUSINESS?
______________________________________

3. WHY DO MOST BUSINESSES FAIL? (SLIDE 3-6)
__________________________

4. SUCCESSFUL FINANCIAL MANAGEMENT DEPENDS ON: (SLIDE 7)
KEEPING ______________AND _______________RECORDS.
PREPARING IMPORTANT FINANCIAL REPORTS ___________________.
__________________FINANCIAL INFORMATION IN THE REPORT.
_____________________THAT AFFECT FUTURE FINANCIAL REPORTS.

5. What question is a business owner looking to answer? (SLIDE 10)
FINANCIAL STATEMENTS
By definition, (SLIDE 8)
_____________________________________________________________________________.
What question is a business owner looking to answer? (SLIDE 10)
_______________________________________________________________?

6. TYPES OF FINANCIAL STATEMENTS(SLIDE 11)
______________________which reports on a company’s __________, ______________, and _______________ as of a given point in time.
______________________ reports on a company’s ________________________ over a period of time.
______________________which reports on its________________, ________________ and ____________________activities.
___________________________ which explains __________ in a company’s retained earnings over the reporting period.

7. BALANCE SHEET (SLIDE 13)
Defined as: __________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________.
FORMULA:
___________________________________________________________

8. PARTS OF A BALANCE SHEET (SLIDE 14)
ASSETS(LEFT SIDE) _________________________
___________________________________________.
ex:________________________________
LIABILITIES (RIGHT SIDE) ____________________
___________________________________________
ex:___________________________________
CAPITAL (RIGHT SIDE) _________________________________________________________________________________________.

9. _______________
____________

10. Anything OWNED by the business Anything OWED by the business
CROWN CORPORATION
Balance Sheet
December 31, 2008
ASSETS
Cash $24,000
Equipment ,000
Land & Bldg ,000
LIABILITIES
Accounts Payable $10,000
Mortgage Payable ,000
Total Liabilities $43,000
CAPITAL
James Jones, Net Worth $26,500
Tom Erwin, Net Worth 26,500
Total Capital $53,000
Total Liabilities & Capital $96,000
Total Assets $96,000
TOTAL ASSETS MUST EQUAL TOTAL LIABIITIES + CAPITAL
Anything OWNED by the business
Anything OWED by the business

11. ANALYSIS OF THIS BALANCE SHEET FOR CROWN CORPORATION (Slide 17)
Positive or negative net worth?______________
Why?__________________________________
2) Is it possible to have a negative net worth?______
IF_______________________________________
ex: not making enough profits to cover expenses
ex: have a lot of obsolete inventory in computers I am selling. Price has dropped drastically below what I paid for them and I am losing money selling below my cost so eventually will have a net loss---might have to get rid of my inventory) and hopefully can generate enough money to cover losses and make profit--get out of computer business--go to some other line.)

12. IN REVIEW: (SLIDE 18) BALANCE SHEET
______________________________________________________________________
BALANCE SHEETS ARE PREPARED AT LEAST __________________.
WHAT DO THEY PROVIDE? _____________________________________________________________________.

13. Starboard Corporation
BALANCE SHEET
April 16, 2007
ASSETS
Cash $ 5,000
Accounts Receivable 8,000
Merchandise Inventory ,000
Land and Buildings ,000
Total Assets $148,000
LIABILITIES
Accounts Payable $ 12,000
Mortgage Payable ,000
Total Liabilities ,000
CAPITAL
James Jones, Net Worth ,000
Total Liabilities & Capital $148,000 20

14. INCOME STATEMENTS 1

15. (aka__________________________)
INCOME STATEMENTS
(aka__________________________)
By definition, _______________________________________________________________________________________________________________________________________________________________. 2

16. THREE MAJOR PARTS TO INCOME STATEMENT:
1. ________________________
_______________________________
2. _______________________
_________________________________________________________________.
3. _____________________ 3

17. IF REVENUES GREATER THAN EXPENSES – COMPANY EARNED A _______.
IF EXPENSES GREATER THAN REVENUE –
COMPANY INCURRED A______. 4

18. 5

19. WHAT IS THE DIFFERENCE BETWEEN AN INCOME STATEMENT AND A
BALANCE SHEET
INCOME STATEMENT
Shows _______________________________ of time: year or less.
Shows the ___________________________ as of a specific date. 6

20. FOR THE YEAR ENDING DECEMBER 31, 2008
or Net Loss
$100,000
40,000
$__________ 7

21. REFERRING TO THE XYZ CORPORATION
INCOME STATEMENT
1. WAS THIS INCOME STATEMENT DONE FOR A QUARTER, MONTHS, OR FOR A YEAR?_____________
2. WHAT REPESENTS THE TOTAL INCOME FROM GOODS THE XYZ CORPORATION SOLD?_____________
3. WHAT REPRESENTS WHAT XYZ CORPORATION PAID FOR THE MERCHANDISE IT SOLD?___________
4. WHAT REPRESENTS PROFIT FROM THE SALE BEFORE EXPENSES?_________________________
WHAT REPRESENTS THE COST OF OPERATING THE BUSINESS DURING THE YEAR?_______________
IF MY GROSS PROFIT IS GREATER THAN MY EXPENSES, I HAVE _______________________________.
7. IF MY EXPENSES ARE GREATER THAN MY GROSS PROFIT, I HAVE ______________________________. 8

22. Movement of cash into and out of a business
CASH FLOW
Movement of cash into and out of a business
(ex: checkbook – deposit money, pay bills by writing checks)
You work at McDonalds, making $320/month.
You owe $400/month for car insurance.
Positive or negative cash flow?________
How much?______________ 9

23. WORKING CAPITAL DIFFERENCE BETWEEN CURRENT ASSETS AND
CURRENT LIABILITIES 10

24. It can be converted to cash within a year.
CURRENT
It can be converted to cash within a year.
1. When a company purchases goods on credit, it expects to pay its bill within a year – Current Liability – Accounts Payable.
2. When a company sells goods on credit, it expects to be paid within a year – Current Asset – Accounts Receivable. 11

25. WOULD YOU LEND MONEY TO THIS BUSINESS?
CURRENT ASSETS = $80,000
CURRENT LIABILITIES = 30,000
WORKING CAPITAL = $______
Do corporations with a larger working capital find it easier or harder to borrow money?_________ 12