Financial Analysis Flashcards

Income Statement-

Reports a businesses revenues, expenses, and profit or loss over a specific time period.

Revenue-

money earned from selling products or services

Expenses-

Costs incurred while operating a business

Net Income-

Profit remaining after expenses

Net loss-

when expenses exceed the revenue

Cost of goods sold(COGS)-

Direct costs associated with producing or purchasing the goods sold

Gross profit-

Revenue minus cost of goods sold

Operating expenses-

Costs involved in running the business, such as rent and advertising

Balance sheet-

Shows a company’s financial position at a specific point in time

Assets-

Resources owned or controlled by a business

Liabilities-

Debts or Obligations a business owes

Owner’s equity-

The owners residual interest in the business after liabilities are subtracted from assets

Interest-

The cost of borrowing money or the money earned from lending or saving money

Investments-

Assets or financial products that a business purchases or puts money into with the expectation of earning a profit or generating future income

Loans-

Stock-

Dividends-

Payments that a corporation distributes to its shareholders

Shareholder-

A person who owns share in a corporation

Allocation-

distributing or assigning available financial resources

Cash Flow statement-

Operating Activities-

Cash from normal business operations

Investing Activities-

Cash related to buying or selling long term assets or investments

Financing Activities-

Cash from borrowing, repaying loans, issuing stock, or distributing dividends

Accounts receivable-

Money customers owe the business

Accounts payable-

Money the business owes the suppliers

Inventory-

Goods a business has available for sale or production

Capital-

money or resources invested in a business

Depreciation-

Allocation of an asset’s cost over its useful life

Liquidity-

Ability to meet short term financial obligations

Solvency-

Ability to meet long term financial obligations

Working capital-

current assets minus current liabilities

Equity-

Debt-

money borrowed that must be repaid

Interest-

Cost of borrowing money or return earned on lending

Liability-

Financial obligation

Budget-

Financial plans for expected income and expenses

Financial ratios-

help businesses evaluate performance and financial health

Current Ratio-

Measures the ability to pay short term liabilities using current assets

Profit Margin-

measures what percentage of revenue becomes net profit

Return on Investment-

Measures the return generated relative to the investment

Operating budget-

Expected revenue and operating expenses

Cash budget-

Expected cash receipts and payments

Capital budget-

Planned spending on long term assets

Master budget-

overall financial plan combining various budgets

Flexible budget-

Adjusts based on actual activity levels

Fixed budget-

Remains unchanged regardless of activity levels

Break-even point-

where total revenue equals total cost and the profit is 0

Fixed Costs-

costs that generally remain constant within a relevant range of activity

Variable costs-

Checking account-

used for everyday transactions

Savings account-

Used to store money and earn interest

Certificate of deposit-

Deposit held for a specific period, typically in exchange for a stated interest rate

Debit card-

uses money from a linked bank account

Credit Card-

allows borrowing up to a credit limit

Collateral-

An asset pledged to secure a loan

Principal-

original amount borrowed or invested

Compound interest-

Interest calculated on principal and accumulated interest

Simple interest-

Interest calculated only on the original principal

Medium of Exchange-

Money is used to buy and sell goods and services

Store of value-

Money preserves purchasing power for future use, subject to inflation and other changes

Unit of account-

Money provides a common way to measure and compare prices

Investor-

an individual, business, or organization that puts money into assets or financial products with the expectation of earning profit or receiving future income

Reconciliation-

comparing two sets of financial records to make sure they match and identifying and correcting any differences and errors

Bank statement-

A record provided by a bank showing accounting transactions and balances

Statement balance-

Amount owed at the end of a billing cycle

Outstanding check-

a check you have already written and recorded in your checkbook, but the bank has not processed it yet

Revolving credit account-

A type of credit account that allows a borrower to repeatedly borrow money up to a predetermined credit limit

Installment-

borrowing a fixed amount and repaying it through small scheduled payments

Cash conversion cycle-

The amount of time it takes a business to turn the money it spends on inventory into cash collected from customers

Unearned income-

you receive money without working wages

Bonds-

financial instruments that represent a loan made by an investor to a government or corporation