Day 1

What is a Cash Budget used for in a business?

What is a Cash Budget used for in a business?

To estimate inflows and outflows of money to see if there is enough cash for operational requirements.

What defines a Sole Proprietorship?

A business structure where the owner and the business are legally considered the same, making the owner liable for all business debts.

What are the tax implications of a C Corporation?

Subject to two levels of taxation: corporate income tax and taxes on dividends paid to shareholders.

What is a General Partnership?

A business arrangement where there is more than one owner with a partnership agreement, and owners are not protected from liabilities.

What is an example of the Agency Problem?

Enron, where executives used false accounting to inflate stock prices for personal gain.

What is Corporate Financial Management?

The method a company uses to meet its organizational goals with capital, primarily focusing on profit maximization.

What does the process of Estimation of Capital Requirements entail?

Determining a business's long-term money needs.

What is one potential solution to the Agency Problem?

Offering monetary incentives for desired behavior or threatening termination for misbehavior.

What defines a Limited Partnership?

A business structure with a general partner in control and limited partners without management rights.

What are the tax obligations of an S Corporation?

Not subject to federal income tax; shareholders are taxed on their shares instead.

What are Capital Sources?

Methods to increase capital, including self-generating revenue or acquiring debt and equity.

How are taxes handled in a Limited Liability Company (LLC)?

The company itself is not responsible for taxes; instead, profits pass through to the members who are taxed.

What are Financial Management Processes related to Investment Strategies?

Determining strategies to invest capital and earn returns.

What is Capital Budgeting?

Planning how capital will be used over time; involves dividend payouts when no value growth is possible.

What is a Corporation?

A large business regulated by a board of directors elected by shareholders.

What is a Limited Liability Partnership?

A partnership structure often used by professionals with limited liability for each partner.

What is required for Limited Liability Company (LLC) registration?

Registration with the state government is required before operations begin.

What does Determination of Capital Structure involve?

Figuring out how to acquire the necessary funds for a business using stocks or bonds.

What is the Uniform Partnership Act?

The primary law governing partnerships in every state.

How does a Limited Liability Company (LLC) protect its members?

By separating personal and business assets, limiting liability to the amount invested.

What is the Agency Problem?

A conflict where managers prioritize their own interests over those of stockholders.

What characterizes a Limited Liability Company (LLC)?

Combines characteristics of both corporations and partnerships.

What is the role of a Chief Financial Officer (CFO)?

Guides a company's financial activities, managing capital and investments.

What is Net Cash Flow (NCF)?

The sum of operating cash flow, investment cash flow, and financing cash flow.

What does Free Cash Flow (FCF) measure?

The amount of cash a company generates after capital expenditures.

What does the Balance Sheet Equation state?

Assets must equal the sum of owner's equity and liabilities.

What are Generally Accepted Accounting Principles (GAAP)?

Standards governing the reporting of financial statements.

What are Capital Expenditures?

Costs associated with purchasing equipment and machinery, including buildings.

What is the Balance Sheet Equation Formula?

Assets = Liabilities + Owner's Equity.

How is Free Cash Flow (FCF) calculated?

Operating cash flow minus capital expenditures.

What is Amortization?

The process of deducting costs associated with intangible assets over time.

What does the Operating Cash Flow (OCF) formula compute?

Earnings before taxes and interest plus amortization and depreciation minus taxes.

What does Operating Cash Flow (OCF) indicate?

How well a company generates positive cash flow from its core business activities.

What does Revenue refer to?

The total amount of money a company earns during an accounting period.

What is Positive Cash Flow?

When a business generates more cash than it spends.

How is Depreciation calculated?

By deducting the costs of tangible capital assets over their useful life.

What does Balance Sheet: Liabilities entail?

Obligations a business owes that must be recorded on the financial statement.

What is Net Income?

The amount remaining when a company’s revenue exceeds its expenses.

What does a Balance Sheet display?

A financial statement listing a company's assets, liabilities, and owner's equity.

What is Earnings Before Interest and Taxes (EBIT)?

Revenue remaining after subtracting costs related to production and operations, before tax and interest.

What does Net Cash Flow (NCF) assess?

Measures the cash inflows over a specific time period.

What does Balance Sheet: Assets refer to?

Valuable items owned by a company, such as equipment or property.

What constitutes Negative Cash Flow?

When a business loses more cash than it receives.

What is the Acid Ratio / Quick Ratio?

A liquidity ratio assessing a company's ability to pay off short-term debts using liquid assets.

What is a Permanent Account?

Accounts that remain on a company’s chart of accounts indefinitely after they are opened.

What is the Statement of Retained Earnings?

A financial statement showing how much of a company's earnings are reinvested.

What does the Current Ratio / Working Capital Ratio measure?

The comparison of a company's current liabilities to its current assets.

What is the Cash Ratio?

The strictest liquidity ratio evaluating cash and cash equivalents against current liabilities.

How is the Earnings per Share Ratio (EPS) calculated?

Net income divided by the weighted average shares of outstanding common stock.

What does the Debt-to-Assets Ratio show?

The proportion of a company's assets financed by debt.

What is the formula for the Current Ratio / Working Capital Ratio?

Current assets divided by current liabilities.

What does Liquidity refer to?

The ease of converting an asset into cash.

What is the formula for the Acid / Quick Ratio?

(Cash & Cash Equivalents + Accounts Receivable) / Liabilities.

What does the Balance Sheet include?

A financial statement detailing a company's categorized accounts, excluding temporary accounts.

What are Financial Statement Ratios?

Ratios derived from financial statements to evaluate business productivity and efficiency.

What is an Adjusted Trial Balance?

A list of all of a company's accounts after financial adjustments have been made.

What does the Earnings per Share Ratio (EPS) indicate?

The net income earned per share of common stock.

How is the Debt-to-Assets Ratio calculated?

Total liabilities divided by total assets.

What are Current Assets?

Assets that can be converted into cash within one year.

What does the Return on Equity Ratio assess?

The return generated from shareholders' invested funds.

What is the formula for the Return on Equity Ratio?

Net income divided by average stockholder's equity.

What does an Income Statement reveal?

The profit or loss a company generates during a specific period.

What is the Cash Ratio's formula?

(Cash + cash equivalents) / current liabilities.

What is Financial Feasibility?

The analysis of a business venture's financial viability by assessing costs and potential profits.

What is the purpose of a Budget?

To evaluate anticipated revenues and expenses over a specific time frame.

What does the Sustainable Growth Rate (SGR) represent?

The maximum growth a company can achieve without external financing.

What is the Internal Growth Rate (IGR)?

The highest growth rate achievable without external capital.

What is a Pro-Forma Balance Sheet?

A projected balance sheet using the percentage of sales method, which is unbalanced until financing needs are calculated.

What is the Percentage of Sales Method?

A forecasting technique for estimating a business's sales growth.

What is Cash Flow?

The movement of money into or out of a business.

What is the formula for Percentage of Retained Earnings?

Retained Earnings divided by Net Income, multiplied by 100.

How is Forecasted Sales Growth calculated?

Current Sales multiplied by (1 + Growth Rate/100).

What does the External Financing Needed (EFN) formula assess?

Change in Assets minus Change in Current Liabilities minus Retained Earnings.

What is Resource Allocation in financial planning?

Determining the optimal use of a company's available resources to meet goals.

What does a Corporate Balance Sheet record?

Assets, liabilities, and owner's equity in a company.

What is the formula for the Internal Growth Rate (IGR)?

Retained Earnings divided by Total Assets.

What are the uses of a Capital Budget?

To evaluate how to finance capital investments.

What does External Financing Needed (EFN) indicate?

The amount of financing a company requires from outside sources.

What qualifies as Capital Investment?

Investments that take a long time to recoup, like expensive equipment.

What are Determinants in business growth?

Factors like resources, labor availability, customer base, and technology affecting a company.

What are Natural Resources in business?

Valuable elements found in nature that can impact business operations.

What is a Master Budget?

An overarching budget containing various interdependent budgets.

What does a Financial Planning Model's Sales Forecast do?

Predicts the sales growth percentage, aiding financial planning.

What is External Financing in a business context?

Capital sourced from outside the firm, like loans or stock sales.

What are Economic Assumptions in a Financial Planning Model?

Predictions about external factors like market conditions affecting financial performance.

How is a Pro Forma Financial Statement used in financial planning?

To forecast future financial conditions as part of the overall model.

What is Financial Control?

Systems enabling a business to manage resources effectively in accordance with a plan.

What does a Financial Planning Model allow executives to do?

Assess the potential impact of business strategies on future operations.

What is a Plug in a Financial Planning Model?

A contingency measure to address gaps in financial planning.