BA102 Final Exam

Gross Profit Margin

Measures the percentage of revenue that exceeds the cost of goods sold (COGS), indicating how efficiently a company produces its goods.

Gross Profit Margin = Gross Profit/Revenue x 100

Net Profit Margin

Indicates the percentage of revenue remaining after all expenses, taxes, and interest have been deducted from total revenue.

Net Profit Margin = Net Income/Revenue x 100

Return on Assets (ROA)

Measures how effectively a company uses its assets to generate profit.

ROA = Net Income/Average Total Assets x 100

Liquidity: Current Ratio

Indicates a company's ability to cover its short-term liabilities with its short-term assets.

Current Ratio = Current Assets/Current Liabilities

Solvency: Debt to Equity Ratio

Compares a company's total liabilities to its shareholders' equity, reflecting the degree to which debt is used to finance the company.

Debt to Equity Ratio = Total Liabilities/Shareholders' Equity

Inventory Turnover

Measures how effectively a company manages its inventory by comparing the cost of goods sold with average inventory.

Inventory Turnover = Cost of Goods Sold/ Average Inventory

Accounts Receivable Turnover

Indicates how efficiently a company collects its receivables by comparing net credit sales with average accounts receivable.

Accounts Receivable Turnover = Net Credit Sales/ Average Accounts Receivable

Accounting - Language of Business

Accounting is a comprehensive system for collecting, analyzing, and communicating financial information to a firm's internal and external stakeholders.
-Financial accounting: External information
-Managerial accounting: Internal information
-All information comes from the same information system

Where to find Accounting Information?

Managerial Accounting: this is internal it is not available publicly
Financial Accounting:
-Private Company: Not required to release publicly in the USA
-Public Company: Must release publicly and is required to be audited, from Investor Relations Page, SEC webpage, and Data Consolidators

Accounting Equation

Assets = Liabilities + Equity.

Asset

A present right of the entity to an economic benefit.

Liability

A present obligation of an entity to transfer an economic benefit.

Equity

The residual interest in the assets of an entity that remains after deducting its liabilities.

Balance Sheet

Provides a snapshot of an organization's financial condition at a specific point in time, summarizing assets, liabilities, and equity. (financial statement).

-Sometimes referred to as Statement of Financial Position

Income Statement

Summarizes a company's revenues, expenses, and profits or losses over a specific period. It provides insight into a company's financial performance and its ability to generate profit. (financial statement)
-Sometimes referred to as Profit and Loss Statement

Statement of Cash Flows

Provides a detailed breakdown of a company's cash inflows and outflows over a specific period.

It highlights the company's ability to generate cash from operations, manage its investing and financing activities, and maintain liquidity.

Financial Statement Analysis

The process of examining a company's financial statements to interpret its financial health and performance.

-Financial statements are linked both internally and across the statements due to double entry bookkeeping.
-Therefore, using ratios helps you understand what is going on with the business.

Developing the Marketing Plan

Define your objectives, conduct market research, develop your strategy, create an action plan, + monitor and adjust

Branding

The process of creating a unique identity for a product or company through elements like name, logo, design, and messaging.

-Helps differentiate the product from competitors and builds recognition, trust, and emotional connections with consumers.
-Effective branding influences customer perceptions and can drive loyalty and preference.

Product

The goods or services offered to meet customer needs

Price

The amount of money customers must pay for the product.

Place

The channels through which the product is distributed and made available to customers.

Promotion

The activities that communicate the product's benefits and persuade customers to purchase.

Market Research

The process of gathering, analyzing, and interpreting information about a market, including information about the target audience, competitors, and industry trends.
-Helps businesses understand customer needs, preferences, and behaviors, allowing them to make informed decisions about product development, marketing strategies, and sales.

Break-even Point

The number of unit sales at which total revenue equals total costs, resulting in neither profit nor loss.

Break-Even Point = Fixed Costs/ Selling Price per unit-Variable Cost per unit

Mixed Costs

Some costs that have both fixed and variable components.

Step Costs

Certain costs that remain fixed up to a point but increase in steps once a certain level of activity is reached.

For example, if additional staff members are hired once a certain level of production is achieved, labor costs then become a"stepped" fixed cost, complicating classification.

Time Frame

Salaries might be considered fixed in the short term because employees draw the same salary each month, but in the long term, these could vary based on business scale and needs, thus becoming more variable.

The classification of costs can depend on the time frame considered.

Price Discrimination

The practice of charging different prices to different customers for the same product or service.

-The strategy aims to capture consumer surplus and maximize a firm's revenue by aligning prices more closely with individual consumers' willingness to pay.

IRA

Retirement account with tax-deferred growth (won't pay tax until you are required to make withdrawals @ age 73)

Roth IRA

Retirement account with tax-free growth.

-Beneficiaries won't be taxed
-Can't withdraw investment earnings until 59.5 and had the account for 5 years

401k

A retirement savings plan sponsored by an employer that allows employees to save a portion of their paycheck before taxes are taken out. Employers often match employee contributions up to a certain percentage, and the funds grow tax-deferred until withdrawal.

Savings Account

Deposit account held at a financial institution that provides low interest rate but high liquidity. FDIC insured.

Certificates of Deposit (CDs)

fixed interest rate and fixed date of withdrawal, allowing customers to earn higher interest rates compared to regular savings accounts, in exchange for agreeing to leave their funds deposited for a specified time period. Penalties for early withdrawal

Stocks

Securities that represent ownership in a corporation and constitute a claim on part of the company’s assets and earnings. Higher risk but higher returns.

Mutual Funds

Diversified investments, managed professionally.

Segmentation, Targeting, Positioning (STP)

This model divides the market into distinct segments, identifies and targets groups of customers with tailored marketing campaigns, and positions products or services in a way that resonates with consumers’ desires and demands