FTDM Financial Analysis
Describe the role of financial institutions (FI:336) (CS)
Financial institutions serve a variety of purposes that benefits consumers, businesses, and the overall economy
Savings, investing, and payment services (checking accounts)
Borrowing and credit
Insurance, investments, tax assistance
Explain types of financial markets (e.g., money market, capital market, insurance market,
commodities markets, etc.) (FI:337) (SP)
A financial market is a broad term describing any marketplace where buyers and sellers participate in the trade of assets(equities, bonds, currencies, and derivatives)
Capital markets is one in which individuals and institutions trade financial securities
The money market is used by participants as a mean for borrowing and lending in the short term
A commodity market is a market that trades in the primary economic sector (raw materials)
Insurance market is the transfer of the risk of a loss from one entity to another through a policy
Discuss the nature of convergence/consolidation in the finance industry (FI:573) (SP)
Convergence or consolidation in the finance industry in the practice of businesses, such as banks and insurance companies joining forces with each other in order to offer a broad range of financial services
Describe the relationship between economic conditions and financial markets (FI:574) (SP)
When economic conditions, such as low inflation and interest rates, are good in an economy, more investors are willing to buy from financial markets and vice versa
Explain the nature and scope of financial globalization (FI:575) (SP)
The scope of financial globalization continues to grow
Currency exchange rates change daily
An impact on the US economy impacts the entire world economy because of financial globalization and interconnected/interdependent economy
Describe sources of securities information (FI:274) (CS)
Public companies make information available through a variety of sources
Annual report → highlights performance and changes over 1 year
SEC → companies provider quarterly reports to shareholders
Online Websites → marketwatch, nytimes, yahoo finance
Stock Exchanges - Organized markets where securities are bought and sold. The main stock exchanges in the U.S. are the New York Stock Exchange (NYSE) and the NASDAQ.
Brokerage - Firms act as intermediaries between buyers and sellers of securities. They may provide research and other information to their clients.
Financial News - Outlets, such as Bloomberg, CNBC, and the Wall Street Journal, provide news and analysis on securities and financial markets
Investment Research - Firms, such as Morningstar and Standard & Poor's, provide research and analysis on securities and financial markets
Interpret securities table (FI:275) (SP)
Stock Table: A stock table serves as a valuable tool for investors, offering essential information to guide investment decisions and track the performance of stocks.
Stock Symbol: Each stock or mutual fund is uniquely identified by a set of letters known as a stock symbol. These symbols, typically comprised of up to three letters for exchange-listed stocks and four letters for Nasdaq stocks, provide a convenient way to identify securities in the market.
52 Week High/Low: The 52-week high/low indicates the highest and lowest prices a security has traded at over the past year. This data point offers insight into the historical price range of a stock, helping investors gauge its volatility and potential trading range.
PE Ratio: The price/earnings (P/E) ratio is a fundamental measure used to assess the valuation of a stock. Calculated by dividing a stock's market capitalization by its after-tax earnings over a 12-month period, the P/E ratio provides investors with an indication of how much they are paying for each dollar of earnings generated by the company. It's an essential metric for evaluating whether a stock is overvalued, undervalued, or fairly priced in relation to its earnings potential.
Explain the nature of statements of changes in equity (FI:630) (SP)
Equity is total assests minus total liabilities.
Describe types of costs used in managerial accounting (e.g., direct cost, indirect cost, sunk cost, differential cost, etc.) (FI:658) (SP)
Direct Cost: Cost directly tied wit the product or service
Inderect cost: Cost not directly related to proodcut/service but are neccesary
Sunk Cost: Cost that cannot be incurred by the company
Describe marginal analysis techniques and applications (FI:659) (SP)
Marginal analysis is an examination of the additional benefits of an activity compared to the additional costs incurred by that same activity. Companies use marginal analysis as a decision-making tool to help them maximize their potential profits.
Explain the nature of managerial accounting (FI:660) (SP)
Focused on revenues and expenses of the company and report variances to management
Discuss the use of variance analysis in managerial accounting (FI:661) (SP)
Variance analysis is when the there is a difference between planned and actual budget ; it helps with performance, identifying problems, and taking actions to improve efficiency and profitability
Managerial accounting is key because it allows management to find out about the variance and make a plan to optimize budget
Discuss the nature of cost accounting budgets (FI:662) (SP)
a budget is a financial plan that includes both financial and non-financial information. Its most obvious features are a projection of revenue (how much you anticipate selling) and expenses (how much you anticipate spending). The budget can also contain non-financial information, such as how many employees you think you need.
Discuss the nature of cost allocation (FI:663) (SP)
Cost allocation assigns costs to specific activities or items (cost objects) like products, projects, or departments. It's used for financial reporting, profitability analysis, bonus determination, funding decisions, and establishing transfer prices between subsidiaries.
Cost allocation is used for:
Direct Cost: Cost directly tied with the product or service
Inderect cost: Cost not directly related to proodcut/service but are neccesary
Sunk Cost: Cost that cannot be incurred by the company
Explain forms of financial exchange (cash, credit, debit, electronic funds transfer, etc.)
cash: money in the form of bills or coins
credit: ability to buy something (or borrow money) with promise of future payment
secured: guaranteed by claim against assets (mortgage/utility bill)
Unsecured: no collateral assets
revolving: approved for set amount (HELOC, credit card), balance and minimum fluctuate monthly, most credit card compound
installment: set money for set period, fixed payments (mortgage, car loans)
debit: decreasing capital, liability, or revenue; increasing asset or expense, taking funds directly from a bank account, good for those with bad credit or accountability
EFT: electronic funds transfer - transfer of funds initiated through an electronic terminal (e.g. ATM, online banking, ordering goods online, online funds transfer)
PIN Debit: EFT at point of sale - online (PIN) vs. offline (signature) vs. purse card debit
cheque: paper document signed by drawer; cashed by the drawee (bank) for the payee
Identify types of currency (paper money, coins, banknotes, government bonds, treasury notes, etc.)
currency: tokens used as money in a country
paper money: includes banknotes, cheques, drafts, and notes - represent money in liquid form
banknotes: promissory notes issued by banks, intended to circulate as money
government bonds: debt instrument (1+ years) issued by gov't to raise capital by borrowing
treasury notes: debt obligation issued by gov't, with maturity between 1 and 7 years
Describe functions of money (medium of exchange, unit of measure, store of value)
medium of exchange: item widely accepted egg in exchange for goods and services in the market
unit of measure: system of units through which a quantity is accounted for and expressed
store of value: tradeable commodity, currency, or capital; can be stored for future use
Describe sources of income and compensation
wages/salaries: compensation for work (in proportion to work done/regularly)
interest: fee charged by a lender to a borrower for use of borrowed money
rent: payment for use of space or property
dividends: taxable payment paid out to shareholders out of the company's current/retained earnings
transfer payments: money paid by government to citizens (social security, unemployment, welfare, disability)
Explain the time value of money
the idea that money available at present is worth more than the same amount in the future due to potential earning capacity provided that money can earn interest, any amount of money worth more, sooner when received
Explain the purposes and importance of credit
Credit is used to make large purchases such as a home through a numerical score known as the credit score. This score measures one’s financial trustworthiness, thus, a higher credit score can be used to make large purchases while a low credit score will be limited. Banks use it to evaluate potential risk when loaning, and also to determine who qualifies for a loan, at what interest rate, and at what credit limit.
Explain legal responsibilities associated with consumer financial products and services
Explain the need to save and invest
Investing and saving is essential to reaching financial goals for the future.
Saving money in an emergency fund is desirable so that you can have access to money quickly to pay for unexpected expenses, emergencies, or job loss.
Savings accounts provide security but do not increase in value quickly.
Investments can provide much greater returns, however they are more risky.
Determine personal net worth
List your assets (what you own), estimate the value of each, and add up the total.
List your liabilities (what you owe) and add up the outstanding balances. ...
Subtract your liabilities from your assets to determine your personal net worth.
It is important to have a high net worth to make sure one's financial bases are covered and one's financial goals stay within reach.
Explain the nature of tax liabilities
Taxes are payments you make to the government for services they provide. Tax liability is the total amount of taxes owed. Effective planning can reduce your tax liability, thus paying your fair share while taking advantage of tax benefits. The types of taxes include income, Social Security, sales, wealth and property taxes, as well as user fees. One can use several strategies to reduce tax liability. First, it is important to understand the current tax laws and how they affect you and your financial goals. Second, maintain complete and accurate tax records. Finally, learn and understand the types of taxes and how to make sound financial decisions, keeping taxes in mind.
Interpret a pay stub
A pay stub, also known as a paycheck, is a legal notice including the monetary sums of salary, compensation, and stock bonus that has been deposited to an employee's bank account.
Explain the nature of charitable giving
Calculate the cost of credit
Divide your APR (annual % rate of charge or interest rate) by 365 to get your daily interest rate.
Multiply the daily interest rate by 30 to get your monthly rate.
Finally, multiply your monthly rate by your total balance to calculate your monthly interest payment.
To minimize the cost of credit:
pay off your monthly charges in full to not incur any interest
have a high credit card score to qualify for the best credit card fees and loans
choose a card with a good plan, interest rate, low annual fee, and promotional offers
Discuss- options for financing a college education
scholarships
student loans
grants (based on financial needs)
work study
save
tuition reimbursement
FAFSA, HOPE in GA
529 plan (education savings account)
Discuss the nature of retirement planning
process of planning for one's financial future after they have stopped working
creating a plan to ensure that one has enough money to live comfortably in retirement
include saving and investing for retirement, creating a budget, and understanding the different types of retirement accounts available.
understanding the tax implications of retirement income and planning for long-term care.
start planning for retirement early, as it can be difficult to catch up if one waits too long.
Discuss the nature of estate planning
planning for the management and disposal of an individual's estate during their lifetime and at and after death.
the preparation of wills,e trusts, powers of attorney, and other documents to ensure that an individual's wishes are carried out and that their estate is distributed according to their wishes.
management of assets, tax planning, and the avoidance of probate.
important part of financial planning and should be done with the help of a qualified professional.
Describe types of financial-services providers
organizations that offer financial services to individuals, businesses, and other organizations
services can include banking, insurance, investments, and other financial products
Banks: most common type of financial-services provider, offering services such as checking and savings accounts, loans, mortgages, and credit cards
Insurance: provide coverage for risks such as health, life, property, and casualty
Investment firms: provide advice and services related to stocks, bonds, mutual funds, and other investments
Other: credit unions, brokerages, and financial advisors.
Discuss considerations in selecting a financial-services provider
First, consider the provider's reputation and track record
research the provider's history and customer reviews to ensure that they have a good reputation and have provided satisfactory services in the past
Second, consider the provider's fees and services.
Different providers may offer different fees and services, so it is important to compare different providers to find the one that best meets your needs.
Third consider the provider's customer service
make sure that the provider is available to answer questions and provide assistance when needed
Finally consider the provider's security measures
make sure that the provider has adequate security measures in place to protect your financial information
Explain types of investments
Investing: act of putting money into a financial asset or security with the expectation of earning a return
many different types of investments, each with their own unique characteristics and risks.
stocks, bonds, mutual funds, exchange-traded funds (ETFs), real estate, commodities, CDs, and cash equivalents
Each has its own set of advantages and disadvantages, and investors should consider their individual goals and risk tolerance when deciding which type of investment is right for them
Describe the concept of insurance
form of risk management that provides financial protection against losses caused by unexpected events contract between an insurance company and an individual or business, in which the insurer agrees to pay a certain amount of money in the event of a covered loss
can cover a variety of risks, including property damage, medical expenses, and liability for accidents
can also provide financial security in the event of death or disability
Describe the need for financial information
essential for businesses to make informed decisions about their finances
provides an overview of the financial health of the company, including income, expenses, assets, liabilities, and cash flow
can help businesses identify areas of improvement, plan for future growth, and make decisions about investments
also be used to assess the company's risk profile and make decisions about financing options
critical tool for businesses to ensure their financial stability and success.
Explain the concept of accounting
process of recording, classifying, summarizing, analyzing, and interpreting financial information
used to measure the performance of a business and to provide financial information to decision makers
involves the use of financial statements, such as the balance sheet, income statement, and statement of cash flows, to track the financial performance of a business
involves use of various accounting principles, such as the matching principle, accrual basis of accounting, and the cost principle, to ensure that financial information is reported accurately
essential part of any business and is used to make informed decisions about the future of the business.
Discuss the role of ethics in accounting
Ethics plays an important role in accounting, as it helps to ensure that financial information is accurate and reliable
Accounting ethics are the principles and standards that guide the behavior of accountants in their professional activities
based on the core values of integrity, objectivity, professional competence, and confidentiality
Accountants must adhere to these principles and standards in order to maintain the public's trust in the financial information they provide
Ethical accounting practices help to ensure that financial statements are accurate and reliable, and that financial transactions are conducted in a fair and honest manner
help to protect the public from fraud and other unethical activities
Explain the use of technology in accounting
revolutionized the way accounting is done
Accounting software and cloud-based systems have made it easier for businesses to track their finances and manage their accounts
technology has also enabled businesses to automate many of their accounting processes, such as invoicing, payroll, and tax filing
automation has allowed businesses to save time and money, while also providing more accurate and timely financial information
made it easier for businesses to access and analyze their financial data, allowing them to make more informed decisions. -has enabled businesses to share their financial information with other stakeholders, such as investors, creditors, and auditors, in a secure and efficient manner
Explain legal considerations for accounting
refer to the laws and regulations that govern the accounting profession
designed to ensure that accounting practices are conducted in an ethical and responsible manner
includes the accuracy of financial statements, the disclosure of information, and the protection of confidential information
the protection of investors, creditors, and other stakeholders
accountants have to be aware of the legal considerations for accounting in order to ensure that their practices are compliant with the law
Describe the nature of cash flow statements
A financial statement that provides information about the cash inflows and outflows of a business over a period of time
Used to assess the liquidity of a business, as well as its ability to generate cash and pay its bills
divided into three sections: operating activities, investing activities, and financing activities
Operating activities: cash generated from sales, expenses, and other operating activities
Investing activities: cash generated from investments, such as the purchase or sale of assets
Financing activities: cash generated from borrowing, such as loans or debt, as well as cash generated from the sale of equity
provides a comprehensive view of a business's financial health and is an important tool for financial analysis
Explain the nature of balance sheets
financial statement that provides a snapshot of a company's financial position at a given point in time
summary of a company's assets, liabilities, and equity
Assets are the resources a company owns, such as cash, inventory, and property
Liabilities are the debts a company owes, such as accounts payable and loans
Equity is the difference between assets and liabilities and represents the owners' stake in the company
used to assess a company's financial health and to identify potential areas of risk
Describe the nature of income statement
(also known as a profit and loss statement) is a financial document that summarizes a company's revenues and expenses over a given period of time
used to measure the performance of a business and to determine its profitability
includes items such as sales, cost of goods sold, operating expenses, depreciation, interest, taxes, and other income
does not include any balance sheet items such as assets or liabilities.
Explain the role of finance in business
provide the necessary capital to fund operations, investments, and other activities
responsible for managing the company's financial resources, such as cash, investments, and debt
creating financial plans and strategies to ensure the company's financial health and success
providing financial information to management, investors, and other stakeholders
used to make decisions about the company's future and to ensure that the company is meeting its financial goals
Discuss the role of ethics in finance
ensure that financial decisions are made in a responsible and ethical manner
ensuring that financial decisions are made in accordance with the law, as well as in accordance with the ethical standards of the industry
making sure that financial decisions are made in the best interests of the company, its stakeholders, and its customers
making sure that financial decisions are made with the utmost integrity and transparency
making sure that financial decisions are made in a way that is socially responsible and that takes into account the impact of those decisions on the environment and society
Explain legal considerations for finance
refer to the laws and regulations that govern financial activities
laws related to banking, securities, taxation, and other financial services
Financial institutions must comply with these laws and regulations in order to protect the interests of their customers and ensure the safety and soundness of the financial system
The rights and responsibilities of financial institutions and their customers, as well as the rights and responsibilities of creditors and debtors
enforcement of contracts, the protection of intellectual property, and the prevention of fraud and money laundering
Describe the nature of budgets
financial plan that outlines how an organization or individual will allocate their resources over a specific period of time
used to track income and expenses, and to ensure that resources are used efficiently and effectively
created annually, but can also be created for shorter periods of time such as a month or quarter
tools for managing finances and ensuring that resources are used in the most effective way possible
Discuss the nature of the accounting cycle (FI:342) (CS)
The steps in the accounting cycle are identifying transactions, recording transactions in a journal, posting the transactions, preparing the unadjusted trial balance, analyzing the worksheet, adjusting journal entry discrepancies, preparing a financial statement, and closing the books.
Distinguish among types of business transactions (FI:673) (CS)
Sales, purchases, receipts, and payments
Distinguish among types of business documentation (FI:674) (CS)
1. Contracts: A written agreement between two parties where compliance is expected. This agreement is legally binding.
2. Documentation of bylaws: A document of internal rules that governs how a company should be be run. This is used by the board of directors.
3. Non-disclosure agreement: An agreement between two parites where the signee agrees on not revealing confidential information.
4. Employment agreement: an employment agreement is a binding document signed by an employer and an employee when the latter is onboarded for a position. The employment agreement spells out the rules, rights, and responsibilities of both the employer and the employee and includes any special obligations or terms that are unique to the position.
5. Business plan.
Demonstrate the effects of transactions on the accounting equation (FI:378) (CS)
Accounting Equation
Assets = Liabilities + Stockholders Equity
Assets = any resource owned by a business or an economic entity
Liabities = L iabilities are what a business owes. It could be money, goods, or services.
Stockholders Equity = the remaining assets available to shareholders after all liabilities are paid.
Equity = the remaining value of an owner's interest in a company after subtracting all liabilities from total assets.