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

Efficiency Ratios: 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

Efficiency Ratios: 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 Cosolidators

Accounting Equation

Assets= Liabilities + Equity

Assets

An asset is a present right of the entity to an economic benefit

Liabilities

A liability is 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

Financial Statements: Balance Sheet

Provides a snapshot of an organization's financial condition at a specific point in time. It summarizes a company's assets, liabilities, and equity, adhering to the fundamental accounting equation
-Sometimes referred to as Statement of Financial Position

Financial Statements: Income Statement

Summarizes a company's revenues,expenses, and profits or losses over a specific period of time, typically a fiscal quarter or year. It provides insight into a company's financial performance and its ability to generate profit.
-Sometimes referred to as Profit and Loss Statement (P&L),Statement of Earnings, or Statement of Performance

Financial Statements: Statement of Cash Flows

-Provides a detailed breakdown of a company's cash inflows and outflows over a specific period of time.
-It highlights the company's ability to generate cash from operations, manage its investing and financing activities, and maintain liquidity.

Financial Statement Analysis

-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.

The 5 P's of Marketing

Product, Price, Place, Promotion, People

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.

Price Setting- Cost Oriented Pricing

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 (or semi-variable)

Some costs have both fixed and variable components. For example, a utility bill might have a fixed base charge plus a variable charge based on usage.Separating these components can be complex.

Step Costs

Certain costs remain fixed up to a point but will 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

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

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
-Tax deferred growth (won't pay tax until you are required to make withdrawals (age 73))

Roth IRA

=Retirement Account
-Tax-free growth
-Beneficiaries won't be taxed
-Can't withdraw investment earnings until 59.5 and had the account for 5 years