Financial Analysis Flashcards
(23 cards)
Fixed budgets
These are static budgets that are prepared for a specific period, typically a year, and remain unchanged unless there are significant unforeseen changes.
Flexible Budgets
These budgets adjust to changes in activity levels or conditions. They often involve creating different budget scenarios based on varying assumptions about revenue, production, or other key factors
Zero-Based Budgets
In this approach, every expense must be justified from scratch at the beginning of each budget period, rather than being based on previous years’ spending
Incremental Budgets
These budgets are developed by adjusting the previous period’s budget, typically by a percentage or amount, to account for expected changes in revenue, expenses, or other factors
Rolling Budgets
As mentioned, rolling budgets are updated periodically (e.g., monthly, quarterly) by adding a new period at the end of the existing budget and dropping the past period = continuous budget horizon
How to calculate business profit?
Total Revenue - Total Expenses
How to calculate sales tax?
- Know the retail price and the sales tax percentage.
- Divide the sales tax percentage by 100 to get a decimal.
- Multiply the retail price by the decimal to calculate the sales tax amount.
The importance for maintaining financial records?
help you to minimize losses, manage cash, meet any legal, regulatory and taxation authority requirements and improve financial analytics
Types of financial analysis software applications?
NetSuite, Microsoft Excel
Single entry bookkeeping system
records each transaction only once, typically as either an income or expense, and is suitable for simple transactions and small businesses.
Double entry bookkeeping system
records each transaction twice, once as a debit and once as a credit, and is a more comprehensive method used by larger businesses and organizations.
Importance of accounting standards and principles?
Accounting standards and principles are crucial for ensuring consistency, accuracy, and transparency in financial reporting, which is essential for informed decision-making by investors, creditors, and other stakeholders
Advantages of accounting standards and principles?
- It simplifies and clarifies accounting information + uniform + credible
- Provides acceptance on a global level.
- Financial statements can be easily compared.
- Helps in auditing.
How to use credit responsibly?
understanding your credit limits, making on-time payments, and keeping balances low to avoid high interest charges and maintain a good credit score
What information is included on a balance sheet?
snapshot of a company’s financial position at a specific point in time, showing what it owns (assets), what it owes (liabilities), and the remaining value for owners (equity)
What purpose do balance sheets serve?
to reveal the financial status of an organization, meaning what it owns and owes
Equity = Assets - Liabilities
Why is an income statement important to a business?
Tracks profitability – Gives the owner, shareholders, and other stakeholders knowledge of where the company stands financially.
What information does an income statement show?
aka profit and loss statement aka statement of operations= summary of financial performance over a specific period (quarter/year), shows the company’s revenues, expenses, gains, and losses = calculation of net income or net profit
Budget Variances
A budget variance is the difference between a company’s planned or budgeted expenses and revenues, and the actual financial outcomes. It’s a key metric for monitoring financial performance and identifying areas for improvement.
Cash Flow Statement
statement that summarizes the cash inflows and outflows of a business over a specific period, typically a month, quarter, or year
Central Data Repository
a centralized storage location for data, typically designed to consolidate data from various sources into a single, unified location
Equity Funding
when you raise money by selling shares in your business, either to your existing shareholders or to a new investor (angel investor)
Sales Journal
a specialized accounting record that tracks all sales made on credit. It’s a type of bookkeeping record used to record sales of merchandise on account, including details like the date of the sale, customer name, amount, and other relevant information.
