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Intro to FP > Financial Statements > Flashcards

Financial Statements Flashcards

(89 cards)

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1
Q

Personal Statements

A

1.Statement of financial position
2. Statement of cash flow

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2
Q

Business Statements

A
  1. Balance Sheet
  2. Income Statement
  3. Statement of Cash Flows
  4. Pro Forma Statements
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3
Q

3 Types of Debt Ratios

A
  1. Consumer Debt
  2. Housing Costs
  3. Total Debt
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4
Q

Personal Balance Sheet

A

Statement of indiv fin. position at a particular point in time, usually at the end of the year

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5
Q

Wealth is known as

A

net worth or equity

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6
Q

An asset

A

Anything owned by a business or individual that has market value

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7
Q

current assets

A

can be converted into cash in one year

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8
Q

non-current assets

A

long term cant be converted to cash in 1 year

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9
Q

On a balance sheet assets are listed in

A

Order of liquidity starting with most liquid current asset

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10
Q

assets are listed as what (what value)

A

fair market value

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11
Q

Cash and cash equivs

A

checking accts, savings, CDs, MMs, T bills that are highly liquid and reasonably risk-free

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12
Q

Personal Investment assets

A

-less liquid, used to fun longer-term financial goals

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13
Q

Investments (examples)

A

Stocks, bonds, mutual funds, investment real estate (produces income), vested amounts in IRAs or 401k. ALSO value of biz, cash val LI, stock options, collectibles

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14
Q

Personal use assets (2 types)

A

-Use assets of real property
-Use assets of personal property

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15
Q

Personal use assets examples

A

-primary residence 🏡, vacation home, autos 🚗, furnishings, jewelry💍 and equipment 🚜
- valuation of some use assets may be difficult to determine

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16
Q

current liability

A

Debt must be paid in one year

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17
Q

long term liability

A

debt that continues past one year

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18
Q

long term liabilities are typical incurred to

A

purchase assets

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19
Q

liabilities are listed in order of

A

payment priority

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20
Q

report which liability balances?

A

unpaid only

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21
Q

net worth is best estimate of

A

wealth/financial strength, what is left over if you sold everything you had and paid off all liabilities

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22
Q

net worth can be changed by

A
  1. positive or negative contribution to SAVINGS
  2. increase or decrease to ASSETS
  3. reduction or increase in DEBT
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23
Q

do contributions made to retirement plans from salary deferral add to net worth?

A

Yes because they come directly FROM CASH FLOW as opposed to diff part of balance sheet

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24
Q

Is transferring $ from checking to IRA increase in net worth?

A

No, cash is reduced equal to amount contributed to savings

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25
invested assets change net worth how
as value rises or falls due to market conditions
26
does the payment of cash value ins. premiums increase net worth?
-Not right away assuming made from checking acct. - will eventually as cash value grows, if/when grows higher than amount of premiums paid
27
Home affects net worth how?
as Fair Market Value increases or decreases based on purchase price
28
Do payments to outstanding debt like credit card or car payment affect net worth?
No, it offsets assets and liabilities equally.
29
Cash flow statement
detailed breakdown of all cash inflows ⬅️ and outflows ➡️ over a period of time⏰
30
excess of income over expenses increses net worth if
the excess is used for savings or to reduce debt
31
Personal inflows
wages, salary, bonus, tips, royalties, commissions, govt payments (veterans benefits, welfare, SS), pension, rental income, investment income
32
Personal outflows
typically expense items that are fixed or variable
33
fixed outflows (personal)
regular expenses that must be paid, mortgage 🏡, auto loan 🚗
34
personal variable outflows
occur at irregular intervals - discretionary like how much they spend on new furniture each year
35
business balance sheet
statement of financial position at specific date in time, typically end of year
36
biz balance sheet lists
assets, liabilities, shareholders equity
37
biz assets
-goods, property, intangibles that the co. owns -can be sold, or used to make products or services the co. can sell
38
what generates the cash used for biz operations and liabilities?
current assets
39
Shareholders equity
remaining value if co. sold its assets and pay off liabilities today
40
Biz BALANCE SHEET formula
Assets = liabilities + shareholders equity
41
liability
debt or financial obligation to others
42
biz income statement
-how much REV 💸a co earned or lost -operational COSTS 🛒associated w/that rev.
43
Income statement shows
“bottom line” 🤼‍♂️ -operating results expressed as NET INCOME 🥅 -reports EPS
44
EPS
what shareholders receive for each share, if net earnings were distributed to them
45
Gross sales and what are they reduced by
TOTAL REV from sale of products or services. reduced by SALES DISCOUNTS and RETURNS to get NET sales
46
cost of sales
$ the co. spent on producing a finished product from raw materials
47
product costs
-DIRECT MATERIALS 🪵 and DIRECT LABOR 👷‍♀️ to manufacture -OVERHEAD 🏭including plant ops, utilites, maintenance & supplies
48
gross margin
gross sales - cost of sales = gross margin (profit or loss)
49
technical terms operating expenses
annual DEPRECIATION of LT assets, AMORTIZATION of intangibles, R&D, sales and marketing expenses, admin
50
how to find income from operations
gross margin 📏 - operating expenses 🏣
51
business dividend and interest income
companies investments stocks, bonds, other interest bearing accts.
52
business interest expense
interest co. pays annually on borrowed $
53
net income
resulting profit or loss co made @ year end
54
EPS calc
net income divided by # of outstanding common shares
55
cash flow statement shows what
-inflow ⬅️and outflow ➡️ of cash over the accounting period -is cash sufficient to pay for expenses, materials, and operations
56
where is cash flow info from
balance sheet and income statements
57
accrual basis
once a product or or service has been delivered 🚛 or an expense has occurred
58
balance sheet and income statement report on what basis
ACCRUAL basis - once a service or product has been delivered 🚛 or expense occurred📊
59
collection of cash typically does what
typically LAGS what is reported and doesn't represent the actual cash receipts/disbursements over the period
60
biz cash flow statement definition
net increase ⬆️ or decrease ⬇️ in cash 💵 as related to OPERATING activities, INVESTING activities and FINANCING activities
61
biz financing activities
issuance or repayment of DEBT or SECURITIES and distribution of DIVIDENDS
62
business Investing activities
acquisition or disposal of assets
63
operating activities
cash💰 effects from producing 👷 and selling 💰 PRODUCTS or SERVICES
64
pro forma statements
-planning future business ops
65
what is needed to make a pro forma statement
CURRENT year's 📆 income statement & estimates of final sales and expenses
66
maximum consumer debt limit
20%
67
formula for consumer debt ratio
non-mortgage debt payments/monthly take-home pay = debt limit ratio NET Calculation
68
PITI
- principal - interest - taxes -homeowner's insurance
69
Max PITI percentage
28% of PRETAX monthly income
70
Front-end Ratio (not a number)
compares monthly housing expenses to gross monthly income
71
Gross income of 150k what is PITI limit
(150k / 12) x .28 = $3,500
72
Yearly housing expense = 21,600 Property tax = 5k Homeowner's Ins = 1k Income = 150k what is PITI ratio
27,600 / 150,000 = 18.4% which is less than 28%
73
back end ratio
used by lenders to assess the TOTAL debt relative to income target 36%
74
back end ratio calc.
(PITI + any monthly installment or revolving credit payments) / gross monthly income
75
Long term debt to net worth ratio
excluding short term debt
76
long term debt/net worth max ratio
over 30% should be viewed with caution
77
savings ratio
annual savings/annual gross income AT LEAST 10%
78
savings strategies
- emergency fund - automatic savings acct - asset mgmt acct using dollar cost avg. - period investment plan - series EE bonds - pension and IRA contribs.
79
clients goals emanate from
- wants and needs 🏡🚗 - life cycle events 🍼 - life transitions 👵
80
Current ratio
current assets/current liabilities
81
Debt ratio
total debt/total assets
82
Total long term debt ratio
long term debt/total assets
83
Living expense ratio
monetary assets / [annual living expenditures debt ratio /12 ]
84
Monthly Housing Cost ratio (this is important)
PITI (principal + interest + taxes + insurance / gross monthly income) should be less than 28% of gross monthly income
85
Is it possible to not meet the front end ratio but hit the back end ratio?
Yes
86
Does a cash flow statement show net worth?
No that is on the balance sheet
87
Current liabilities
cc debt, accounts payable, bank operating credit, portion of long term debt paid in next 1 year, accrued expenses and taxes payable
88
Current Assets include
cash, cash equiv, accounts receivable, stock investory, marketable securities, prepaid liabilities, other liquid assets
89
Is home equity included in net worth?
Yes

Intro to FP (14 decks)

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