Module 1 Flashcards by Terry Floyd

All Companies engage in four types of activities:

) They plan business activities.
) They finance those activities.
) They invest in those activities.
) They engage in operating activities.

How well did you know this?

Not at all

Perfectly

Business Forces are:

Market constraints and competitive pressures.

How well did you know this?

Not at all

Perfectly

Prior financial statements:

Provide crucial input for strategic planning.

How well did you know this?

Not at all

Perfectly

Current financial statements:

Provide information about the relative success of those plans.

How well did you know this?

Not at all

Perfectly

The strategic decisions of a company involve:

Company financing, asset investment and management, and daily operations.

How well did you know this?

Not at all

Perfectly

Business Strategy:

A company’s strategic (or business) plan reflects how it plans to achieve its goals and objectives.

How well did you know this?

Not at all

Perfectly

Historical financial statements provide:

Important relevant information that allows managers to effectively plan their company’s business for the upcoming year.

How well did you know this?

Not at all

Perfectly

To properly analyze the information contained in financial statements:

It is important to understand the business context in which the information is created.

How well did you know this?

Not at all

Perfectly

Financial statements provide:

Substantial information that is used in all phases of the planning process, including the way in which the company is financed and the way investments are pursued.

How well did you know this?

Not at all

Perfectly

Financial statements provide:

Important input into the evaluation of the company’s success in carrying out its strategic plan.

How well did you know this?

Not at all

Perfectly

Managers and employees:

Interested in the company’s current and future financial health.

How well did you know this?

Not at all

Perfectly

Investment analysts and information intermediaries:

Are interested in predicting companies’ future performances. Accounting information is the bedrock for equity analysis.

How well did you know this?

Not at all

Perfectly

Creditors and suppliers:

Demand financial accounting information to help determine loan terms, loan amounts, interest rates, and required collateral.

How well did you know this?

Not at all

Perfectly

Covenants:

Contractual requirements that restrict the borrowers behavior in some fashion.

How well did you know this?

Not at all

Perfectly

Stockholders and directors:

Demand financial accounting information to asses the profitability and risks of companies and other information useful in their investment decisions.

How well did you know this?

Not at all

Perfectly

Fundamental analysis:

Uses financial information to estimate company value to form buy-sell stock strategies.

How well did you know this?

Not at all

Perfectly

Customers and strategic partners:

Demand accounting information to assess a company’s ability to provide products or services and to assess the company’s staying power and reliability.

How well did you know this?

Not at all

Perfectly

Regulators and tax agencies:

Demand accounting information for antitrust assessments, public protection, setting prices, import-export analyses, and setting tax policies.

How well did you know this?

Not at all

Perfectly

Voters and their representatives:

Need accounting information for policy decisions. The decisions can involve economic, social, taxation, and other initiatives. They also use accounting information to monitor government spending.

How well did you know this?

Not at all

Perfectly

Supply of Financial Accounting Information:

The quantity and quality of accounting information that companies supply are determined by managers’ assessment of the benefits and costs of disclosure.

How well did you know this?

Not at all

Perfectly

Form 10-K:

The audited annual report that includes the four basic financial statements with explanatory notes and the management’s discussion analysis (MD&A) of financial results.

How well did you know this?

Not at all

Perfectly

Form 10-Q:

The unaudited quarterly report that includes summary versions of the four financial statements and limited additional disclosures.

How well did you know this?

Not at all

Perfectly

Privately Held Companies:

Audits, reviews, and compilations, include the four basic financial statements as well as other information depending on the type of report.

How well did you know this?

Not at all

Perfectly

Benefits of Disclosure:

The benefits of supplying accounting information extend to a company’s capital, labor, input, and output markets.
-Cost of capital (as reflected in lower interest rates
or higher stock prices)
-Recruiting efforts in labor markets
-The ability to establish superior Supplier-customer relations in the in the input and output markets.

How well did you know this?

Not at all

Perfectly

Is company management demonstrating good stewardship of the resources that have been entrusted to it?

Stockholders and directors.

What product lines have performed well compared with competitors?

Managers and employees.

What regulated price is appropriate given the company's financial condition?

Regulators and tax agencies.

Is the strategic partnership providing reasonable returns to both parties?

Customers and strategic partners.

What expectations about the company's future profit and cash flow should we use as input into the pricing of its stock.

Investment analysts and information.

Is the company in compliance with the contractual terms of its existing loan covenants?

Creditors and suppliers.

The goal of the SEC's Regulation Fair Disclosure (FD):

Is to curb the practice of selective disclosure by public companies.

International Accounting Standards Involve:

Companies in more than 120 countries, including the European Union, the United Kingdom, Canada, and Japan use International Financial Reporting Standards (IFRS) for their financial reports.

Oversees the International Financial Reporting Standards (IFRS):

International Accounting Standards Board (IASB)

These two organizations work together cooperatively, often undertaking joint projects:

The International Accounting Standards Board (IASB) & The Financial Accounting Standards Board (FASB)

The International Financial Reporting Standards (IFRS) and U.S. (GAAP) Generally Accepted Accounting Principles:

Are generally more alike than different for the most part.

Companies use four financial statements;

Balance Sheet, Income Statement, Statement of Stockholders' Equity, and Statement of Cash Flows.

A balance sheet reports on an company's financial position:

At a point in time.

The income statement, statement of stockholder's equity, and the statement of cash flows report on performance over:

A period of time.

These three statements link the balance sheet from the beginning to the end of a period:

Income Statement, Statement of Stockholders' Equity, and Statement of Cash Flows.

The balance sheet reports the company's:

Resources (assets), namely what the company owns.

There are two ways a company can finance its assets:

1. ) Stockholders (Owner Financing) | 2. ) Banks or Other Creditors & Suppliers (Non-owner Financing)

Owners Claims on Assets are referred to as:

Equity

Non-owner Claims on assets are refereed to as:

Liabilities (Debt)

Accounting Equation:

Investing = Non-owner financing + Owner Financing Or Assets = Liabilities + Equity

Investing Activities:

Represented by the company's assets. These assets are financed by a combination of non-owner financing (liabilities) and owner financing (equity).

Assets are listed on the balance sheet in order of their:

Nearness to cash.

The relative proportion of short and long-term assets is largely determined by:

A company's industry and business model.

To pay for assets, companies use:

A combination of Owner (or equity) and non-owner financing (liabilities or debt).

Owner financing has two components:

- Resources contributed to the company by its owners. | - Profits retained by the company.

Reports on a company's performance over a period of time and lists amounts for its top line revenues (also called sales) and its expenses.

Income statement.

Revenues less expenses:

Bottom-line net income amount (also called profit or earnings)

The amount a company pays to purchase or manufacture a good (inventories) that is sold.

Cost of goods sold (COGS)

Revenues less cost of goods.

Gross Profit

All of the operating expenses the company incurs including: salaries, marketing costs, occupancy costs, HR, and IT costs, etc.

Selling, general, and administrative expenses (SG&G)

Arises when revenues exceed expenses. Also the ability to create barriers to competitive pressure, either by patent protection, effective marketing, etc. This is a key factor in determining their level of profitability.

Net income.

Report on year-over-year changes in the equity accounts that are reported on the balance sheet.

Statement of Stockholders' equity.

The stockholders' net contributions to the company.

Contributed Capital.

Net income over the life of the company minus all dividends ever paid.

Retained earnings.

Reports the change (either an increase or a decrease) in a company's cash balance over a period of time. This includes operating, investing, and financing activities.

Statement of Cash Flows.

Allows companies choices in preparing financial statements.

GAAP (Generally Accepted Accounting Principles: )

The choice of financial statement ___________ can yield financial statements that are markedly different from one another in terms of reported income, assets, liabilities, and equity amounts.

Methods.

Financial statements also comprise numerous:

Estimates.

The SEC requires the chief executive officer (CEO) of the company and its chief financial officer (CFO) to personally sign a statement attesting to the accuracy and completeness of the financial statements.

Sarbanes-Oxley Act (SOX)

-Both the CEO and CFO have personally reviewed the annual report. -There are no untrue statements of a material fact that would make the statements misleading. -Financial statements fairly presents in all material respects the financial condition of the company. -All material facts are disclosed to the company's auditors and board of directors. -No changes to its system of internal controls are made unless properly communicated.

Declarations contained in the SOX Act.

As earning go down stock prices go down, as earnings go up stock prices go up.

Relation between earnings and stock prices.

Financial statements are influenced by five important forces that determine competitive intensity:

Industry competition, buyer power, supplier power, product substitutes, and threat of entry.

Strengths, Weaknesses, Opportunities, and Threats: (Internal - Strengths & Weaknesses) (External - Opportunities & Threats)

S.W.O.T Analysis of the Business Environment

-Does the company have a competitive advantage, and, if so, what factors explain it? -Is the competitive advantage sustainable? -If the company has no competitive advantage, does its management have a plan to develop a sustainable competitive advantage that can be implemented in an acceptable period of time and with a reasonable amount of investment?

Analyzing Competitive Advantage

``` Product differentiation -Technological innovation -Product design -marketing, distribution, and after-sale customer support ``` Cost leader -Access to low-cost raw materials or labor -Manufacturing or service efficency -Manufacturing scale efficiency's, greater bargaining power with suppliers, sophisticated IT systems, etc

Achieving Competitive Advantage

Module 1 Flashcards

(69 cards)