Module 7 - Financial Statements, Cost Estimating

Question 1

What are the 3 main financial statements?

Answer 1

Balance Sheet
Income Statements
Cash Flow Statements

Question 2

What does a balance sheet show?

Answer 2

Assets (Equipment, bldgs, inventory)
Liabilities (payroll, loans, rent)
Owners Equity (stock, paid-in capital, retained earnings)

Question 3

Current vs Non-Current Assets

Answer 3

Current: will/can be sold within a year
Non-Current: will not/cannot be sold within a year

Question 4

Current vs Long-Term Liabilities

Answer 4

Current: due/will be paid within a year (accounts payable, accrued expenses)
Long-Term: Bonds, Loans

Question 5

What is Owner’s Equity?

Answer 5

The worth of the company
Paid-In capital (money from seeking stocks)
Retained earnings: Cumulative Net Income of firm minus total dividends paid

Question 6

What is net working capital?

Answer 6

Current Assets - Current Liabilities

Question 7

What are the limitations of balance sheets?

Answer 7

• Assets recorded with historical value
• Only has assets that can be expressed in money
• Owners Equity < Market Value

Question 8

What is an income sheet?

Answer 8

Measures profit of company over a time period (net income/loss)

Question 9

What’s included in an income statement?

Answer 9

Revenue - Expenses = Taxable Income

Question 10

What’s included in Revenues?

Answer 10

Money received for delivering goods/services (gross sales - returns)

Question 11

What’s included in expenses?

Answer 11

Cost of goods sold, operating expenses, extra expenses (interest in loans, currency charges, depreciation)

Question 12

What is income tax calculated with?

Answer 12

Taxable income x Tax Rate

Question 13

What is a cash flow statement?

Answer 13

Shows company’s use of cash over reporting period (operations, investment activities, financing activities)

Question 14

What are the classification in cash flow statements?

Answer 14

Op Acts: transactions and events that enter into net income
Investing: purchase and sale of securities, property, plant, equipment, other non-resale assets
Financing/ transactions of resources from or repaid to owners and creditors

Question 15

Asset, Liability, or Equity?
Cash, Equipment, Retained Earnings, Accounts Payable, Long Tern investments, Building, Long Term debt, Net deficit, pension benefits

Answer 15

Asset, Asset, Equity, Liability, Asset, Asset, Liability, Equity, Liability

Question 16

Where to find the following Info?
Company’s profit during fiscal period
Cash spent and generated
Financial position

Answer 16

Income statement
Cash Flow Statement
Balance Sheet

Question 17

What is the debt ratio?

Answer 17

Describes relationship between liabilities and assets (ratio = 1 means all assets financed with debt)

Question 18

What is debt management?

Answer 18

Measure of companies ability to meet financing commitments - analyzing earnings before interest and taxes to see if interest can be paid

Question 19

What is the current ratio? The quick ratio?

Answer 19

Current ratio asks if liabilities are rising faster than assets
Quick ratio asks if company could pay liabilities if they were due now

Question 20

What is inventory turnover?

Answer 20

How many times per year was inventory sold and replaced

Question 21

What is Days Sales Outstanding?

Answer 21

What the average collection period (how long after a sale does it take to get paid)

Question 22

What is total assets turnover?

Answer 22

How effectively company is using its assets

Question 23

What is the return on assets?

Answer 23

How successful company is at using assets to generate profit

Question 24

Return on Equity

Answer 24

How much income is earned per dollar of shareholder investment

Question 25

What is the price-to earnings ratio?

Answer 25

How many times earnings is company trading at

Question 26

What is the book value per share?

Answer 26

How much money would be distributed to each shareholder if all assets were sold and liabilities paid

Question 27

What is top-down vs bottom up cost estimating?

Answer 27

Top-Down: Use historical data
Bottom-Up: more detailed

Question 28

What is a work breakdown structure?

Answer 28

Framework for defining project work elements

Question 29

What is a cost and revenue structure?

Answer 29

Used to identify and categorize costs and revenues needed for analysis

Question 30

What are some estimating techniques?

Answer 30

Order-of-Magnitude estimates (+/-30%)
Semi-detailed or budget (+/-15%)
Definitive Estimates (+/-5%)

Question 31

What are some sources for cost estimating?

Answer 31

Accounting records, other sources inside firm, Sources outside firm, R&D

Question 32

What are indexes in cost estimating?

Answer 32

Using historical costs to predict current costs

Question 33

If the index for a pump increased from 212 to 286 and the original price was $112,000, what is the estimated price now?

Answer 33

$151,094

Question 34

What is the factor technique for cost estimating?

Answer 34

Extension of unit technique where products of quantities are summed than added to components estimated directly

Question 35

What is parametric cost estimating?

Answer 35

Use of historical cost data and statistical techniques to predict future costs

Question 36

What is power sizing in cost estimating?

Answer 36

Using exponential model to predict costs of different sized products

Question 37

The learning rate for assembly is 75%, what is the time to assemble the 8th unit, and the total time to assemble the first 6 units if the first unit took 3 hours to assemble?

Answer 37

Z8=1.27hr
T6=11.8hr

Question 38

What are the 4 steps in developing a cost estimate relationship?

Answer 38

1. Problem definition
2. Data collection and normalization
3. CER equation development
4. Model validation and documentation