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Financial Management > Topic 1 > Flashcards

Topic 1 Flashcards

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1
Q

Why financial management

A

simple, profit maximization is the core idea of our neoclassical economy
thus money seeks the highest return
so financial knowledge can lead to financial success
although there are some ethical questions to raise

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2
Q

whats in it for me

A

start up / independent
sales department
marketing department

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3
Q

three fundamental decisions in financial management

A

Capital budgeting: decide which long term assets to acquire to maximize net benefits for the firm
financing: decide how to pay for short term and long term assets by finding the best combination of short term debt, long term debt and equity
working capital: decide how to manage short term resources and obligations by adjusting current assets and current liabilities to promote growth in cash flow

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4
Q

poor decisions about capital, financing, and working capital may lead to

A

bankruptcy

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5
Q

the financial system

A

the financial system is competitive
the system directs money to the best investment opportunities in the economy
lenders earn profit from the spread between lending and borrowing rates

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6
Q

stocks

A

an equity instrument carrying ownership interest
dividend
no return guarantee
voting rights in the company

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7
Q

bonds

A

debt instrument with a promise to pay back the money with interet
interest
yes guarantee return
preferential treatment when bond matures

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8
Q

Financial statements provide stakeholders with a foundation for

A

evaluating the financial health of a firm

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9
Q

stakeholders include

A

employees
managment
stockholders
regulators
suppliers
general public
customers
creditors

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10
Q

evaluate a firms internal environment (now)

A

efficiency effectiveness and risk level

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11
Q

provide information about the performance of the firm (trend)

A

stakeholders want to compare actual vs potential performance

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12
Q

affects all parts of the organization

A

sales
marketing
events
risk

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13
Q

obligation to depose FS at

A

NBB ( national bank of belgium)

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14
Q

does not apply for

A

private individuals
unlimited companies
schools
hospitals

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15
Q

the fs can be consulted via balanscentrale Belgium

A

CONSULT

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16
Q

components of the financial statement

A

The balance sheet
The income statement
The notes
The cash flow statement

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17
Q

components of the financial statement
The balance sheet

A

gives the means/property of the company at a given time

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18
Q

components of the financial statement
The income statement

A

Gives an overview of all revenue and costs of a company during the year (and the result)

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19
Q

components of the financial statement
The notes

A

background information

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20
Q

The balance sheet

A

Assets - fixed or non current
Equity and liabilities - degree of ownership or debts

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21
Q

Balance sheet definition

A

Snapshot
No one to one erlationship between asset and equity/liability items
The order of items
- assets: according to degree of liquidity or availability
- liablities: according to degree of claimability

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22
Q

Fixed assetes

A

Formation expenses
Intangible expenses
Tangible assets
Financial assets

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23
Q

Current assets

A

Accounts receivable
Stocks and contracts in progress
Current investments
Cash at bank and in hand
Accrual accounts

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24
Q

Equity

A

Capital
Share premium
Revaluation surpluses
Reserves
Accumulated results
Investment grants

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25
Provisions and DT
Provisions and defered taxes
26
Liabilities
Liabilities more or less than a year Accrual accounts
27
Operating result: profit/loss
Operating revenue - operating costs
28
Profit/loss
Financial revenue - financial costs
29
Profit/ loss for the period before taxes
Extraordinary revenue - extraordinary costs
30
Profit on period
Withdrawal from deferred taxes - tax on profit
31
Formation start of the company
Notary costs Publication deed Registration KBO
32
Issuing loans
Costs of printing Advertising loans
33
restructuring
Restraining costs Reverance payment
34
Formation expenses costs associated with
The formation of the company and capital increase Issueing loans Restructuring
35
Intangible assets
Value of reserach and development Patents, licenses A brand Goodwill
36
Goodwill
When one company buys another company and pays more than the accounting value of its net assets
37
Tangible assets
Land and buildings Installations, machinery and equipment Furniture and vehicles
38
Financial assets
Participation in associated companies Participation in other enterprises Receivables
39
Current assets exploitation cycle
Purchase of raw materials and commodities Production Sale of finished products, commodities or services Collection of money Accounts receivable >1YR
40
Stock and contracts in progress
Raw materials Goods in process, finished goods Commodities Contracts/ orders in progress
41
accounts receivable
trade receivables bad debts other receivables - receivables from managers or partners current account - recoverable vat - not paid up capital
42
current in vestments cash
shares fixed income securities financial institutions cash
43
current investments
shares fixed income securities: bonds time deposits
44
cash
financial institutions: current accounts cash in hand
45
accrual accounts
deferred costs accrued income
46
capital
funds contributed by shareholders in cash
47
share premium
extra premium on capital increase
48
revaluation surpluses
gains on fixed assets
49
structure of balance sheet
assets, equity and liabilities
50
total equity
total assets + liabilities
51
reserves
legally: yearly minimum 5% of profit unavailable reserves - frozen by general assembly tax free when reinvested in assets available freely used
52
accumulated result
the accumulated results from previous years to which no final destination was given retained earnings
53
investment grants
grants received from the goverment for investments in FA
54
provisions and deferred taxes
provisions for risks and cost - clearly defined future charges - which are likely or certain at the balance date - but the amount is not fixed deferred taxes a nearly debt
55
liabilities
subordinated loans not subordinated issued financial institutions trade payables other loans
56
Liabilities less than 1 year
financial liablities accounts payable liabilities for taxes remunaration and social securities various payables
57
operating income/ revenue
A. turnover sales - the amount of sales of goods and delivery of services as ordinary activities - after deducting discounts and - exclusive of vat B. changes in stock goods in process and finished goods C. produced fixed assets D. other operating income
58
operating costs
A. purchase raw materials commodities B. service and other goods C. remuneration, social security costs and pensions D. depreciation and amortization on formation expenses IFA TFA E. value reduction on inventories, orders in progress, trade receivables F. provisions for risks and costs G. other operating costs
59
B. service and other goods
i. cost maintenance, heating, insurance, rent costs ii. cost of advertising, market research iii. costs office and administration
60
C. remuneration, social security costs and pensions
i. salary costs ii. employer
61
the income statement
measures the profitability over a period of time result of the activity of a company
62
operating result =
operating revenue - operating costs
63
OR TURNOVER
Sales revenue of goods, delivery of services
64
OC
Purchase materials commodities, services, labour, depreciation
65
financial result
financial revenue - financial costs
66
FR
interest received from the investments, dividends received
67
FC (financial cost)
interest paid on loans
68
extraordinary result
occur only once or exceptional example - surplus value on sale of building or machine
69
types of costs
- raw materials and consumables used - commodities - service and other goods - remuneration, social security, pension - depreciation - amortisation / reduction of value - other costs - financial costs - extraordinary/ exceptional costs
70
gross margin
sales revenue or net sales - cost of sales or cost of goods sold
71
income or earnings before interest and taxes EBIT
sales revenue - operating expenses, indirect costs - depreciation expense - other expenses
72
income or earnings before taxes
sales revenue - financial cost, interest expense + financial income
73
net income
sales revenue - income taxes
74
costs of goods sold
end of fiscal year - some goods in stock havent been sold - cost of those goods arent part of the cost of goods sold
75
gross profit calculation
turnover - COGS - work and contracts in progress
76
gross profit
gross profit is part of the official version of the income statement when the trade balance follows the reduced schedule
77
depreciation
spreading the acquisition value of a fixed asset over its expected useful life
78
depreciation period
estimated period of use
79
what to do with the profit
destination of the reserves - adding to the reserves - transfering to the following fiscal year - payment as compensation from the capital of shareholders = dividenden - compensation of director or business manager = royalties
80
payout ratio
payoff dividends according the result of fiscal year
81
retention ratio
which part of the result is kept inside the company, as a reserve or as a surplus brought forward
82
Accounts receivable < 1YR
Trade receivables Bad debts Other receivables - receivables from managers or parters current account - recoverable VAT - Not paid up capital

Financial Management (2 decks)

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