QUIZ

• the act of estimating the future financial outcomes of a business, such as its income and expenses, over a period of time.

  Financial forecasting
• Investment Prerequisites

  1. Organizational and Pre-operating Costs
  2. Production or Service Facilities Costs
• pertain to those expenses in preparation for the official launch or start of the business. These expenses comprise those that are incurred during the start of a business.

  Organizational and Pre-operating Costs
• These costs pertain to long-term investments that are needed for actual business operations. They include all facilities, equipment, and tools needed to run the dayto-day operations of a business.

  Production or Service Facilities Costs
• refers to the purchasing of raw materials that goes with production.

  Direct material
• this refers to the benefits, fees, salaries, and other forms of payment given to employees and staff who are directly involved in manufacturing the products.

  Direct labor
• the costs required in maintaining the overall production are categorized under factory overhead costs.

  Factory overhead
• refers to the liquid assets that a business has on hand. This investment is important in entrepreneurship, for it is the source of payment for all unforeseen and planned expenses of the business as well as its short-term monetary obligations.

  Working Capital Investments
• Purpose of Income Statement

  Internal users

  External users
• are composed of people who are in charge of the business as well as the board of directors in big corporations. These people use the income statement to analyze the performance of the business

  Internal users
• are composed of the investors and creditors of the business. These people are the outside forces in the business who are indirectly related to its operations


  External users
• An income statement, also known as a profit and loss statement, is a detailed report that shows all the income or earnings, expenses, and the resulting profits or losses of a business for a given accounting period.
• Income Statement Formula and Preparation

  Revenue – Expenses = Income or Profit (Loss)
• Parts of Income Statement

  Gross Sales or Sales Revenue

  Cost of Goods Sold (COGS)

  Gross Profit/Margin

  Operating Expenses

  Operating Profit/Margin

  Taxes Due

  Net Profit after Taxes
• Every income statement would always start with the business’s gross sales or revenues. The approach to be taken in calculating this figure will depend on the accounting method adopted by the business and how it assesses its overall revenues.

  Gross Sales or Sales Revenue
• refers to the direct costs associated with producing all of the products and/or services sold by the business.

  Cost of Goods Sold (COGS)
• is derived from subtracting the total cost of goods sold from the sales revenue. This variable of the income statement manifests the profitability of the business after taking into account the direct costs incurred.

  Gross profit/margin
• Also referred to as general expenses, operating expenses mainly include rent or lease, bank fees, equipment or machinery expenses, marketing and advertising expenses, and all other expenditures to keep the business going.

  Operating Expenses
• in an income statement reflects the residual income after deducting all expenses or costs of doing business, excluding deductions of interests and taxes.

  operating profit/margin
• Taxes basically refer to the total amount of tax debt owed by the business to the Bureau of Internal Revenue (BIR), the taxing authority in the Philippines.

  Taxes Due
• is the variable that always marks the end of an income statement. It is a financial term that reflects the profit of a business after all taxes have already been paid.

  Net profit after taxes
• • it is a statement that shows the assets, liabilities, and equity of a business during a certain period of time.

  Balance Sheet
• Purpose and Uses of a Balance Sheet - To inform interested third parties about the financial health or financial position of a business at a particular point in time by showing them the business at a particular point in time by showing them the business assets, liabilities, and equity
• Balance Sheet Formula

  Assets = Liabilities + Equity
• Components of Balance Sheet

  1. Assets A. Current assets B. Noncurrent assets
  2. . Liabilities A. Current liabilities B. Noncurrent liabilities
  3. Equity
• Formula for Equity

  Equity = Assets – Liabilities
• Balance Sheet Preparation

  1. Determine the reporting period.
  2. List down the assets and liabilities.
  3. Calculate and list down the equity.
  4. Add the total liabilities and equity and compare them to assets.
• • A balance sheet is created to be able to show the business’s assets, liabilities, and equity on a particular date, which is referred to as the reporting date.


  Determine the reporting period.
• • After identifying the reporting date, the next step would be tallying of all the assets of the business on one side and all its liabilities on the other side.

  List down the assets and liabilities.
• • If a business is owned by a sole proprietor, the equity would be direct and easier point out.

  Calculate and list down the equity.
• • The final step is very crucial since this is the phase where it will be determined whether the balance sheet is accurately done.


  Add the total liabilities and equity and compare them to assets.
• Remember: Total assets of the business must be equal to the sum of its total liabilities and total equity
• It refers to the comparative magnitude of two statistical variables that are taken from the different financial statements of a business.

  Financial Ratios and Measurements
• Financial ration analysis serves to main purposes:

  1. To keep track of the business’s performance;
  2. Make comparisons with competitors.


  Financial Ratios and Measurements
• • Is a financial ratio used to identify the time required to earn back the amount of investment in an asset from the net cash flows.

  Income Payback Period
• Formula:

  Income Payback Period = Total Investment

  Annual Net Income after Taxes
• Remember: A shorter payback period is better, for it indicates that an investor’s initial outlay is only at risk for a shorter period of time.
• Remember: Return on sales, more commonly known as the operating profit margin, is a financial ratio and measurement that is used to calculate the efficiency of a business in generating profits its revenue.
• financial ratio used by a business to determine the percentage of profit that it earns in relation to its total resources.


  Return on Assets or Return on Investments
• Return on Assets = Net Profit after Taxes

  Total Assets (or Investments)