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Review of Finance
Introduction to Finance (FIN2303)
Algonquin College
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Review of Finance
Chapter 1: Overview of Financial Management
- Define Financial management
- Discuss the role of the Financial Manager
- Discuss Financial Objectives as they relate to business performance
- Discuss Corporate Transparency and Accountability.
Chapter 2 Accounting and Financial Statements
- The Accounting Equation
- The Accounting Cycle
- The Trial Balance
- The Statement of Income
- Statement of Comprehensive Income
- Statement of Changes in Equity
- Statement of Financial Position (Balance Sheet)
Chapter 3 Statement of Cash Flows
- The movement of money in and out of the company
- Cash Flow Analysis
- Statement of Cash Flow
Chapter 4 Financial Statement Analysis using Financial Ratios
● Using financial ratios as a diagnostic tool ● Analyzing financial statements with ratios ● accountingcoach/financial-ratios/explanation/
1 Operating Cash Flow = EBIT + Depreciation – Taxes
2 EBIT = Operating Revenue – Operating Expenses + Non-operating Income
3 Net Working Capital= Current Assets – Current Liabilities
4 Current Ratio = Current Assets / Current Liabilities
5 Quick Ratio = (Current Assets – Inventory) / Current Liabilities
6 Equity multiplier=Total Assets/Total stock holders’ Equity
7 Total Debt Ratio = (Total Assets – Owner’s Equity) / Total Assets
8 Debt/Equity Ratio = Total Debt / Owner’s Equity
9 Equity Multiplier = Total Assets / Owner’s Equity
10 Times Interest Earned = EBIT / Interest
11 Inventory Turnover = Cost of Goods Sold / Inventory
12 Fixed Asset Turnover Ratio = Sales / Net Fixed Assets
13 Total Asset Turnover Ratio = Sales / Total Assets
14 Profit Margin = Net Income / Sales
15 Return on Assets (ROA) = Net Income / Total Assets
16 Return on Equity (ROE) = Net Income / Owner’s Equity
17 ROE = ROA x Equity Multiplier
18 ROE = Profit Margin x Total Asset Turnover x Equity Multiplier
19 Payout = Dividends/Net Income
20 Plowback = 1 – Payout
21 Internal Growth Rate = (ROA)(Plowback)/1-(ROA)(Plowback)
22 Sustainable Growth Rate = (ROE)(Plowback)/1-(ROE)(Plowback)
Chapter 7 Planning, Budgeting and Controlling
The master budget is a summary of the company’s plans and goals for the future. It sets specific targets for sales, production, and financing activities and indicates the resources that will be supplied to meet those targets. The master budget culminates with a cash budget and a projected income statement and projected balance sheet.
The budgeting process has two major aspects–planning and control.
Planning involves developing objectives and formulating steps to achieve these objectives.
Control involves the steps taken by management to increase the likelihood that the objectives set down at the planning stage are attained.
Budgeting provides a number of benefits:
In a manufacturing company, the direct materials budget follows the production budget. It details the amount of raw materials that must be acquired to support production and to provide for adequate inventories.
In all types of companies, a selling and administrative expense budget is prepared.
The cash budget summarizes all of the cash inflows and cash outflows appearing on the various budgets. In many companies, the cash budget is the single most important result of the budgeting process because it can provide critical advance warnings of potential cash problems. The cash budget allows managers to arrange for financing before a crisis develops. Potential lenders are more likely to provide financing if managers appear to be in control and looking ahead rather than simply reacting to crises.
The budgeting process culminates with the preparation of a budgeted income statement
Chapter 8 Sources and Forms of Financing
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Internal sources of finance are funds found inside the business. For example, profits can be kept back to finance expansion. Alternatively the business can sell assets (items it owns) that are no longer really needed to free up cash
Sources of external finance to cover the long term include:
● Owners who invest money in the business. ... ● Loans from a bank or from family and friends. ● Debentures are loans made to a company. ● A mortgage, which is a special type of loan for buying property where monthly payments are spread over a number of years.
Review of Finance
Course: Introduction to Finance (FIN2303)
University: Algonquin College
