BUS- F 300 1st EditionExam # 1 Study GuideIncome Statement- Revenue – Also known as “income” or “sales.”  net income can also be known as “bottom line profit” , gross profit = “top-line profit”-Key question: How fast is this growing? Can you produce goods or services at a profit? - Expenses – Costs (Producing, Marketing, Sales Administrative, Interest, Taxes)-Key Question: Are these rising or falling relative to revenues? Can you produce, sell, and deliver goods or services at a profit? This says something about your business model- Profit – “Earnings” or “net profit”-Key Question: Why is this rising or falling? Can you end with enough profit for dividends and retained earnings? Balance Sheet- Assets – Consists of short-term, long-term and fixed (Plant and equipment) use things. -Short-term (inventory)-Long-term (machine)-Fixed (warehouse) - Assets are financed by capital (2 kinds)-Debt capital (liabilities) and equity- Liabilities -Things that you owe others- Equity – Ownership value in a company. Consists of stock and retained earnings, which is profit you have put back into the business - The combination of debt and equity is the firm’s capital structure - The % of assets financed by liabilities and the % financed by equity- Together it must equal 100%Cash Flow Statement - Shows you where the cash is coming from and going to (Operations, Investing, financing) -Operations – Cash used up (paying employees) or generated (sales of goods) in “operations” -usual operations of the business-Investing – Cash used up (to buy a new building) or generated (selling a company car) in “investments”  investing in new plant and equipment, bot stock market investing-buying or selling important assets-Financing – Cash used to pay off debt or generated (a new loan) in “finances”-how company chooses to finance assets Sample Income Statement Form Sample Balance SheetCash coming in and going out from operations:Financial Analysis Financial metrics: ratios, growth rates, trends + Benchmarking: comparing to competitors and others +Critical thinking: some common sense about the business =Intelligence about financial performance Profit Margin – How profitable a company is, the % of its revenues that eventually turns into profitNet Profit Margin – net income/revenue  A growth rate is a rate of change.(new # - old #) / old # OR (new #/old #) – 1FINANCIAL RATIOS YOU NEED TO KNOWKEY RATIOSDupont A tool for looking at return on equity (ROE) that helps reveal what is influencing ROEROE = net income/total equity ROE = net profit margin  net income / sales X total asset turnover  sales/ total assets X equity multiplier  total assets/total equity Time Value of Money Single payment – single amount of money now or in the future  Annuities – constant period payments of equal amount Compounding – earning interest on interest Why “time is money”? 1. Future is uncertain2. Inflation reduces purchasing power3. Time entails opportunity costs  know how to use Time Value