aem 220 prelim 2 outline - Chapter 17 Accounting (2/28,...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 17 – Accounting (2/28, 3/2) The Accounting Cycle Objectives of Financial Statement Analysis Find out how liquid is an enterprise Find out how profitable is an enterprise Find out how efficient is an enterprise Solvency Ratios Quick Ratio = Cash + Marketable Securities + Receivables / Current Liabilities Current Ratio Debt-to-Equity Ratio Profitability (Performance) Ratios Return on Sales Return on Equity Earnings per Share Activity Ratios Inventory Turnover = COGS / Avg. Inventory Accounts Receivable Turnover = Net Accounts Receivable / Net Daily Credit Sales Caveats on Financial Statement Analysis Industry matters! Size matters! You can be tighter in some areas of your financial structure, if you have more leeway in others. The DuPont Model a “simple” way to combine the strengths of ratio analysis. (Net Income / Sales) X (Sales / Total Assets) = Net Income / Total Assets Return on Investment Chapter 18 – Corporate Finance (3/5) Financial Planning Process Forecast cash flow o Short-term uses
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
o Long-term uses Budget cash needs o Capital budget o Cash budget o Operating budget Control differences o Actual vs. projected flows Compare results o Modify forecasts and budgets The Three Financial Sins Undercapitalization Poor control over cash flow Inadequate expense control Financial Management: Responsibilities Short term finance o Working capital Long term finance o Retained earnings o Long term debt o Equity Corporate investment decision making Sources of Funds Short Term Trade Credit Promissory Notes Family/Friends Banks, etc. Secured Loan Unsecured Loan Factoring – selling company’s A/R Commercial Paper Long Term Debt Term-Loan Bonds o Secured o Unsecured Equity Stock Retained Earnings Venture Capital Use of Excess Funds Expansion Marketable securities – low yield instruments with high liquidity Treasury bills Commercial paper – unsecured promissory notes Certificates of deposit Asset purchases Weighted Average Cost of Capital
Background image of page 2
Cost of retained earnings is based on the alternatives that could otherwise be used for the money and what else could be done Guest Speaker – Cheryl Francis (3/7) What is the Goal? The Goal is to maximize: a) Revenue b) Profit c) Cash flow d) Return on investment e) Assets Economic Value The sum in today’s dollars of all expected future cash flow generated by the company. Why is Economic Value Important? Indication of financial health and potential Focus on value creation keeps eye on “right” thing Where does Economic Value come from? Productivity of assets
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/20/2007 for the course AEM 2200 taught by Professor Perez,p.d. during the Spring '07 term at Cornell University (Engineering School).

Page1 / 14

aem 220 prelim 2 outline - Chapter 17 Accounting (2/28,...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online