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chapter 6 updated march 24 -expanded

chapter 6 updated march 24 -expanded - Entrepreneurship 6...

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6 Entrepreneurship Financial Resources for New Ventures: How to Get Them, How to Keep Them
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6-2 “We all need money, but there are degrees of desperation.” --Anthony Burgess
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6-3 Agenda Reading Financial Statements Balance Sheet Income Statement (i.e., Profit & Loss Statement) Statement of Cash Flow Pro Forma Why is it so difficult to raise money for entrepreneurial firms? Information Asymmetry Problem Uncertainty Problem How much money do I need? Startup cost Capital Needed to Reach Cash Flow Positive Breakeven Analysis Debt vs. Equity A process of equity financing
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6-4 Basic Financial Statements Balance sheet Income statement Statement of cash flow
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6-5 Balance Sheet A picture(snapshot at a particular time) of Assets—fixed and current Liabilities—long-term and current Owners’ equity
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6-6 Accounting Principals EQUITY S LIABILITIE ASSETS + = What the company owns (used to generate income) How the Ownership of Assets was Financed (By third parties or by the owners) Equity =book value of the company MARKET VALUE = SHARE PRICE X #of SHARES ISSUED Note: Market and book value of company are not the same. Market value takes into account the potential future growth of the company. (used in calculated P/E Ratio (Price-Earning Ratio).
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6-7 Balance Sheet A snapshot of the investing and financing activities of a firm Balance Sheet of XYZ Corp. – December 31 of 2007 (in thousand $) Assets are economic resources An asset has the ability to provide future benefits to the company Shareholder’s equity is the owners’ claim Contributed capital (Paid- in capital): the amount invested Retained Earnings: Increase in equity due to operation Total Assets = Total Liabilities + Shareholder’s Equity
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6-8 Balance Sheet - Comparison Assets Walmart ($B) Cisco ($B) VmWare ($M) Cash 7.4 22.3 176 Accounts Receivable 2.8 4 201 Inventories 33.7 1.3 0 Prepayments 2.7 2.0 7 Other Current Assets 0 2.0 38 Total Current Assets 46.6 31.6 422 Property, Plant and Equipment 88.4 6.0 49 Intangible Assets 13.8 14.7 604 Other Long Term Assets 2.4 2.7 71 Total Assets 151.2 53.3 1146 Liabilities and Shareholder's Equity Accounts Payable 28.1 0.8 44 Notes Payable 2.6 0 0 Accrued Expenses 14.7 5.4 103 Other Current Liabilities 6.5 7.1 330 Total Current Liabilities 51.7 13.4 478 Long Term Debt 30.7 6.4 800 Other Noncurrent Liabilities 7.1 2.1 99 Total Liabilities 89.6 21.9 1377 Shareholder's Equity 61.6 31.5 -231 Total Liabilities and Shareholder's Equity 151.2 53.3 1146 05/10/10 CZHENG (C)2009
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6-9 Debt Ratio Determined from balance sheet alone A smaller number means greater financial health Equals to Asset Total Debt Total Ratio Debt =
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6-10 Income Statement Also called “Profit and Loss” statement Reflects results of company’s operations during a specific period of time Includes Net sales (Revenue) Cost of sales (i.e., Cost of Goods Sold, C.O.G.S.) Operating expenses (SG&A, etc) SG&A= Sales, General and Administration Expenses
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6-11 Relationship Between Balance Sheet and Income Statement Assets=Liabilities + Equity
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