chapter 2 study guide

chapter 2 study guide - Chapter 2 Study Guide Three Phases...

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Chapter 2 Study Guide Three Phases of the Management Cycle: 1.1. Planning Phase: contains two levels of planning, strategic and operating. 1.1.1. Strategic: set the broad course for the business based on its goals and cover a relatively long period of 5 to 10 years. These plans set the frame- work for operating plans. 1.1.2. Operating: these level plans involve strategic objectives that apply to only a year at a time. These plans must be compatible with the strategic plans of the firm. 1.2. Performing Phase: businesses complete their planned business processes and operating activities and record the results of the activities that take place. The accounting part records the impact of events on the company. 1.3. Evaluating Phase: final phase of the management cycle that provides informa- tion about the company’s performance. Comparing operating activity results with the projected results in the planning phase. Operating, investing, or financing activities: 1.1. Operating activities are considered profit-making activities of the company 1.2. Investing activities are to create the infrastructure to support operating activit- ies. (buying and selling long-term assets) 1.3. Financing activities are activities involving the borrowing of money or when owners or shareholders invest in the company. The Balanced Scorecard Approach Translates a company’s strategy (from the business organization and strategy pro- cess) into measurable objectives (for the operating and capital resources pro- cesses). It evaluates performance and plans for the future. There are four per- spectives to this approach. 1.1. Financial 1.2. Internal 1.3. Customer 1.4. Learning and Growth Financial Perspective: Companies must remain attractive to investors and creditors, so they use a variety of financial measures to control activities and measure results of operating and capital re- sources processes. Companies assess growth in stock prices as indication of financial performance. The Return on Investment Ratio is the return generated per total dollar invested. Return on Investment Ratio Net Income Avg. Total assets.
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The Quick Ratio: Used to measure a company’s ability to meet its current obligations as they become due. It is a more reliable representation of liquidity. Cash + short term investments + receivables Current Liabilities Return on Owners’ Equity Ratio: used to assess a sufficient return for company own- ers. Net Income
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This note was uploaded on 03/18/2011 for the course ACCT 2101 taught by Professor Clark during the Fall '10 term at Georgia State.

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chapter 2 study guide - Chapter 2 Study Guide Three Phases...

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