© March 2014. Finance ≠ Accounting What accounting? The process of collecting financial data, organizing and analyzing it using ageed- upon accounting.

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Presentation transcript:

© March 2014

Finance ≠ Accounting

What accounting? The process of collecting financial data, organizing and analyzing it using ageed- upon accounting rules, and reporting the results in financial statement

What finance? The set of activities people and companies engage in to decide how to invest their capital so that it generates more cash, profit, and wealth

The financial system a company uses to measure, record, analyze, and report all the transactions involved in its value creation process Genereally Acceptted Accounting Principles (GAAP)

Accountants External Auditor Internal Auditor Managerial Accountants Financial Accountants

A management accounting system produces information that is used within an organization, by managers and employees. Managerial Accounting

A financial accounting system produces information that is used by parties external to the organization, such as shareholders, bank and creditors. Financial Accounting

The formal evaluation of the fairness and reliability of a company’s financial statement Audit

Auditor Cerified Public Accountants (CPA)

THE BIG 4

A summary of the financial condition of a business at the end of a day of a speciffic reporting period Assets = Liabilities + Equity Double Entry Book-Keeping

The financial report that summarizes the results of a company’s profit-making activities in a specific time period Sales Revenues – Expenses = Profit (or Loss)

The amount of net income, profit, or earnings a company reports on the bottom line of its income statement The financial report that summarizes the results of a company’s profit-making activities in a specific time period Bottom-Line-Profit

A financial report showing how much cash a company generated during a specific time period, including where the cash came from and how it was used The value of a company’s assets that can be converted into cash immedietely Cash

A financial report showing how much cash a company generated during a specific time period, including where the cash came from and how it was used From Operating Activities From Investing From Financing Cash Flows

Ratios that measure different aspects of a company’s performance

Fiancial Ratio Liquidity Assets Management Profitability Solvency

Current Ratio = Current Assets / Current Liabilities Current Ratio Current Ratio = (Cash + Recievebles)/ Current Liabilities Quick Ratio

Inventory Turnover = Cost of Goods Sold / Inventory Inventory Turnover Ratio Asset Turnover = Sales / Total Asset Asset Turnover Ratio

Gross Margin = (Gross Profit / Sales) x 100 Gross Margin Ratio Profit Margin = (Net Income / Sales) x 100 Profit Margin Ratio ROI= (Net Income / Total Capital) x 100 Return on Investment (ROI)

DER = Total Liabilities / Total Equity Debt to Equity Ratio (DER)