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Similar a Entrepreneurship Ch 8 PPT Fin Statements.ppt (17)
Entrepreneurship Ch 8 PPT Fin Statements.ppt
- 2. Entrepreneurship, 2nd Edition
Mariotti and Glackin with NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
2
Entrepreneurs Use Financial
Statements
Income statement
Cash flow statement
Balance sheet
Data for the financial statements comes from
the accounting journal.
The statements show the health of the business
at a glance.
- 3. Entrepreneurship, 2nd Edition
Mariotti and Glackin with NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
3
Income Statement: Scorecard for
the Entrepreneur
Prepared monthly and at end of fiscal year
Also called “profit and loss statement”
Shows whether or not business is making a
profit
Profit is entrepreneur’s reward for adding
value to scarce resources
- 4. Entrepreneurship, 2nd Edition
Mariotti and Glackin with NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
4
8 Parts of the Income
Statement
1. Revenue
2. Cost of Goods Sold (COGS)
3. Other Variable Costs
4. Contribution Margin (Gross Profit)
5. Fixed Operating Costs (USAIIRD)
6. Pre-Tax Profit
7. Taxes
8. Net Profit/(Loss)
- 8. Entrepreneurship, 2nd Edition
Mariotti and Glackin with NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
8
Return on Investment (ROI)
Entrepreneurs “invest” time, energy or money
into something because they expect a
“return” of money or satisfaction.
Return on investment (ROI) measures
return as a percentage of the original
investment.
Net Profit/Investment X 100 = ROI%
What is made over what is paid, times 100.
- 9. Entrepreneurship, 2nd Edition
Mariotti and Glackin with NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
9
To Calculate ROI for a Business,
You Need 3 Things:
1. Net Profit: found on bottom line of the
income statement.
2. Investment: all money used to start the
business (Start-Up Investment) plus
additional money invested later.
3. The period of time for which you are
calculating ROI (typically one month or one
year).
- 10. Entrepreneurship, 2nd Edition
Mariotti and Glackin with NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
10
Income Statement Ratios
Express each line of the income
statement as a percentage by dividing
sales into it and multiplying by 100.
This makes it easy to see how each
item is affecting the business’s profit.
Return on Sales (ROS) =
Net Income/Sales
Operating Ratio =
Fixed Operating Costs/Sales
- 11. Entrepreneurship, 2nd Edition
Mariotti and Glackin with NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
11
Same Size Analysis: Used to
Compare Income Statements
- 12. Entrepreneurship, 2nd Edition
Mariotti and Glackin with NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
12
The Balance Sheet
A “point-in-time” statement
Shows how a business is financed
Prepared at end of fiscal year 3 items
Assets=things a company owns that are
worth money
Liabilities=debts a company must pay,
including unpaid bills
Owner’s Equity (OE)=Assets-Liabilities,
also called “net worth”
- 14. Entrepreneurship, 2nd Edition
Mariotti and Glackin with NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
14
Short and Long-Term Assets
Assets are all items worth money owned by the business:
Current assets—cash or items that can be quickly turned into
cash.
Accounts receivables
Inventory
Supplies
Long-term assets—items that would take the business more
than one year to use.
Equipment
Furniture
Machinery
Real estate
- 15. Entrepreneurship, 2nd Edition
Mariotti and Glackin with NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
15
Current and Long-term Liabilities
Liabilities are all debts owed by the business.
Current liabilities—debts that must be paid within one
year.
Bills
Lines of credit
Short-term loans
Long-term liabilities—debts that will be paid over
more than one year.
Bank loans
mortgages
- 16. Entrepreneurship, 2nd Edition
Mariotti and Glackin with NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
16
The Balance Sheet Equation
Assets – Liabilities = Owner’s Equity
or
Assets = Owner’s Equity – Liabilities
Owner’s Equity is also called:
Net worth
Capital
- 17. Entrepreneurship, 2nd Edition
Mariotti and Glackin with NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
17
Assets Must Equal (“Balance”)
Liabilities + O.E.
If an item was financed with debt, the loan is a liability.
If an item was purchased with the owner’s money, it was
financed with equity.
Liabilities and owner’s equity pay for all items owned by
the business (assets).
- 18. Entrepreneurship, 2nd Edition
Mariotti and Glackin with NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
18
Analyzing a Balance Sheet
The balance sheet shows how a business is financed.
Investors use ratios and “same-size” analysis to
analyze a balance sheet.
- 20. Entrepreneurship, 2nd Edition
Mariotti and Glackin with NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
20
Quick and Current Ratios
Quick Ratio: Cash + marketable securities
Current Liabilities
Should always be greater than 1
Shows whether there is enough cash to cover all bills within
24 hours
Current Ratio: Current Asset
Current Liabilities
Should always be greater than 1
Shows whether a business could sell some assets to pay off
its debts
- 21. Entrepreneurship, 2nd Edition
Mariotti and Glackin with NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
21
Debt Ratios
Debt ratios show at a glance how much of the company is financed
with debt and how much with equity.
Debt-to-Equity Ratio: Debt/Equity
Example: ratio of 1 means for every $1 of debt the company
owns $1 of assets.
Debt Ratio: Debt/Assets
Example: ratio of 0.5 means company is in debt for 50% of its
assets.
Entrepreneurs like to have a fairly high debt ratio, because it
means they are financing the business not with their own
money but with credit from creditors and suppliers.
- 22. Entrepreneurship, 2nd Edition
Mariotti and Glackin with NFTE
© 2010 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
22
Operating Efficiency Ratios
Collection Period Ratio:
Average accounts receivable (Balance Sheet)
Average daily sales (income Statement)
Receivable Turnover Ratio:
Total Sales (Income Statement)
Average Accounts Receivables (Balance Sheet)
Inventory Turnover Ratio:
Cost of Goods Sold (Income Statement)
Average Inventory (Balance Sheet)
= # of days
= # of times
= # of times