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4.01 Understand Financial Management
Transcript of 4.01 Understand Financial Management
is typically used by a new business or a new branch, until they earn enough money.
is used for a period of time to continue the business operation.
is used to estimate how much money is going in and out the business.
Financial Records and Statements
Financial statements gives owners a visual of their business financial performance.
has assets (
what a company owns
), liability (
what company need to pay
), and owner's equity (
cost of the owners share of the business
has sales, expenses, and money the company earned or lost.
Financial Performances Ratio
Current Ratio is calculated by dividing the current assets by the current liabilities. Current ratio represents the assets that can be converted to cash in less than 1 year compare to the liabilities that has to be paid before a years time. Usually the more favorable is high. Debt to equity ratio is calculated by the total liabilities divided by owner's equity. It represents how much the company depends on the money borrowed outside the business against money the business has. The more favorable is the lower ratio of the company.
The reason why a business should have a financial plan is to cut down the fears of the company's finance, The control of financial actions rises, It gives a "map of finances" to the company, and it is easier to stay on course with the financial goals.
a financial plan, it determines the amount of money you have to get in order to start and run your company until you get a profit. Payments and major sales are determined. It also determines whether you do or don't have enough money to
Revenue - Expenses= Profit or Loss
). This also determines if enough money is made to be able to
Financial Performance Ratio Cont.
Return on equity ratio equals the net income divided by the owner's equity. This ratio shows the rate of return the owner's are receiving on investments. No exact ratio. Used to compare other investment to see which is more desirable. The ratio is more favorable when higher. Net income ratio is calculated by the total sales divided by the company's net Income. It represent the amount of sales needed for every dollar of income. The lower the ratio is the favorable, which takes less sales to make net income.