Finance Review
Double taxation
The same income getting taxed multiple times.
Maximizing shareholder value
Management principle that implies that the ultimate measure of a company’s success is the extent to which it enriches its shareholders.
Initial Public Offering
Stock Launch – stock in a company is sold to the general public for the first time
Sole Proprietorship, Partnership, Corporation, LLC, Subchapter S Corp (Pros and Cons of each)
Sole Proprietorship
Pros
Simplicity and ease of operation
Cons
Limited Life
Limited Access to Capital
Corporation
Pros
Unlimited Life
Limited Liability
Improved access to capital
Cons
Much less simple to maintain
Higher tax rates
LLC
Pros
Allows for “Special allocation” the disproportionate splitting of member profits and losses
Less Regulation
Cons
Managing members share the bottom line income
Subchapter S
Pros
Can tax the shareholders as partners
Cons
Only 100 shareholders or fewer
Cash Flow (Inflows and Outflows)
Statement of cash flows – shows the changes in balance sheet accounts and income
Retained Earnings
Explains the changes in a company’s retained earnings over time. Breaks down changes in the owners interest in the organization.
The financial ratios that we covered in class (you don’t need to memorize them but know what they mean and measure)
Current Ratio
Measures the firm’s ability to meet its short term obligations
Current Assets/Current Liabilities
Quick Ratio or Acid Test Ratio
Current ratio (less) inventory
Current Assets-Inventory/Current Liabilities
Inventory Turnover
Measures how quickly a firm sells its goods
Cost of goods sold/Inventory
Average collection period
Measures the average amount of time that elapses from a sale on credit until the payment becomes useable funds for the firm
Accounts Receivable/Average Daily Sales
Average Payment Period
Measures their payment performance
Accounts Payable/Average Daily Purchases
Total Asset Turnover
Indicates the efficiency
The same income getting taxed multiple times.
Maximizing shareholder value
Management principle that implies that the ultimate measure of a company’s success is the extent to which it enriches its shareholders.
Initial Public Offering
Stock Launch – stock in a company is sold to the general public for the first time
Sole Proprietorship, Partnership, Corporation, LLC, Subchapter S Corp (Pros and Cons of each)
Sole Proprietorship
Pros
Simplicity and ease of operation
Cons
Limited Life
Limited Access to Capital
Corporation
Pros
Unlimited Life
Limited Liability
Improved access to capital
Cons
Much less simple to maintain
Higher tax rates
LLC
Pros
Allows for “Special allocation” the disproportionate splitting of member profits and losses
Less Regulation
Cons
Managing members share the bottom line income
Subchapter S
Pros
Can tax the shareholders as partners
Cons
Only 100 shareholders or fewer
Cash Flow (Inflows and Outflows)
Statement of cash flows – shows the changes in balance sheet accounts and income
Retained Earnings
Explains the changes in a company’s retained earnings over time. Breaks down changes in the owners interest in the organization.
The financial ratios that we covered in class (you don’t need to memorize them but know what they mean and measure)
Current Ratio
Measures the firm’s ability to meet its short term obligations
Current Assets/Current Liabilities
Quick Ratio or Acid Test Ratio
Current ratio (less) inventory
Current Assets-Inventory/Current Liabilities
Inventory Turnover
Measures how quickly a firm sells its goods
Cost of goods sold/Inventory
Average collection period
Measures the average amount of time that elapses from a sale on credit until the payment becomes useable funds for the firm
Accounts Receivable/Average Daily Sales
Average Payment Period
Measures their payment performance
Accounts Payable/Average Daily Purchases
Total Asset Turnover
Indicates the efficiency