Week 2: Finance Basics
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Questions and Answers

What is the primary focus of efficiency in a company?

  • Maximizing market perception
  • Achieving set goals
  • Increasing revenue growth
  • Utilizing assets effectively (correct)

How is effectiveness defined?

  • Evaluating achievements against set goals (correct)
  • Comparing revenues to expenses
  • Assessing market performance
  • Measuring asset utilization

What does the Current Ratio measure?

  • Return on investment
  • Liquidity of long-term assets
  • Company profitability
  • Ability to meet short-term liabilities (correct)

Which ratio is likely to be relevant for non-profits?

<p>Debt to Equity Ratio (C)</p> Signup and view all the answers

What does a decreasing Days Payable indicate about a company?

<p>The company is paying creditors faster (D)</p> Signup and view all the answers

Why are financial statements important for non-profits?

<p>To satisfy legal and regulatory constraints (A)</p> Signup and view all the answers

What is the purpose of CADAC?

<p>To collect and analyze data of arts organizations (C)</p> Signup and view all the answers

How is efficiency measured in the context of a non-profit organization?

<p>By measuring inputs related to outputs (D)</p> Signup and view all the answers

What is the formula for calculating profit?

<p>Revenue - Expenses (A)</p> Signup and view all the answers

Which type of profit is defined as the total earnings after all expenses have been deducted?

<p>Net Profit (B)</p> Signup and view all the answers

Which of the following is NOT a type of expense incurred during business operations?

<p>Revenue generation (A)</p> Signup and view all the answers

Who typically does NOT handle funds in an organization?

<p>Customers (C)</p> Signup and view all the answers

What is a budget?

<p>A financial plan estimating revenues and expenditures (A)</p> Signup and view all the answers

Which equation correctly represents the relationship between assets, liabilities, and owners' equity?

<p>Assets = Liabilities + Owners' Equity (A)</p> Signup and view all the answers

Which term refers to income generated from normal business operations?

<p>Revenue (B)</p> Signup and view all the answers

Which of the following individuals is most likely to be involved in the budgeting process?

<p>CFO (C)</p> Signup and view all the answers

Which of the following describes the primary purpose of identifying sources of revenue within a budget?

<p>To allocate resources effectively to achieve goals (A)</p> Signup and view all the answers

What is the completed process that involves tracking financial transactions from beginning to end?

<p>Audit trail (A)</p> Signup and view all the answers

Which of the following is NOT a step in the accounting or audit cycle?

<p>Conduct market research (B)</p> Signup and view all the answers

How often are interim financial reports typically prepared?

<p>Periodically during the fiscal year (C)</p> Signup and view all the answers

What does the 'What' in the 5W's and How of budgeting primarily refer to?

<p>A financial plan that aligns with organizational goals (B)</p> Signup and view all the answers

Which of the following best outlines the 'why' of budgeting?

<p>To secure funding and ensure mission alignment (D)</p> Signup and view all the answers

During which part of the financial cycle is the final financial statement issued?

<p>Following the trial balance (A)</p> Signup and view all the answers

Who is typically responsible for ensuring budget alignment with an organization's goals?

<p>The CEO, Treasurer, or department head (C)</p> Signup and view all the answers

What is a key benefit of CADAC for Canadian Arts Organizations?

<p>Submission of financial data in a unified format. (B)</p> Signup and view all the answers

What does Canada's progressive tax system imply?

<p>Higher incomes face higher tax rates. (A)</p> Signup and view all the answers

Which of the following is NOT a deduction allowed for artists in Canada?

<p>Expenses related to personal hobbies. (D)</p> Signup and view all the answers

What is a defining aspect of Key Performance Indicators (KPIs) for non-profit organizations?

<p>Measuring audience engagement and diversity. (A)</p> Signup and view all the answers

Which of the following categories is NOT listed under General Taxation Principles for artists?

<p>Attendance Maximization. (A)</p> Signup and view all the answers

Which question is essential in assessing the success of an organization?

<p>Are we meeting our goals? (A)</p> Signup and view all the answers

What is one of the filing deadlines for self-employed individuals in Canada?

<p>June 15. (B)</p> Signup and view all the answers

Which KPI category focuses on the overall financial health of an organization?

<p>Revenue Maximization. (C)</p> Signup and view all the answers

What is required for good interim financial reporting?

<p>It must be timely, accurate, detailed, and annotated. (C)</p> Signup and view all the answers

Which document is signed off by an authorized signatory and filed by employees?

<p>Expense report (C)</p> Signup and view all the answers

What is the primary purpose of cash flow management?

<p>To ensure bills can be paid on time and assess the need for credit. (B)</p> Signup and view all the answers

What distinguishes a Blue Ocean strategy from a Red Ocean strategy?

<p>Blue Ocean focuses on new markets with little competition, while Red Ocean is competitive and existing. (D)</p> Signup and view all the answers

Which accounting standard is tailored specifically for non-profit organizations in Canada?

<p>ASNPO (B)</p> Signup and view all the answers

What does the debt-to-equity ratio help assess?

<p>How much debt is too much debt. (C)</p> Signup and view all the answers

What is reflected in a balance sheet?

<p>Assets minus liabilities equals equity. (A)</p> Signup and view all the answers

In financial terms, how is a ratio defined?

<p>A comparison of one unit to another in quantitative terms. (C)</p> Signup and view all the answers

Flashcards

Budget Purpose

To effectively allocate resources and track performance to achieve organizational goals.

Budget 'Who'

Individuals or groups responsible for and benefiting from the budget, such as the CEO, treasurer, or department head.

Budget 'What'

A detailed financial plan aligning with organizational goals and accurate cost estimation.

Budget 'Why'

The reason for creating a budget, such as securing funding, complying with grant requirements, or ensuring mission alignment.

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Accounting Cycle / Financial Cycle

A recurring process of recording, summarizing, and reporting financial transactions to create financial statements.

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Audit Trail

A step-by-step record that traces financial transactions from start to finish, ensuring accuracy and transparency.

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Interim Financial Reporting

Financial reports created periodically within a fiscal year to provide transparency and track financial performance.

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Year-End

The end of the fiscal year for an organization, often coinciding with a specific date (like December for individuals).

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Effectiveness

Comparing achievements to goals. Measures how well a company achieves its set objectives.

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Efficiency

Comparing inputs to outputs. Measures how well a company uses its resources to produce goods or services.

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Current Ratio

A liquidity ratio calculated by dividing current assets by current liabilities. Shows a company's ability to pay short-term debts with its short-term assets.

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Debt to Equity Ratio

Measures the proportion of debt financing compared to equity financing. Shows a company's leverage and risk.

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Days Payable

Measures how long a company takes to pay its suppliers. A decreasing days payable suggests faster payments to suppliers.

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CADAC (Canadian Arts Data)

A joint effort of arts funders in Canada. Collects, disseminates, and analyzes financial and statistical data for Canadian arts organizations.

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Effectiveness of a Non-Profit

Measures a non-profit's success in achieving its goals, such as fundraising targets or community outreach objectives.

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Efficiency of a Non-Profit

Evaluates how efficiently a non-profit uses its resources to achieve its goals, such as social media spending for new followers.

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CADAC Benefits

A system where arts organizations in Canada can apply for grants and submit financial information through a single platform, allowing for easier access to historical data and comparative reports.

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Progressive Tax System

A system where tax rates increase as income increases.

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Tax Deductions for Artists

Expenses related to artistic activities, such as supplies, studio costs, and equipment, which can be deducted from taxable income.

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Key Performance Indicators (KPIs)

Metrics used to evaluate an organization's success and health.

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For-Profit KPIs

Metrics used to measure financial performance of for-profit organizations, including revenue growth, profitability, effectiveness, efficiency, and equity.

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Non-Profit KPIs

Metrics used to evaluate success of non-profit organizations, focusing on audience engagement, diversity, and innovation.

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Access Maximization KPI

Measures the extent to which an organization provides opportunities for participation and engagement in its programs and services.

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Assessing Success

Evaluating an organization's progress by asking questions about goal attainment, resource efficiency, and audience growth.

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Good Interim Reporting Features

Consists of reports that are timely (provided quickly), accurate (no errors), detailed (comprehensive), and annotated (explained clearly).

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Cost Report

Summarises the expenses incurred for a specific project or activity. Tracks money spent on various departments, materials, and labor.

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Cash Flow

The movement of money in and out of a business over a specific time period. Inflows are money coming in (revenue), and outflows are money going out (expenses).

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Components of Cash Flow

Important elements of cash flow include budget alignment (matching income and expenses), payment schedules (when bills are due), and funding drawdowns (accessing available funds).

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Financial Statement: Balance Sheet

A snapshot of a company's assets (what it owns), liabilities (what it owes), and equity (owners' stake) at a specific point in time. Assets minus liabilities equals equity.

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Financial Statement: Income Statement

Shows a company's revenue (money earned) and expenses (money spent) over a specific period, typically a month or year. Revenue minus expenses equals profit or surplus (if positive) or loss (if negative).

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Ratio Analysis

A comparison of two related financial figures to understand the financial health and performance of a company. Helps determine liquidity, profitability, debt, and other key metrics.

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Revenue

Money earned from normal business activities, calculated as the average selling price multiplied by the number of units sold.

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Expenses

Costs incurred during business operations, such as salaries, rent, and maintenance. There are four main types: COGS, operating expenses, financial expenses, and extraordinary expenses.

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Profit

The financial gain resulting from the difference between revenue and expenses. It represents the earnings of a business after deducting all costs.

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Gross Profit

The profit calculated by subtracting the cost of producing goods from the selling price.

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Operating Profit

The profit remaining after paying all business costs, except for taxes.

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Net Profit

The final profit remaining after deducting all expenses, including taxes.

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Assets

Resources owned by a business that have value and can be used to generate future economic benefits.

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Owners' Equity

The value of the owners' investment in the business, calculated by subtracting liabilities from assets.

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Study Notes

Week 2: Finance Basics

  • Finance (definition): Management of large sums of money by governments, businesses, or individuals. Involves providing funds for enterprises or individuals.
  • Revenue (definition): Money generated from normal business operations, calculated as average sales price multiplied by the number of units sold. Found in income statements, sales figures, and top-line/gross income.
  • Expenses (definition): Costs incurred during business operations, including wages, salaries, maintenance, rent and depreciation. This category includes COGS (cost of goods sold), operating expenses, financial expenses, and extraordinary expenses.
  • Profit (definition): Financial gain, the difference between earnings (revenue) and expenses in operations, production or investments.
    • Gross Profit: Selling price minus production cost.
    • Operating Profit: Money remaining after all business costs except taxes.
    • Net Profit: Earnings after deducting all expenses.
  • Equations:
    • Profit = Revenue - Expenses
    • Assets = Liabilities + Owners' Equity
    • Owners' Equity = Assets - Liabilities

Week 3: Budgets

  • Statements of Earnings/Operations: Revenue minus expenses equal profit (e.g., AGO, Factory Theatre)
  • Budget Basics: A financial plan that estimates revenues and expenditures over a specific time period.
  • Involved Personnel: CFO, Treasurer, Executive Director, Department Heads.
  • Budget Purpose: Allocate resources effectively and track performance to achieve goals.

Week 4: Budget Details (5W's and How)

  • Who: Individuals/groups responsible for the budget's creation and benefits. (e.g., CEO, Treasurer, department heads)
  • What: A financial plan.
  • When: Time period (e.g., year-end), specific cycles (e.g., grant).
  • Why: Achieve mission alignment, secure funding and report to funders.
  • How: Start with a clear vision, gather quotes, and identify revenue streams.

Week 5: Accounting Cycle

  • Financial Reports: Illustrate financial activity.
  • Monthly Reports: Similar to financial news updates.
  • Annual Reports: Similar to yearbooks.

Week 6: Interim Financials

  • Interim Financial Reporting (definition): Reports prepared periodically during a fiscal year to track performance, provide transparency and enable better decision-making.
  • Key Interim Reports: Expense, cost, cash flow, budget summaries, quarterly statements, financial statements.

Week 7: Cash Flow

  • Definition: Tracking inflows (revenue) and outflows (expenses) over a specific time period.
  • Inflows: Sales, grants, investments.
  • Outflows: Salaries, expenses.
  • Purpose: Ensure bills are paid on time and assess credit requirements.

Week 8: Strategic Differentiation

  • Red Ocean Strategy: Competing in existing markets, e.g., Broadway shows, Walmart.
  • Blue Ocean Strategy: Creating new markets with little competition, e.g. Netflix, Amazon.

Week 9: Accounting Standards

  • GAAP: Generally Accepted Accounting Principles (US).
  • IFRS: International Financial Reporting Standards (Canada).
  • ASPE: Accounting Standards for Private Enterprises (Canada).
  • ASNPO: Accounting Standard for Non-Profit Organizations (Canada).
  • Financial Statements: Basic financial documentation. (Balance Sheet, Income Statement).

Week 10: Ratios

  • Ratios (definition): A comparison of one unit to another, showing how many times one value contains or is contained within the other.
  • Types of Ratios: Liquidity, Profitability, Debt, Efficiency and Market.

Week 11: CADAC and Taxes

  • CADAC: Canadian Arts Data, used for financial and statistical information about Canadian arts organizations.
  • Benefits: Data consistency, reporting efficiency, accountability improvement.

Week 12: Key Performance Indicators (KPIs)

  • Definition: Metrics for measuring organizational success and health.
  • For-Profit: Revenue growth, profitability, effectiveness, efficiency, equity, debt:equity ratios
  • Non-Profit: Audience engagement, diversity, innovation.
  • Categories: access, attendance, diversity, economy, education, excellence, innovation, revenue, service, social, cohesion, economic, impact, prestige.
  • Success Assessment Questions: Meeting goals, using resources efficiently, growing audience/impact.

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Description

Dive into the fundamental concepts of finance in this Week 2 quiz. Explore definitions and implications of key terms such as revenue, expenses, and profit. Assess your understanding of how these elements interact within business operations.

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