Finance Final Study Notes PDF

WEEK 2: Finance Basics - Week 2: equations - Week 2: slide 5 (definitions) slide 8 (equations) - Week 2: Finding the type of organisation and who touched the money ​ Finance Definitions: ○​ Noun: Management of large amounts of money by governments, businesses, or...

WEEK 2: Finance Basics - Week 2: equations - Week 2: slide 5 (definitions) slide 8 (equations) - Week 2: Finding the type of organisation and who touched the money ​ Finance Definitions: ○​ Noun: Management of large amounts of money by governments, businesses, or individuals. ○​ Verb: Providing funds/money for an enterprise or individual. ​ Revenue: ○​ Money generated from normal business operations is calculated as the average sales price times the number of units sold. (income statement, sales, top line, gross income). ​ Expenses: ○​ Costs incurred during business operations (include: wages, salaries, maintenance, rent and depreciation). ○​ 4 types ​ COGS (cost of goods sold) ​ Operating expenses ​ Financial expenses ​ Extraordinary expenses ​ Profit (definition): ○​ Noun: Financial gain; the difference between the amount earned (revenue) and the amount spent (expenses) in operations, production, or investments. ○​ Verb: obtain a financial advantage or benefit, especially from an investment. ○​ Gross Profit: the selling price of the product minus the cost of producing ○​ Operating Profit: the money left after paying all business costs, but before paying tax ○​ Net Profit: a company’s total earnings after subtracting all expenses ​ Equations: ○​ Profit: Revenue - Expenses = Profit (or not). ○​ Assets: Assets = Liabilities + Owners' Equity. ○​ Owners' Equity: Assets - Liabilities = Owners' Equity. ​ Who ‘Touches’ the Money? ○​ All individuals or departments involved in handling funds, e.g., finance teams, department heads, and executives. (stakeholders involved in financial transactions). ​ Key Concepts: ○​ Identify the type of organization (for-profit, non-profit, or charity). WEEK 3: Budgets ​ Statements of Earnings/Operations: ○​ Revenue - Expenses = Profit (e.g., AGO, Factory Theatre examples). ​ Budget Basics: ○​ Definition: A financial plan estimating revenues and expenditures over a specific period./ A financial plan for a defined period of time ○​ Involved Personnel: CFO, Treasurer, Executive Director, Heads of Departments. ○​ Start: ​ Begin with defining goals, mission, and vision. ​ Identify sources of revenue ​ Plan expenditures aligned with objectives ○​ Purpose: Allocate resources effectively to achieve goals and track performance. WEEK 4: Budget Details (5W’s and How) ​ Who, What, When, Why, and How: ○​ Who: Responsible people ​ Identify individuals/groups responsible for and benefiting from the budget. (e.g. CEO, Treasurer, executive director, department head) ○​ What: A Financial Plan ​ Ensure alignment with organizational goals and accurate cost estimation. ○​ When: depends, but Year Endとか ​ Consider the time period and specific cycles (e.g., grant periods, fiscal year). ○​ Why: In order to get the grant, To secure funding, report to funders, and ensure mission alignment. ○​ How: Start with clear goals/vision, gather quotes, and identify revenue streams. WEEK 5: Accounting Cycle ​ Accounting Cycle / Financial Cycles 1.​ Financial Reports are just a story 2.​ Monthly reports are newsletter 3.​ Annual Reports are a yearbook ​ Year-End:  1.​ Varies by organisation type (e.g., December for individuals, can choose for businesses). ​ Audit Trail: 1.​ Record-keeping system to trace all financial transactions (from start to end or vice versa). 2.​ An audit trail is a step-by-step record by which accounting, trade details, or other financial data can be traced to their source. 3.​ Audit trails are used to verify and track many types of transactions, including accounting transactions and trades in brokerage accounts. ​ Seven Steps: 1.​ Receiving papers/documents 2.​ Initial processing 3.​ Write journals -> ​ The everyday detail that makes up the yearbook 4.​ Prepare bank reconciliation 5.​ Write general ledger 6.​ Prepare trial balance 7.​ Issue financial statements WEEK 6: Interim Financials ​ Interim Financial Reporting ○​ Purpose: Tracks financial performance within a specific period, transparency and decision-making ○​ Definition: Financial reports prepared periodically during the fiscal year. ​ Interim financials reporting (happen in between) ○​ Key types of Reports: Expense reports, cost reports, cash flow, budget summaries, quarterly statements, Interim financial statements. ​ Good Interim Reporting: ○​ Must be timely, accurate, detailed, and annotated. ​ Who Prepares/Reviews: ○​ Bookkeepers, accountants, managers, and board members. ​ Who Needs to see them: ○​ Investors, Board, Public ​ Expense reports ○​ Filed by employee, contractor ○​ Signed off on by authorised signatory ○​ Processed by Bookkeeper ​ Cost reports ○​ Prepared by Bookkeeper/ Accountant ○​ Signed off on by Authorised signatory WEEK 7: Cash Flow  ​ Definition: Tracking inflows (revenue) and outflows (expenses) over a time period. ○​ Inflows: Sales, Grants, investments (money moving in) ○​ Outflows: Salaries, expenses (money moving out) ​ Components: ○​ Budget alignment, payment schedules, and funding drawdowns. ​ Purpose: ○​ Ensure bills can be paid on time and assess the need for credit. WEEK 8: Strategic Differentiation ​ Red Ocean vs. Blue Ocean Strategies: ○​ Red Ocean: Competitive, existing markets (e.g., Broadway, Dollarama, Walmart, TV). ○​ Blue Ocean: New markets with little competition (e.g., Netflix, Amazon, Airbnb, Cirque du Soleil). ​ Key Example: ○​ Netflix: Entered a Blue Ocean by acquiring content but incurred heavy debt. WEEK 9: Accounting Standards ​ Standards Overview: ○​ GAAP: Generally Accepted Accounting Principals (U.S.-based). ○​ IFRS: International Financial Reporting Standards (Canada). ○​ ASPE: Accounting Standards for Private Enterprises (Canada). ○​ ASNPO: Accounting Standard for Non-Profit Organization (Canada). ​ Financial Statements: ○​ Balance Sheet: Assets - Liabilities = Equity. (Balance sheet aka, statement of financial position) ○​ Income Statement: Revenue - Expenses = Profit/surplus. WEEK 10: Ratios ​ What is Ratio? ○​ A comparison of one unit to another ○​ “noun: the quantitative relation between two amounts showing the number of times one value contains or is contained within the other.” ​ Types of Ratios: ○​ Liquidity: How much cash, Current assets vs. current liabilities. ○​ Profitability: How profitable, Return on assets. ○​ Debt: How much debt is too much debt, Debt-to-equity ratio. ○​ Efficiency: how well the company uses the assets. Asset utilization. ○​ Market: what the market thinks of this company’s performance and prospects  ​ Effectiveness vs. Efficiency: ○​ Effectiveness: Comparing achievements to goals. (Goals VS achievements) ○​ Efficiency: Comparing inputs to outputs. (Input VS Output) ​ Liquidity: ○​ Current Ratio = current assets/current liabilities ​ Debt ○​ Debt to Equity Ratio has considerably increased over the last two years while the Cash Ratio is showing they are less liquid with each year. ​ Efficiency ○​ Days payable why is it going down? Netflix is paying creditors faster. Using the Costco example from past classes what does that signify? ​ Ratios/Other for For-non Profits ○​ Many financial ratios that work for for-profits, do not work for non-profits. ​ i.e.Profitability ratios ○​ Solvency ratios like debt: equity or debt: assets do work for non-profits ​ Financial Statement for Non-Profits ○​ If we don’t use the financial statements of non-profits for ratios, why bother? ○​ Used for scale of operation ○​ Details of activities ○​ To measure if it is satisfying legal/regulatory constraints ​ Effectiveness of a non-profit ○​ Compares the goals to the achievements ○​ Budget goals i.e. predicted % of tickets sold vs. actual ○​ Engagement goals i.e. predicted total new subscribers on social vs. actual ○​ There is not a GAAP/IFRS for these sorts of ratios but within each industry there are some general ratios that get used ​ Efficiency of a Non-Profit ○​ Efficiency compares the relationship of inputs to outputs ○​ SMT i.e. $$ spent on social media: new followers OR video posts on social: new followers ○​ And do new followers = ticket revenue? WEEK 11: CADAC and Taxes ​ CADAC: (Canadian Arts Data) ○​ CADAC is a joint effort of arts funders ○​ Purpose: collection, dissemination, and analysis of financial and statistical information about Canadian arts organizations in a system of record. ○​ CADACは、カナダの芸術団体に関する財務・統計情報を収集、普及、分析する ことを目的とした、カナダ国内のArts Fundersの共同作業である。 ○​ Tracks financial and statistical data for arts organizations. ○​ Benefits include data consistency, reporting efficiency, and improved accountability. ​ Why use CADAC ○​ Its Benefits for Arts Organizations  ○​ Canadian Arts Organizations apply for one or more grants, and submit their financial and statistical information in a single format, to a single platform. They also have access to their own historical data and to reports on their own organization and comparative reports to all similar organizations in the database. ​ Tax System: ○​ Canada’s progressive system: Higher incomes = Higher tax rates. ​ rate of the tax vary depending on your income level and where you live. ○​ Canada allows tax deductions: charitable donations, tuition fees, medical expenses, and childcare expenses ○​ Deductions for artists: Supplies, studio costs, equipment, etc. ​ General Taxation Principles: ○​ Filing deadline ​ regular: April 30 ​ Self-employed individuals and spouses: June 15 ○​ Tax categories for Artists and Writers ​ Employed -> tax deduction for employment-related expenses (Travel, motor vehicle, instrument, office expenses) Submit from T2200 ​ Self-employed -> considered to be operating a business if activities are undertaken for profit and follow business-like behaviour WEEK 12: Key Performance Indicators (KPIs) ​ Definition: Metrics used to measure organizational success and health. ○​ For-Profit: Revenue growth, profitability, Effectiveness, Efficiency, Equity ​ Liquidity/Debt ratios like debt: equity or debt: assets do work for nonprofits ○​ Non-For-Profit: Audience engagement, diversity, innovation. ​ Categories: ○​ Access Maximization ○​ Attendance Maximization ○​ Diversity ○​ Economy Maximization ○​ Education ○​ Excellence/Quality ○​ Innovation ○​ Revenue Maximization ○​ Service Quality ○​ Social Cohesion ○​ Economic Impact ○​ Prestige ​ Questions to Assess Success: ○​ Are we meeting our goals? ○​ Are we efficiently using resources? ○​ Are we growing our audience and impact?