G12 2nd Quarter Reviewer (3) PDF

_________________________ You calculate net cash flow by adding COMPONENTS AND STRUCTURES up all cash received and then OF CASH FLOW STATEMENT (CFS) subtracting all cash paid. CASH FLOW STATEMENT...

_________________________ You calculate net cash flow by adding COMPONENTS AND STRUCTURES up all cash received and then OF CASH FLOW STATEMENT (CFS) subtracting all cash paid. CASH FLOW STATEMENT FABM 12 - 2Q REVIEWER - a formal statement that provides (Direct) Cash Flow Statement information about the cash receipts (inflows) and cash payments (outflows) - Indirect Approach: of an entity from operating, investing, This method starts with the and financing activities during the company's profit (or net income) and period. makes adjustments for non-cash transactions (like depreciation) and (3) MAJOR PARTS OF CFS changes in working capital (like - Operating Activities (REVENUE): inventory and accounts payable) to Generally the cash effects of find the cash generated from transactions and other events that operating activities. enter into the determination of profit or loss. ​ _________________________ - Investing Activities (ASSETS): DEFINE THE MEASUREMENT Include making and collecting loans, LEVELS, NAMELY, LIQUIDITY, activities like acquiring and disposing SOLVENCY, STABILITY, AND investments in debt or equity PROFITABILITY. securities and obtaining and selling of property and equipment. (4) MOST COMMON RATIOS - Financing Activities (EQUITY): - Liquidity Net amount of funding a company - Solvency generates a given period of time to - Stability finance, its business usually include - Profitability obtaining resources from owners and creditors. LIQUIDITY - The company’s ability to pay debts (2) APPROACHES OF CFS that are coming due/short term debt. - Direct Approach: 1. Current Ratio This method lists the actual cash 2. Quick Ratio inflows and outflows from operating 3. Working Capital Ratio activities, like cash received from customers and cash paid to suppliers. CURRENT RATIO - The ratio of current assets to current liabilities, meaning the firm’s ability to pay its current debt. Quick Assets: - Cash Current Assets: - Cash Equivalents - Cash - Short-term Investments - AR - Current AR - Merchandise Inventory - Investments * QR = 1 (Quick Ratio equal to 1) - Prepaid Expenses The business has exactly enough liquid assets to cover its current liabilities. * CR = 1 (Current Ratio equal to 1) The business has exactly enough current * QR > 1 (Quick Ratio is Greater than 1) assets to cover its current liabilities. The business has more quick assets than liabilities. * CR > 1 (Current Ratio is Greater than 1) The business has more current assets * QR < 1 (Quick Ratio is Less than 1) than liabilities. The business does not have enough quick assets to cover its current * CR < 1 (Current Ratio is Less than 1) liabilities. The business does not have enough assets to cover its current liabilities. WORKING CAPITAL RATIO - Pertains to the business’ ability to QUICK RATIO pay its current liabilities with the use - ACID TEST RATIO of its current assets. - A stricter measure of liquidity. It does not consider all the current assets, only those that are easier to liquidate. Quick assets are current assets that can be converted to cash within 90 days or shorter period. * ALL CURRENTS EQUITY RATIO Assets INC (+) Working INC (+) - It pertains to the ratio of the business Capital assets that are financed by capital. A high ratio shows a high level of Assets DEC (-) Working DEC (-) Capital capital. Liabilities INC (+) Working DEC (-) Capital Liabilities DEC (-) Working INC (+) Capital * ER > 0.50 (Equity Ratio Greater than 0.50) Showing stronger reliance on equity SOLVENCY rather than debt for asset financing. - Pertains to the company’s capacity to pay long term debts or liabilities. STABILITY DEBT TO ASSET RATIO - It is the long-term counterpart of - It pertains to the ratio of total debt liquidity or the company’s ability to to total assets. It shows a company’s be structurally firm and can support ability to pay off its liabilities with its its long-term debts by its equity. assets. DEBT TO EQUITY RATIO - It pertains to the ratio of total debt to owner’s equity/shareholder’s * DTAR < 50% (Debt to Asset Ratio Less equity. than 50%) It suggests better solvency. DEBT TO EQUITY RATIO - It pertains to the ratio of total debt INTEREST COVER RATIO to owner’s equity/shareholder’s - It shows how many times a business’s equity. interest expense on its loans/credits are covered by its operating profit. The higher multiple the better. * DTER < 1.0 (Debt to Equity Ratio Less than 1.0 Generally considered good. PROFITABILITY NET INCOME MARGIN RATIO - The company’s ability to convert its - PROFIT MARGIN RATIO sales into cash flow and profit. - It is the ratio of net income margin to sales GROSS MARGIN RATIO - It measures how much net profit is - It is the ratio of gross profit to sales produced at a certain level of sales. or or OPERATING MARGIN RATIO - It is the ratio of operating profits to sales. or _________________________ 2. VERTICAL ANALYSIS VERTICAL AND HORIZONTAL - Compares the relationship ANALYSES OF FINANCIAL between each line item of the STATEMENTS financial statements in one given period. - It helps the management to FINANCIAL STATEMENT (FS) analyze the components of the ANALYSIS total assets as well as total - The process of evaluating risks, liabilities and owner’s equity. performance, financial health, and future prospects of a business by subjecting financial statement data to computational and analytical techniques with the objective of making economic decisions. TOTAL ASSETS (2) TYPES OF FS ANALYSIS - Represent the company's 1. HORIZONTAL ANALYSIS resources, including cash, accounts - Evaluates financial statement receivable, inventory, and fixed data over a period of time. assets. - Trend Analysis ANALYZING NET SALES - Net Sales represent the total revenue generated by a company after deducting sales returns, discounts, and allowances. – BASE AMOUNTS: SFP: Total Assets SCI: Net Sales _________________________ interest rates than saving DIFFERENT KINDS OF BANK accounts. ACCOUNTS TIME DEPOSITS SAVINGS ACCOUNT 1. Fixed Interest Rates 1. Safekeeping - Time deposits offer a fixed - Savings accounts offer a secure interest rate for the way to store money while agreed-upon duration of the earning a modest interest rate. investment, typically higher 2. Minimum Balance than savings accounts. - Some savings accounts may 2. Maturity Period have a minimum balance - The depositor agrees not to requirement to earn interest or withdraw the funds before the avoid fees. maturity date, ensuring a 3. Passbook stable investment. - Serves as a physical record of 3. Certificate of Deposit transactions for a savings - A CD serves as a formal account, including deposits, document evidencing the time withdrawals, and interest deposit and its terms, earnings. including the maturity date 4. ATM Cards and interest rate. - Allow account holders to withdraw funds from ATMs and make transactions at various establishments. CHECKING OR CURRENT ACCOUNTS 1. Checks - Offer a secure and traceable method of payment, providing control over funds disbursement. 2. Interests - Due to the frequent nature of transactions, checking accounts typically earn lower