CH.1-4 ANALYSIS FOR FINANCIAL MANAGEMENT QUESTIONS AND ANSWERS

CH.1-4 ANALYSIS FOR FINANCIAL MANAGEMENT
QUESTIONS AND ANSWERS 2024- 2025

Summary;,Part,1,

Assessing,the,Financial,Health,of,the,Firm,,,ANS,--
,part,1,looks,at,the,use,of,accounting,information,to,assess,financial,health

-,looks,at,accounting,principles,important,when,discussing,financial,statements

-,looks,at,how,to,determine,profitability

-,looks,at,measures,for,financial,performance

-,lastly,,looks,into,ratio,analysis



Summary;,Part,2

Planning,Future,Financial,Performance,,,ANS,-TBA



Summary;,Part,1

Chapter,1

Interpreting,Financial,Statements,,,ANS,-TBA



Working,Capital,Cycle,,,ANS,-
Can,also,mean,the,"operating,cycle".,It,describes,the,process,in,which,cash,gets,transformed,into,a,produ
ct,(inventory),and,then,through,sale,back,into,cash,(or,more,likely,first,accounts,receivables,and,then,eve
ntually,cash).



Investment,Cycle,,,ANS,-
This,is,the,cycle,which,describes,the,investment,in,fixed,assets,which,while,producing,the,products,to,be,
sold,both,generate,wealth,for,the,firm,but,also,loose,value,with,continues,time,and,use,(loss,of,value,is,c
alled,depreciation).,New,investments,in,new,physical,assets,need,to,be,made,periodically,to,respond,to,d
eprecitation.



Depreciation,,,ANS,-
Over,a,period,of,time,,the,company's,fixed,assets,are,consumed,,or,worn,out,,in,the,creation,of,products.
,It,is,as,though,every,item,passing,through,the,business,takes,with,it,a,small,portion,of,the,value,of,fixed,a
ssets.,The,accountant,recognizes,this,process,by,continually,reducing,the,accounting,value,of,fixed,assets

, ,and,increasing,the,value,of,merchandise,flowing,into,inventory,by,an,amount,known,as,depreciation.,To,
maintain,productive,capacity,and,to,finance,additional,growth,,the,company,must,invest,part,of,its,newly
,received,cash,in,new,fixed,assets.



Cash,Flow,Production,Cycle,,,ANS,-
Is,the,combination,of,the,Working,Capital,Cycle,and,the,Investment,Cycle.,The,object,of,this,whole,exerci
se,,of,course,,is,to,ensure,that,the,cash,returning,from,the,working,capital,cycle,and,the,investment,cycle
,exceeds,the,amount,that,started,the,journey.



Financial,Statments,,,ANS,-
consisting,principally,of,a,balance,sheet,,an,income,statement,,and,a,cash,flow,statement.



Balance,Sheet,,,ANS,-
A,balance,sheet,is,a,financial,snapshot,,taken,at,a,point,in,time,,of,all,the,assets,the,company,owns,and,al
l,the,claims,against,those,assets.,The,basic,relationship,,and,indeed,the,foundation,for,all,of,accounting,,i
s



Assets,=,Liabilities,+,Shareholders',equity



Liability,,,ANS,-a,liability,is,simply,an,obligation,to,deliver,something,of,value,in,the,future—
or,more,colloquially,,some,form,of,an,"IOU."



Shareholders',equity,,,ANS,-
Having,thus,totalled,up,what,the,company,owns,and,what,it,owes,,the,accountants,call,the,difference,be
tween,the,two,shareholders',equity.,Shareholders',equity,is,the,accountant's,estimate,of,the,value,of,the,
shareholders',investment,in,the,firm,just,as,the,value,of,a,homeowner's,equity,is,the,value,of,the,home,(t
he,asset),,less,the,mortgage,outstanding,against,it,(the,liability).,Shareholders',equity,is,also,known,vario
usly,as,owners',equity,,stockholders',equity,,net,worth,,or,simply,equity.



Assets,and,Liabilities,on,the,BS,,,ANS,-
By,convention,,U.S.,accountants,list,assets,and,liabilities,on,the,balance,sheet,in,order,of,decreasing,liqui
dity,,where,liquidity,refers,to,the,speed,with,which,an,item,can,be,converted,to,cash.,Thus,among,assets,
cash,,marketable,securities,,and,accounts,receivable,appear,at,the,top,,while,land,,plant,,and,equipment,
are,toward,the,bottom.,Similarly,on,the,liabilities,side,,short-
term,loans,and,accounts,payable,are,toward,the,top,,while,shareholders',equity,is,at,the,bottom.