DECA ENTREPRENEURSHIP Financial
Analysis KPI's with complete solutions
KPI: Obtain insurance coverage. - correct answer ✔✔Risks can be managed by
transferring the loss to another business or party. Risk transfer methods include
purchasing insurance and, for the sole proprietor, transferring risk through
business ownership alternatives.
An insurance policy is a contract between a business and an insurance company to
cover a specific business risk. The two most common forms of insurance desired
are property insurance and liability insurance. Below are common types of
business insurance.
Professional Liability Insurance: Known as E&O (errors and omissions) insurance
which does not fit into a one-size-fits-all policy. Individual industries set their own
concerns which are addressed in a customized policy written for that particular
business. The insurance covers a business against negligence claims due to harm
which result from mistakes or performance failures.
Property Insurance: Essential for all business, whether the owner owns, rents or
leases their business space. Policies are written to cover the business' equipment,
signage, inventory and/or furniture due to accidents, fires, theft or certain storms.
Unfortunately, mass-destruction events like floods and earthquakes are generally
not covered under standard property insurance policies. Businesses which are
prone to these types of issues must, check with their insurer to price and obtain a
separate policy.
Workers' Compensation: Businesses who hire employees should purchase
Workers' Compensation (WC) insurance. WC policies protect the businesses
should an employee need medical treatment, become disabled or die due to the
result of their working with the business.
,Unfortunately accidents happen; even if employees are performing seemingly
low-risk work, slip-and-fall injuries or medical conditions such as carpal tunnel
syndrome could result in the business having a pricey insurance claim
KPI: Explain the concept of accounting. - correct answer ✔✔Accounting is the
language of business; it provides information to managers, owners, investors,
government agencies, and others inside and outside the organization. Accounting
defined is a system that measures the business's activities in financial terms,
provides written reports and financial statements about those activities, and
communicates these reports to decision makers and others. The accounting
process performs the following functions:
Analyzing: reviewing what occurred and how the business was affected.
Recording: putting the information into the accounting system.
Classifying: grouping all the same activities (e.g., all purchases) together.
Summarizing: totaling the results.
Reporting: issuing the statements to tell the results of the previous functions.
Interpreting: examine the statements to determine correlation.
Communication: providing reports and financial statements as needed and
required.
KPI: Explain the nature of balance sheets.
KPI: Describe the nature of income statements.
KPI: Prepare cash flow statements. - correct answer ✔✔Balance SheetA financial
statement that summarizes the company's assets, liabilities, and owner's equity at
a specific point in time.
The balance sheet is based on the following equation: Assets = Liabilities +
Owner's Equity.
, Assets are cash or property owned by a company or individual regarded as having
value.Current assets; cash or other holdings which are liquidFixed assets; not
liquid e.g. property, buildings, furniture, etc.
Liabilities are a company's financial debt or obligations that arise during the
course of its business operations.Short-term liabilities; due within one year, e.g.
accounts payable and taxesLong-term liabilities; due after one year, e.g. can
include long term bank loans or notes payable to stockholders
Owner's equity is the owner's investment in the company minus any withdrawals
plus the business net income.
Income or Profit and Loss Statement Reports a company's financial performance
over a specific period of time. The period may be as short as a month or as long as
one year.
The income statement provides information concerning the company's ability - or
lack thereof - to generate profit by increasing revenue, reducing costs, or both.
Important aspect of the statement is the calculation of net profit .While gross
profit equals the Total Sales - Cost of Goods Sold (COGS), net profit calculates the
company's total sales minus its total expenses (not just the COGS).Net Profit
Equation: Gross Profit - Total Operating Expenses = Net Profit/Loss
Cash Flow StatementThis financial statement provides data regarding all cash
inflow a company receives as well as all cash outflow for a given period, typically a
quarter.
Cash flow may be from one of three general sources: Operations, Investing, and
Financing
Examples of cash inflow sources: cash sales, accounts receivable, loans,
investments, etc.
Analysis KPI's with complete solutions
KPI: Obtain insurance coverage. - correct answer ✔✔Risks can be managed by
transferring the loss to another business or party. Risk transfer methods include
purchasing insurance and, for the sole proprietor, transferring risk through
business ownership alternatives.
An insurance policy is a contract between a business and an insurance company to
cover a specific business risk. The two most common forms of insurance desired
are property insurance and liability insurance. Below are common types of
business insurance.
Professional Liability Insurance: Known as E&O (errors and omissions) insurance
which does not fit into a one-size-fits-all policy. Individual industries set their own
concerns which are addressed in a customized policy written for that particular
business. The insurance covers a business against negligence claims due to harm
which result from mistakes or performance failures.
Property Insurance: Essential for all business, whether the owner owns, rents or
leases their business space. Policies are written to cover the business' equipment,
signage, inventory and/or furniture due to accidents, fires, theft or certain storms.
Unfortunately, mass-destruction events like floods and earthquakes are generally
not covered under standard property insurance policies. Businesses which are
prone to these types of issues must, check with their insurer to price and obtain a
separate policy.
Workers' Compensation: Businesses who hire employees should purchase
Workers' Compensation (WC) insurance. WC policies protect the businesses
should an employee need medical treatment, become disabled or die due to the
result of their working with the business.
,Unfortunately accidents happen; even if employees are performing seemingly
low-risk work, slip-and-fall injuries or medical conditions such as carpal tunnel
syndrome could result in the business having a pricey insurance claim
KPI: Explain the concept of accounting. - correct answer ✔✔Accounting is the
language of business; it provides information to managers, owners, investors,
government agencies, and others inside and outside the organization. Accounting
defined is a system that measures the business's activities in financial terms,
provides written reports and financial statements about those activities, and
communicates these reports to decision makers and others. The accounting
process performs the following functions:
Analyzing: reviewing what occurred and how the business was affected.
Recording: putting the information into the accounting system.
Classifying: grouping all the same activities (e.g., all purchases) together.
Summarizing: totaling the results.
Reporting: issuing the statements to tell the results of the previous functions.
Interpreting: examine the statements to determine correlation.
Communication: providing reports and financial statements as needed and
required.
KPI: Explain the nature of balance sheets.
KPI: Describe the nature of income statements.
KPI: Prepare cash flow statements. - correct answer ✔✔Balance SheetA financial
statement that summarizes the company's assets, liabilities, and owner's equity at
a specific point in time.
The balance sheet is based on the following equation: Assets = Liabilities +
Owner's Equity.
, Assets are cash or property owned by a company or individual regarded as having
value.Current assets; cash or other holdings which are liquidFixed assets; not
liquid e.g. property, buildings, furniture, etc.
Liabilities are a company's financial debt or obligations that arise during the
course of its business operations.Short-term liabilities; due within one year, e.g.
accounts payable and taxesLong-term liabilities; due after one year, e.g. can
include long term bank loans or notes payable to stockholders
Owner's equity is the owner's investment in the company minus any withdrawals
plus the business net income.
Income or Profit and Loss Statement Reports a company's financial performance
over a specific period of time. The period may be as short as a month or as long as
one year.
The income statement provides information concerning the company's ability - or
lack thereof - to generate profit by increasing revenue, reducing costs, or both.
Important aspect of the statement is the calculation of net profit .While gross
profit equals the Total Sales - Cost of Goods Sold (COGS), net profit calculates the
company's total sales minus its total expenses (not just the COGS).Net Profit
Equation: Gross Profit - Total Operating Expenses = Net Profit/Loss
Cash Flow StatementThis financial statement provides data regarding all cash
inflow a company receives as well as all cash outflow for a given period, typically a
quarter.
Cash flow may be from one of three general sources: Operations, Investing, and
Financing
Examples of cash inflow sources: cash sales, accounts receivable, loans,
investments, etc.
