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Financial management block 3 - Coggle Diagram
Financial management block 3
Different terms
Income statement
Sales
Costs
= The financial position of a company :black_flag:
Profit/loss :explode:
Cashflow statement
Revenue
Liabilities
Assets
= The receipts and expenditures of a company during a period :black_flag:
Can I pay my bills? :explode:
Expenditures
Balance sheet
Assets
Liabilities
What are my possesions?
How is my business funded?
Interrelation
ratio analysis
leads to opinion
Profitability
Solvency
Liquidity
Trial test
= a test to see if the debit and credit have been put on the right side and the
balance sheet
is indeed in balance
With legal entity
BV
Taxes :lock:
corporate tax
LLC (BV)
registered shares
PLC
NV
Shares in stock market
Taxes
Corporate tax (vennootsschap belasting)
In case of bankrupcy, the owner is not responsible for repaying debts that the company has :star:
However, the equity that the company has will be used to pay back loans (liability)
In what order?
Without legal entitiy
Sole proprietorship (ZZP)
Has to rely on himself with all the financing and is responsible no to go bankrupt because his business finance is directly linked to his personal finance
puts in
Equity
himself
Gets
liability
from others in the form of a loan
Bank :pencil2:
Taxes :lock:
Income tax
turnover tax (VAT)
General partnership (GP) (Vof)
There is the option forr a
partnership contract
which clarifies the roles and is usually put up by a notary
Same taxes
Subdivision of economics
Micro
Decisions on a company level
Meso
Specifric business sector
Macro
The entire country
Companies
= a party that produces and/or provides goods and/or services
Trading
Supermarkets :pencil2:
Production
Agrictulture or mining :pencil2:
Service
Financial institution, hospitality and tourism :pencil2:
Balance sheet
Function
To showcase the statement of financial position at a specific point in time
It is by definition in balance :black_flag:
Assets = Liability + equity
Includes
What the ccompany owns
Assets
Fixed
Long time > 1 year
Building :pencil2:
= Tangible
Car :pencil2:
Goodwill
the name of the company
= intangible
Research
Licences
Spending on fixed assets is called an
investment
:star:
The losing of value is
depreciation
:red_flag:
current
<1 year
Inventory :pencil2:
Cash :pencil2:
There is no depreciation because it is not expected to be in the company for longer then one year :red_flag:
A clothing winter collection will not sell in the summer :pencil2:
Receivables
Prepaid amounnts
Secuirity :!:
Order
Start with things that have been in there for a long time
Fixed assets
Tangible
Intangible
current assets
And what the company owes
Liabilities
made availlable by creditors
Non-current
More than 1 year
Leasse
Provisions
Loans
Either family or business
Current
< 1 year
Payables
Amounts received in advance
Tax
VAT
bank overdraft
When your bank account goes below zero
Are considered risk avoiding
If you go bankrupt, you don't own this part of the company so the bank can't take it :lock: :star:
The bank sells pieces of the company's property untill the share holders' stake is repayed :black_flag:
The part that you own loses it's value :warning:
Equity
Personal capital in company
Capital of shareholders
Equity reconcilation
how much the entrepeneur(s) have withdrawn / deposited from the balance
Is the same as the outcome of income statement :black_flag:
Streams of money
Debit :smiley:
Debtors
Money still to be received
Assets
Credit :red_flag:
Creditors
Business plan
Business plan
Strategie of sales and profit
Includes financial plan
Created for the benefit of potential investors :star:
Or bank
But also to gain clarity on possibilities
Financing plan
Consists of
Fixed assets
Current assets
Investment
Financed by
Liabilities
Financing gap
Investtement plan
Only lists items that will be present forr > 1 year :check:
Together with
Financing plan
it forms the
opening balance
of a business
Operating budgedt
Functions much like
income statement
But it's an estimate made ahead of time
Expected revenues
expected expenses
Cash flow budget
expected receivings
expected expenditures
Expected closing balance sheet
To borrow money
Parties who lend money (lenders) wish to run as little risk as possible (or compensate high risk by charging a higher interest rate). Therefore, they often ask for so-called
securities
. Such a security is used as collateral. If the entrepreneur is not able to pay back the loan, the lender sells the
collateral
to retrieve the money.
right of pledge
lender has the right to sell the building
Ratio analysis
Compare ratio's with
Are the company's own goals being met
Competitors
Prior years
Types of ratios
Liquidity
Can they meet their short-term payment obligations?
liquid
"geld stroomt gemakkelij en snel net als water"
cash flow budget
showcases
dynamic liquidity
Current ratio
current assets / current liabilities
quick ratio
(acid-test)
(current assets - stock) / current liabilities
Net working capital
shows the difference between a company's current assets and current liabilities,
Static liquidity
Looks at short term payment obligation
current assets
current liabilities
Dynamic
measures as time passes
This shows per period—for instance per quarter, month or year—whether the incoming and outgoing cash flows can be fulfilled
Obsolete inventory
an asset that won't be possible to sell due to a lack in demand
worthless based on perspective :warning:
Profitability
Shows links for investments and the return that these could yield
Liabilities are always loans :green_cross:
Where's investors are on the side of equity :fire:
return on assets
(ROA)
Shows how much an investment of €1 will return to stakeholder
ROA = operating result (profit/loss before taxes and interest) / average total assets
cost of debt
COD = interest expenses / average total liabilities
Calculates how much it costs to have liabilities
Return on equity
ROE
Profitability of equity
Before taxes
Profit before taxes / total equity
After taxes
Profit after taxes / total equity
Should be higher than ROA :fire:
=
financial leverage effect
Geld werkt voor jou als ondernemer, je bent machtiger dan beleggers van buitenaf
Return on assets - Average cost of debt
Should be more than 0
Financial leverage ratio
determines to what extent the owner or shareholders can benefit from the profit that is made with the liabilities.
ROE before taxes = ROA + (ROA - COD) * (liabilities / equity)
ROE before taxes = ROA + Financial leverage effect
Financial leverage effect = ROA - COD * (liabilities / equity)
Risks
business risk
operating activities are uncertain :warning:
Financial risk
The low profit (or even loss) that is made is spent on interest costs
interest margin
ROA-COD
Activity
Solvency ratio
equity / total assets
Shows wehter a business can pays it's debts in case of a bankruptcy :green_cross:
gurantueed capital
equity + possible subordinated loans
Liabilties are paid back first
Capital will meet its obligations
Debt ratio
liabilities / total assets
What is considered average debt?
Al liabilities :black_flag:
Solvency ratio
equity / total assets
Interest coverage ratio
operating reslut (profit before interest and taxes) / interest expenses
interest coverage ratio
Standards
Learn these by heart :!:
Current
1.5
Quick
1.0
Debt
< 0.75
Solvency
0.25
Debt