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Midterm Review.docx

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Queen's University
COMM 200

Midterm Review CASH FLOW CALCULATION- Figure 14.12 Net Income + Operational Activities + Investing Activities + Financing Activities = Cash Position EARNINGS PER SHARE (EPS) EPS = Net Income # of Shares Outstanding - Reflects the return that individual investors would recognize for each share of stock that they owned. RETURN ON SALES (ROS) ROS = Net Income Net Sales - Identifies to managers the percentage of sales the company has generated that actually represent profit (net income) for the business GROSS PROFIT MARGIN - Is the difference between the total revenue that an organization receives and the direct expenses it incurs. Gross profit margin represents the amount of money left over from the sale of the organization’s products and/or services, which can then be used to cover other business expenses and meet profit objectives. Revenue – Product Costs – Material Costs – Labour Costs – Distribution & Packing Costs = GPM QUICK RATIO Quick Ratio = Cash + Marketable Securities + AR Current Liabilities - Concerned with current liquidity position - Removes from the current ratio those assets that are not easily converted into cash immediately and therefore would take time to generate cash from in the event of a need for immediate cash resources CURRENT RATIO Current Ratio = Current Assets Current Liabilities - Used in measuring the solvency and liquidity position of an organization - Current assets are those assets that represent cash, near cash, or items that can be converted to cash in the short term - Current liabilities are the financial obligations the organization must meet in the short term DEBT TO ASSET RATIO Debt to Asset Ratio = Total Liabilities Total Assets - Let’s managers and analysts know how much of the asset base of the organization has been created via debt financing - Identifies the amount of financial leverage the organization has assumed in order to build the company DEBT TO EQUITY RATIO Debt to Equity Ratio = Total Liabilities Total Equity - Assesses the relationship between the amount of debt that has been taken on by an organization and the value of the equity position of its investors - Means that in building its asset base, co. utilized $____ of debt financing for each $1.00 of capital provided by investors Revenue – Expenses = Profit I/E ANALYSIS - Assesses business risks and change in four key areas: macroeconomic, industry, competitor, and company - External: focuses on understanding what is influencing markets today and what will influence them going forward; it is an assessment by management of the magnitude of change that is occurring within a given market arena and what shift in business risk has occurred, or will occur, as a result of such changes o PESTEL- guides us in developing an understanding of the macro-economic environment- political, economic, societal, technological, environmental, legal trends that can or will impact the markets within which an organization competes o Porter’s Five Forces- guides us in understanding the dynamics of the industry within which we compete: 1. Intensity of rivalry within the industry 2. Threat of new entrants into the industry 3. Threat of new product/serve substitutes within the industry 4. Power or control of suppliers within the industry 5. Power or control of buyers within the industry o SWOT- Strengths, weaknesses, opportunities, threats; sizes up the competition CASH FLOW Net Income + Operational Activities + Investing Activities + Financing Activities = Cash Position BUSINESS PLANNING CYCLE - Developing a business plan which outlines the organization’s focus and methodology for using its resources to create valuable products and services that will create a unique position in the marketplace - Each planning cycle is designed to direct the positioning of the company within the marketplace, orchestrate the creation of a business plan that will achieve the objectives formulated for the planning period, ensure linkage with the vision and mission of the organization, and develop the required operational tactics that will ensure the plan is executed in a fashion that leads to growth and profitability PROFIT vs PROFITABILITY - Profit = the “bottom line” result an organization has realized for an identified, immediate period of time - Profitability = measures how well a company is u
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