BU121 Study Guide - Midterm Guide: Cash Flow Statement, Cash Flow, Accounts Payable

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2 Mar 2013
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BU121 Midterm Review (SI)
Using a balance sheet, how can a company that is profitable go bankrupt?
look @ accounts receivable (all of the sales that you made that are on credit). It shows as profit to the
company but you don’t have the cash yet
look @ accounts payable (all of the expenses that you haven’t paid off yet, so it can show as
‘profitable’ but wont be when you pay them off)
Impact on cash activities on cash flows
*selling $2000 of goods on account
no change! Youre selling it using accounts receivable. They wont pay you until later
*in April there was 10k of goods sold w. 10% being paid in cash, 40% on credit due in the next mths, and
50% on credit due in 2 mths. What is the impact on the cash flow statement in May?
increase in cash flow
*in April you purchased a piece of equip for $15k on credit. 10% due the month of purchase, 60% due
the following mth and remaining due the next mth after that. Whats the impact on the cash flow
statement in july?
it’ll depreciate so there will be no change in the cash flow statement.. its not a cash item
Statement of Cash Flows
Operating Activities:
o Start with net income
o Add back depreciation/amortization
Receivables
Inventory
Payables
Account liabilities
Investing Activities
o Gross fixed assets
Financing Activities
o Loans
o Stock
o Cash dividends
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Contribution Margin and Rate
Your product sells for $20/each. It costs your company $5k annually to build this product and $15 in
variable costs per unit. In 2011 your product earned $50k in revenue. Determine the following
calculations and their impact on your investors:
Contribution margin (you want them to be bigger but as long as your price per unit > VC then
youre still making $$ but its not taking into account your fixed costs)
Contribution rate
Contribution margin = price per unit variable cost
= $20 - $15 = $5
Contribution rate = (price per unit VC) DIVIDED BY price per unit
= $5 / $20
= 0.25
Calculate Breakeven
Your product sells for $20/each. It costs your company $50k to produce the product and $15 in VC per
unit. In 2011 your product earned $50k in revenue. (same example except it costs 50k instead of 5k)
Breakeven volume = CFC / (price VC)
= 50k / (20 15) = 10k.
Aka you have to sell 10k units to breakeven. If you sell less, youre operating at a loss.
Note- CFC is cash fixed costs aka fixed costs.
Graphically see where the two lines intersect. ((look up which lines they are and whats on the x/y
axis)). Below the POI, operating at a loss. Above the POI, operating at a profit. IE:
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Document Summary

Look @ accounts receivable (all of the sales that you made that are on credit). It shows as profit to the company but you don"t have the cash yet. Look @ accounts payable (all of the expenses that you haven"t paid off yet, so it can show as. Profitable" but wont be when you pay them off) *in april there was 10k of goods sold w. 10% being paid in cash, 40% on credit due in the next mths, and. *in april you purchased a piece of equip for k on credit. 10% due the month of purchase, 60% due the following mth and remaining due the next mth after that. It"ll depreciate so there will be no change in the cash flow statement its not a cash item. Operating activities: start with net income, add back depreciation/amortization. Financing activities: loans, stock, cash dividends. Determine the following calculations and their impact on your investors:

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