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Accounting. Richard J. Murdock Management Certificate Program Fisher College Of Business The Ohio State University (614) 292–1720 [email protected]. TOPICS. Key Concepts of Accounting - Baron Coburg Accounting Fundamentals Helpful Hints Accounting Information for Decision Making. - PowerPoint PPT Presentation
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Accounting
Richard J. MurdockManagement Certificate Program
Fisher College Of BusinessThe Ohio State University
(614) 292–[email protected]
TOPICS
Key Concepts of Accounting - Baron Coburg
Accounting Fundamentals Helpful Hints Accounting Information for
Decision Making
Baron Coburg
Measurement Allocations Disclosure Statements
Accounting Fundamentals Debits Credits Assets = Liabilities + Equity Balance sheet classifications
Current assets (will be used up in a year or one operating cycle)
Long-lived assets (will last longer than a year)
Accounting Fundamentals Current liabilities (must be paid within a
year) Long-term liabilities (not due within a year) Equity (residual claims of the owner: assets
– liabilities)
Revenues - amounts earned in operations
Expenses - costs incurred to earn revenues
Helpful Hints
Cash Management Get cash owed to you as soon as
possible How do you get customers/clients to pay
promptly?
Pay out cash owed at the last possible moment
Helpful Hints
You just received an invoice from one of your suppliers, Rand Company. The invoice contains the following payment terms, 2/15, n/30.
When should you pay? What is the implicit annual rate of
interest?
Helpful Hints
Balance sheet (Assets = Liabilities + Equity) is a picture at a point in time.
Ratio analysis is often used on balance sheets to assess a company’s financial health.
Helpful Hints Balance sheet (Assets = Liabilities +
Equity) is a picture at a point in time. Income statement (Revenues –
expenses) deals with a period of time.
Ratio analysis is often used on financial statements to assess a company’s financial health and operating effectiveness.
Fundamental Analysis - Leverage
Fundamental Analysis - Profitability
Fundamental Analysis - Efficiency
DuPont Model
DuPont Model
Fundamental Analysis McGraw-Hill
Selected Ratios
McGraw-Hill Industry
Profit Margin
Asset Turnover
Equity Multiplier
Return on Equity
Selected Ratios
Dun & Bradstreet Dun's financial profiles
Risk Management Association (formerly Robert Morris Associates – RMA) RMA annual statement studies
Fundamental Analysis - Liquidity
Liquidity - the company’s ability to pay its liabilities as they become due in the next operating cycle
Working Capital = Current assets – Current liabilities
Fundamental Analysis - Liquidity
Helpful Hints
Gerbill Company
Accounting & Decisions Cash flows are the lifeblood of any
company Inadequate cash flows lead to
bankruptcy The choice of projects is of
paramount importance. Variability and timing of cash flows
may be more important than the amount.
Accounting & Decisions
Offer document
Accounting & Decisions
Cost terms Direct cost – cost that can be traced
to an individual job or product Indirect cost – cost that is not
traceable to a job or product Fixed cost – cost that does not
change in total as volume changes
Accounting & Decisions
Cost terms Variable cost - cost that in total
changes as volume changes Relevant cost – cost that is helpful in
understanding or making a decision.
Cost-Volume-Profit (CVP)
To achieve a profit, you must sell enough merchandise to cover all costs variable and fixed.
The excess of selling price for a unit (USP) over the variable cost attributable to the unit (UVC) is the unit’s contribution towards covering total fixed costs (TFC) and profit.
Cost-Volume-Profit (CVP)
Unit Contribution = USP – UVC A project’s breakeven volume (BE)
is the sales volume necessary to cover all fixed costs.
BE = TFC/Unit Contribution
Cost-Volume-Profit (CVP)
The volume necessary to achieve a certain dollar amount of profit ($P) can be determined in a similar manner
(TFC + $P)/Unit Contribution
Cost-Volume-Profit (CVP)
Ice Cream Cone
Accounting & Decisions
Most smaller companies and many larger companies have too many underutilized assets.
Ownership is smart if utilization is high.
Leasing is an excellent alternative for many companies.
Lease vs. purchase
Conclusions
In Germany, everything is prohibited except what is permitted. In France, everything is permitted except what is prohibited. In Italy, everything is permitted especially what is prohibited. In Russia, everything is prohibited including what is permitted.
What does this say about the U.S.?