
What is a balance sheet used for?
It provides a snapshot of a business's finacial position, estimating it's worh on a given date; it is built on the fundamental accounting equation: Assets = Liabilities + Owner's Equity

Current Assets
Assets such as cash and other items to be converted into cash within one year, or within a company's normal operating cycle are.

Fixed Assets
Assets acquired for longterm use in a business.

Liabilities
Creditors' claims against a company's assets.

Current Liabilities
Those debts that must be paid within one year or within the normal operating cycle of a company.

Longterm Liabilities
Liabilities that come due after one year.

Owner's equity
The value of the owner's investment ina business.

Income statement (profit and Loss statement or "P&L"
A finacial statement that represents a moving picture of a business, comparing its expenses agains it's revenue over a period of time to show its net profit (or loss)

Cost of goods sold
The total cost, including shipping, of the merchandise sold during an accounting period.

Gross Profit Margin
Gross profit divided by net sales revenue

Operating Expenses
Those costs that contribute directly to the manufacture and distribution of goods.

Statement of cash flows
A financial statement showing the changes ina company's working capital from the beginning of the year by listing both the sources and the uses of those funds.

Liquidity Ratios
Tell whether a small business will be able to meet its shortterm obligations as they come due.

Current Ratio
Measures a small firm's solvency by indicating its ability to pay current liabilities out of current assets.

Quick Ratio
A conservative measure of a firm's liquidity, measuring the extent to which its most liquid assets cover current liabilities.

The 2 Liquidity Ratios
Current Ratio and Quick Ratio

Leverage Ratios
Measure the financing supplied by a firm's owners agains that supplied by its creditors; they are a gauge of the depth of a company's debt.

Debt Ratio
Measures the percentage of total assets financed by a company's creditors compared to its owners.

Debt to Net Worth Ratio (or debt to equity ratio)
The relationship between the capital contributions from creditors and those from woners. It measures how highly leveraged a company is.

Times Interest Earned Ratio
Measures a small firm's ability to make the interest payments on its debt.

The 3 Leverage Ratios
Debt Ratio, Debt to Net Worth Ratio(or debt to equity), and Times Interest Earned Ratio

Operating Ratios
Help an entrepreneur evaluate a small company's overall performance and indicate how effectively the business employs its resources.

Average Inventory Turnover Ratio
Measures the number of times its average inventory is sold out, or turned over, during an accounting period.

Average Collection Period Ratio
Measures the number of days it takes to collect accounts receivable.

Average Payable Period Ratio
Measures the number of days it takes a company to pay its accounts payable.

Net Sales to Totals Assets Ratio (total asset turnover)
Measures a company's ability to generate sales in relation to its asset base.

Four Operating Ratios
Average Inventory Turnover, Average Collection Period, Average Payable Period, and Net Sales to Total Assets.

Profitability Ratios
Indicate how efficiently a small company is being managed.

Net Profit on Sales Ratios
Measures a company's profit per dollar of sales.

Net Profit to Assets Ratio (or return on assets)
A ratio that tells how much profit a company generates for each dollar of assets that it owns.

Net Profit to Equity Ratio
Measures the owners rate of return on investment.

3 Profitability Ratios
Net Profit on Sales, Net Profit to Assets, and Net Profit to Equity

Critical Numbers
Indicators that measure key financial and operation aspects of a company's performance; when these number are moving in th right direction, a business is on track to reach its objectives.

Break Even Point
The level of operation (sales dollars or production quantity) at which a company neither earns a profit nor incurs a loss.

Fixed Expenses
Expenses that do not vary with changes in the volume of sales or production

Variable Expenses
Expenses that vary directly with changes in the volume of sales or production.

