Financial Analysis:

1. Use risk management products to protect a businesss financial wellbeing.

a. Obtain insurance coverage (FI:082) (ON)
- In the case of any financial setback, whether they may be regarding loans,
payments, owners equity accounts, or sales, insurance will provide some sort
of compensation depending on the situation
- Taking insurance from insurance companies allows a business to be prepared
for such outcomes so that the business will not be slowed down as much
2. Acquire a foundational knowledge of accounting to understand its nature and scope.
a. Explain the concept of accounting (FI:085) (CS)
- Accounting is referred to as any kind of transactions that affect the profit,
revenue, and expenses of a business
- This strand of business collects such financial information in data sheets,
which can then be analyzed to understand the businesss financial position so
that future plans can be implemented to improve this position for the benefit of
the business
3. Implement accounting procedures to track money flow and to determine financial status.
a. Explain the nature of balance sheets (FI:093) (SP)
- Balance sheets are one of the numerous financial statements
- These financial statements refer to the financial position of the business
- Balance sheets provide information on a businesss assets on the right side of
the sheet, while giving detailed information on the businesss liabilities and its
owners equity
b. Describe the nature of income statements (FI:094) (SP)
- Income statements are another type of financial statement
- These provide information on the income and expenses accounts of a business
to show how the business is earning or spending money, and what the net
profit or loss of the business during the given fiscal period is
c. Prepare cash flow statements (FI:092) (MN)
- Cash flow statements are another kind of financial statement which focus on
the cash of a business rather than other assets
- This statement includes assets, liabilities, income, and expenses in order to
calculate the net change in cash currently owned by the business
4. Implement financial skills to obtain business credit and to control its use.
a. Explain the purposes and importance of obtaining business credit (FI:023) (ON
- Business credit is a separate type of credit which allows an owner or any
individual to withdraw and deposit certain amounts from a business account
rather than an individual account
- This will determine that the owner is not financially liable for the businesss
actions or setbacks which have caused losses in the company
b. Analyze critical banking relationships (FI:039) (ON)
- Banks are also businesses, meaning they will look forward to selling
packages which increase their revenue
- It is important for a business or individual to establish such relationships
because they help create a mutual benefit and the business is able to receive
 financial grants in the future because the bank trusts that these will be paid
back in full
c. Make critical decisions regarding acceptance of bank cards (FI:040) (ON)
- Bank cards are issued by banks to their customers, allowing them to use one or
more of the given banks services such as accessing different accounts or
giving the client access to funds
- Different banks issue cards with different interest rates and withdrawal limits,
meaning an individual may need a different bank card when compared to a
small business or a large business/corporation. Therefore, it is always
important to review all details regarding the business card before selecting that
card from your bank.
d. Determine financing needed for business operations (FI:043) (ON)
- Businesses need financing in day-to-day operations, though these are
generally received through everyday operations which generate revenue and
allow the business to run
- In general, financing is required for business operations in the production of
current and new projects, paying off any expenses (wages, utilities, etc.) and
any liabilities (loans, accounts payables, etc.)
e. Identify risks associated with obtaining business credit (FI:041) (ON)
- Business credit is a very useful tool as it helps businesses spend their cash
easily, though this also creates another asset account in the balance sheet the
bank loan/accounts payable account
- If a business or select individuals in charge of purchases for a certain
department are not careful and do not manage their finances, the business may
result in going in debt and having to close or be forced to lay off employees to
continue to function
f. Explain sources of financial assistance (FI:031) (ON)
- Personal investment is generally the first source of financial aid for a business,
especially at start-up, when the business does not generate any kind of revenue
- One can also receive money from family or friends, though this usually results
in the equity of the business being divided between others
- Banks and other financial institutes will also provide loans, though these
sources will look for some sort of interest, and will also receive assets if the
business has financial setbacks which cause the business to close down
- Finally, angel investors or venture capitalists are individuals or small groups
of people that are willing to invest in businesses or start-ups that are promising
but may have some sort of high risk
g. Explain loan evaluation criteria used by lending institutions (FI:034) (ON)
- Personal/business credit and credit score is a major factor since these
institutions need to see how trustworthy the individual/business is in payment
habits with their past and current creditors
- The institution will also be interested in the services/goods the business sells,
and how stable its sales have been in the past few years as well as the accounts
of the owner
 - The debt ratio, or the ratio between monthly payments of the debt (including a
possible new loan) and the average monthly income, is another factor which
these institutions will look at before deciding whether to give a loan
- The net value, or the owners equity of the business, is the final factor which is
considered by the institution because they need to know how much equity they
may receive and if the business will be able to pay back the loan in a certain
amount of time
h. Complete loan application package (FI:033) (ON)
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5. Manage financial resources to ensure solvency.
a. Describe the nature of cost/benefit analysis (FI:357) (MN)
- Cost benefit analysis (CBA), sometimes called benefit cost analysis (BCA), is
a systematic approach to estimating the strengths and weaknesses of
alternatives (for example in transactions, activities, functional business
requirements or project investments); it is used to determine options that
provide the best approach to achieve benefits while preserving savings.
b. Determine relationships among total revenue, marginal revenue, output, and profit
(FI:358) (MN)
- Total revenue is the total income a business generates through its sales during
a given fiscal period.
- Marginal revenue is the total income a business generates through selling one
unit of good/service. This can be seen as the price the business offers the
good/service at to a customer.
- Output is the total goods/services a business can create/provide to customers
in a given fiscal period.
- Profit, often referred to as net profit, is the sum of the money left after all
expenses are paid off. If the total revenue is greater than the total expenses,
there will be a net profit, meaning the business was successful during that
fiscal period, though this does not mean the business met its expectations. If
the total revenue is less than the total expenses, there will be a net loss,
meaning the business will lose money after the last fiscal period and will have
a worse financial position than the initial position.
c. Develop company's/department's budget (FI:099) (MN)
- It is important to determine income sources and the total income as this will
give you an idea of what money you will start off with. It is also important to
determine fixed expenses so you can determine what money you will have left
after these deductions.
- Next comes estimating your variable expenses since you need to know how
much this amount will leave you with to spend on a budget
- It is also important to consider one-time purchases such as equipment since
these can be distributed during different periods of a budget to balance it out
and make it manageable
d. Forecast sales (FI:096) (MN)
- Forecasting sales is a complicated yet definitive principal of businesses as
there are many dependant variables which need to be estimated based on
current information. Some factors that need to be taken into consideration
 include current fixed and variable expenses, sources of income, customers,
promotion strategies, changes in distribution channels, goods/services sold and
prices, etc.
e. Calculate financial ratios (FI:097) (MN)
- Financial ratios provide an insightful analysis of the financial statements and
information on a business.
- Debt-to-Equity ratio (Total liabilities/Shareholders Equity) represents the
companys financial leverage and indicates the proportion of debt and equity
used by the company to finance its assets
- Current ratio (Current assets/Current liabilities) is a liquidity ratio which
shows the ability of a company to pay back short-term obligations
- Quick ratio ((Current Assets - Inventories)/Current Liabilities) represents a
companys short term debts with its most liquid assets
- Return on Equity, or ROE (Net income/Shareholders Equity) is the amount of
net income returned as a percentage of shareholders equity. This means it
shows the amount of profit generated by a company with the money invested
by shareholders
- Net Profit Margin (Net Profit/Net Sales) indicates the efficiency of a company
at its cost control and its ability to convert its revenue into actual profit
f. Interpret financial statements (FI:102) (MN)
- Utilize given financial ratios and stated financial statements to interpret the
financial position of a company. Though there are only five given financial
ratios, these are the most common and there are many more existing ratios that
can give a better insight in the businesss operations
g. File business tax returns (FI:652) (ON)
- Income Tax: All businesses except for partnerships must file an annual income
tax. This tax rate is dependent on the income of the business the higher the
income, the higher the income tax.
- Self-Employment Tax: A tax paid by owners for owning the business and
granting themselves the authority to pay themselves.
- Employment Taxes: As an employer, an owner will need to pay taxes for the
employees regarding social security, medicare taxes, federal income tax, and
federal unemployment tax
h. Verify the accuracy of business financial records (FI:653) (ON)
- Checking over with all source documents to ensure that all transactions have
been recorded
- Determine that all transactions have been recorded in the correct section of a
financial statement
- Hire auditors to determine that all recorded information is correct and accurate
- Follow all GAAP principles to ensure that all financial information is correct,
ethical, and fair