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Exam Summary Financial Management 2, FM2, AMSIB
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Summary chapters 3-4-5-10-15 | Principles of Managerial Finance, Global Edition, ISBN: 9781292018201 Financial Management 2 (2060FM2_19)
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FIN3701 Exam Memo June 2019
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Financial Management 2Week 1 (Chapter 3: Financial Statements and Ratio Analysis)
The four financial statements:
1. Income Statement (provides a financial summary of the firms operating
results during a specified period)
2. Balance Sheet
3. Statement of Retained Earnings
4. Statement of Cash Flows (discussed in chapter 2)
*EBIT= Earnings before interest and tax (Operating profits)
*Accounts payable= the payment of money to a supplier
Notes payable= a promise to pay someone money (a loan)
Income statement:
+Sales
-COGS
-Operating expenses
-TAX
= Net profit after tax
*Sole proprietor of a business’ salaries= withdrawals (does NOT count as a salary
expense)
*Financial performance is relative; The assets employed to generate these sales and
profits need to be taken into account for a comprehensive explanation of financial
performance!
Balance sheet:
+Total current assets (Cash, accounts receivable, inventories, land, machinery etc)
-Liabilities (current: notes payable, accruals etc; long term debt)
= Stockholder’s equity
EQUITY= COMMON STOCK + RETAINED EARNINGS
Current assets = can be converted in cash a relatively short amount of time (1
business cycle = 1 year) marketable securities, accounts receivable, inventories
Statement of retained earnings (links income statement to the balance sheet)
, Week 2 (Chapter 3: Ratio Analysis)
Ratio analysis= methods of calculating and interpreting financial ratios to analyse
and monitor a firm’s performance
Assets = Liabilities + Equity (Must balance out on the balance sheet)
Liquidity = the ability to pay debts when they are due (the most liquid form of
assets is cash)
Ratio comparisons:
1. Cross sectional= comparison between different firms at the same point in
time
2. Time series= evaluates performance (of a single firm) over time
Du Pont analysis/system> provides info on ROE (=what is left of net profit after
paying shareholders)
Week 3 (Chapter 4: Long- and Short-Term Financial Planning)
The Statement of Cash Flows= explains the net change in cash during a period
(inflows and outflows of cash)
The change in cash can be found on the balance sheet: the difference from PP
Three parts of SOCF:
1. Cash Flows from Operating Activities (=changes in cash due to net income,
depreciation adjustments, and changes in current assets and liabilities)
2. Cash Flows from Investing Activities (=acquisition and sale of long term
assets: fixed assets, property, plant, equipment etc;
it does NOT deal with investments from stockholders (that is included in cash flow
from financing)
3. Cash Flows from Financing Activities (=investors and creditors; long-term
debts): new stock issued, paying dividends
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