This is a summary for the Financial Management exam. It contains chapters 3-5, 10, and 15 of the book "Principles of
Managerial Finance" by Lawrence J. Gitman and Chad J. Zutter. the summary has all equations and theory needed during the exam.
Summary chapters 3-4-5-10-15 | Principles of Managerial Finance, Global Edition, ISBN: 9781292018201 Financial Management 2 (2060FM2_19)
FIN3701 Exam Memo June 2019
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Written for
Hogeschool van Amsterdam (HvA)
International Business
Financial Management 2 (2000FM2_22)
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Financial Statements
Assess financial performance/ financial decision making
“Do I want to do business?”
Income Statement
Provides financial summary of firm’s
operating results during specified
period.
Includes:
• (Sales) Revenues
• Cost of goods sold
• Gross profits
• Expenses
• Taxes
• Net Profit/Income after Taxes
Revenues: rewards for selling goods/
providing services, any increase to
shareholders equity based on every
transaction
Cost of goods sold: expenses incurred in
making/buying product Interest vs. Operating Expenses
Gross Profit: amount of profit
Interest expenses: to finance business efficiently
remaining to satisfy operating,
Operating expenses: to do business efficiently
financial, and tax costs,
Expenses: cost of doing business,
operating expenses(seeling, general + Operating Profit/Income
administrative, depreciation), Interest = earnings before interest and taxes (EBIT)
expenses • profits earned from producing and selling
Taxes: calculate earnings/income products
before and after taxes
Net Income: difference between Other Items
revenues and expenses = the “profit” Preferred stock dividends: fixed cash payment from
for owners/shareholders/investors the company to preferred shareholders
Preferred equity: financial capital (like interest-
Type of Expenses bearing debt or common equity)
Selling expenses: expenses incurred in Earnings per share (EPS): profit per 1 common share
selling the product outstanding
General & administrative expenses: cost of Dividend per share (DPS): dividend per 1 common
maintaining the organisation share outstanding
Other operating expenses: other expenses Dividends: payment from the company to common
incurred in the day-to-day operations shareholders, a part of earnings available for
Depreciation expenses: expenses that reflect common shareholders
the use of long-term assets Retained earnings: a part of earnings available for
Interest expenses: expenses that are related to common shareholders NOT paid out, but retained
interest-bearing debt of the company for future investment
, Why Steps?
To see possible improvement in profitability of company Proprietorship
Gross profit: where to find improvement = product mix, Money taken it by owner is NOT
selling prices, cost of products (buying/producing) salary (salary business expense)
• if something wrong change: selling price / cost of BUT withdrawal
products Withdrawal = dividends in
• if okay (but still not enough profit) change: company
operating expenses = changes happen after gross
profit
If taxes to high: see how to reduce in “funny ways” =
relocate to low tax country
Purpose:
• shows how much money company
has earned and how much it has
spent during the period
Analysis:
• company's profitability and
operating efficiency
Limitations:
• does not take into account any
changes in value of company's
assets or liabilities Purpose:
• shows how company has used its profits or
• does not provide complete picture of
losses over time
company's financial health
• how much of earnings have been retained
for reinvestment or distribution to
shareholders
Retained Earnings Statement Impact on Shareholders:
• if company retains its earnings can
Reconciles net income earned during reinvest them to grow business> higher
given year, and any cash dividends stock prices and dividends in future
paid, with change in retained earnings • if company pays out large portion of its
between start and end of that year earnings as dividends = shareholders
• savings that stay inside company may see lower stock prices and dividends
• Profit after paid out shareholders in future
Analysis:
An abbreviated form of the statement of • company's financial health and growth
stockholders’ equity potential
Includes: Limitations:
• Beginning retained earnings • does not take into account any changes in
• Net income after taxes (find on value of company's assets or liabilities
income sheet) • does not provide complete picture of
• Dividends company's financial health
• Ending retained earnings (find on
balance sheet)
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