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Developing Management Skills

Developing Management Skills . Understanding Financial Statements. Why Use Them?. Business Survival Business Growth Business Profitability Decision-Making Internal Management Tool. For All Businesses?. YES! Not just for purpose of getting loans, or issuing stock

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Developing Management Skills

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  1. Developing Management Skills Understanding Financial Statements

  2. Why Use Them? • Business Survival • Business Growth • Business Profitability • Decision-Making • Internal Management Tool

  3. For All Businesses? • YES! • Not just for purpose of getting loans, or issuing stock • Should be used to support all business decisions • Prepared in standard manner • Generally Accepted Accounting Principles (GAPP) – standards/guidelines to ensure information is reliable and understandable

  4. Key Financial Statements • Balance Sheet • Income Statement • Cash Flow Statement

  5. Balance Sheet • Company’s financial position • Financial “health” • Also called “statement of condition” or “statement of financial position” • Referred to as “photograph” of business- is a snapshot of financial position at particular moment in time • Balance sheet changes as business position changes!

  6. Parts of Balance Sheet I. Assets - what a business owns Current Assets- cash or anything that will be converted into cash within one year ( marketable securities, accounts receivable, and inventories) Fixed Assets- also called long-term assets- more permanent items with life of more than one year (buildings, major equipment) Assets are recorded in accounting system as debit balances

  7. Parts of Balance Sheet II. Liabilities – what a business owes Current Liabilites- must be paid within a year or less. (Accounts payable- inventories, rent, utilities, etc.; accrued wages, and current portion of longer- term notes payable) Long Term Liabilities- items that do not mature within one year (bank loans, mortgages, other longer-term obligations. Liabilities are recorded in accounting system as credit balances

  8. Parts of Balance Sheet III. Net Worth – difference between the value of assets and value of liabilities • For Publicly traded companies, this is also called “shareholder equity”. • If value of assets exceed liabilities business has positive net worth • If value of assets is LESS than liabilities business has negative net worth

  9. Class Activity • Divide into groups of 2-3 people • Research balance sheets on the Internet • Review “simple” balance sheet samples for better understanding • Create a template for a balance sheet for school store. The marketing teacher will give basic financial information for this • Send balance sheet to mbelote@lcps.org • 50 Points

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