Financing

The key function of financing is two-fold. Financing requires a company not only to budget for its own marketing activities, but also to provide customers with assistance in paying for the company's products or services.
 * The Key Function of Financing Defined:**

We will focus on the "company side" of financing; that is the budgeting and accounting activities necessary to keep companies vital and profitable.

**Important Terms to Know:** • Expenses – costs of operating a business • Budget – detailed plans for the financial needs of a business • Start-up budget-plans income and expenses from the beginning of a new business or a major business expansion until it becomes profitable • Operating budget-describes the financial plan for ongoing operations of the business for a specific period of time • Cash budget-an estimate of the actual money received and paid out for a specific period of time • Financial records-financial documents that are used to record and analyze the financial performance of a business • Assets-what a company owns; anything of value owned by a business • Liabilities-what a company owes • Owner’s equity-the value of the business after liabilities are subtracted from assets; the value of the owner’s investment in the business • Balance sheet-a report that lists a company’s assets, liabilities, and owner’s equity • Income statement-a report of revenue, expenses, and net income or loss from operations for a specific period || • Statement of Cash Flows: Shows a company's inflow and outflow of cash over a specified time period.
 * • Revenue – all income that a business receives over a period of time

• Payroll record-a financial document that contains information on all employees of the company, their compensation, and benefits • Direct deposit-funds are deposited electronically and available automatically for your use • Financial performance ratios-comparisons of a company’s financial elements that indicate how well the business is performing • Discrepancies-differences between actual and budgeted performance • Payroll-the financial record of employee compensation, deductions, and net pay ||  ||

Understanding Financial Statements:
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**Information you need to know!**
1. The basic financial equation for businesses is Revenues-Expenses = Profits (or Loss) 2. The three business budgets include start-up, operating, and cash. 3. The four steps in preparing a budget include listing expenses and income, gathering accurate information from business records, creating the budget by calculating each type of income, expense and amount of net income or loss, and showing/explaining the budget to people who need financial information to make decisions. 4. Technology has affected the process of maintaining financial records because new technologies allow point-of-production and point-of-sale to enter data. Technology has also made financial record-keeping more efficient. 5. Four financial ratios used by managers to determine the financial well-being of businesses include current ratio, debt to equity ratio, return on equity ratio, and net income ratio. 6. The three steps in financial decision-making include preparing a budget, using the budget to operate the business, and making needed adjustments.

Financial Ratios Explained:
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A tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. Ratio analysis is predominately used by proponents of fundamental analysis.There are many ratios that can be calculated from the financial statements pertaining to a company's performance, activity, financing and liquidity. Some common ratios include the current ratio, debt-equity ratio, earnings per share, return on equity.
 * Ratio Analysis (Information from [|Investopedia])**

Ratio Formulas
Analysis information provided by Independent Stock Investing

**Current Ratio = Current Assets / Current Liabilities** A current ratio greater than 1 is a rough indication that a company has sufficient resources to pay its current liability. Rough because it does not tell us how quickly the company can convert its non-cash current assets into cash to pay off its current liabilities. Hence, this ratio must never be used by itself, but in conjunction with other liquidity ratios.

**Debt Ratio = (Total Debt-Total Equity) / Total Assets** Debt Ratio is a quick indicator of a company's level of indebtedness. A higher number means that the company is more leveraged. If the number is greater than one, that's an indicator that the company is carrying too much debt. If the number is too low (perhaps less than .4), that's an indicator that the company is not utilizing its assets to their fullest potential...some debt is okay. Both the Total Liabilities and Total Assets can be found on the Balance Sheet. One thing to note about this ratio .... it includes operational liabilities like Accounts Payable and Taxes Payable in its calculation. These are liabilities used to fund the day-to-day working of the company and not traditional debts from a leverage perspective.

**Price to Earnings Ratio = Market Value per Share / Earnings per Share** Investors want to buy stock in companies that will earn a reasonable return on their investment. The relationship between the market value per share and the earnings per share is known as the "price-earnings ratio." The price-earnings ration of a company's stock relates profitability to the amount for which the stock is currently trading. The market price of a share is determined by how much investors are willing to pay for it. If investors think that a company's profitability is increasing, they are usually willing to pay more for the stock. Thus, the market price of a company's stock is strongly influenced by //perceived future performance.// In essence, this ratio (when calculated historically) indicates if investors are more or less willing to pay for the stock per dollar.  **ROE = Net Income / Total Equity** ROE indicates how much the shareholders earned on their investment in the company. Again, a higher percentage is better. ROE is a widely used ratio among investors. ROE can be compared with other companies within the same industry and also with the market in general. A note of caution — you must remember that equity = assets - liabilities. Therefore, for the same net income, an increase in the companies debt will reduce its equity base and increase its ROE. The bump in the ROE comes at a price — higher debt. So ROE should never be interpreted alone. Other leverage ratios, such as the Debt Ratio, should also be considered.

Harley Davidson  Nike, Inc 
 * Review Financial Statements**