Financial Planning Exam #1
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28 terms
Terms | Definitions |
|---|---|
 Income Statement | Device to measure the profitability of a firm over a period of time It covers a defined period of time It is presented in a stair-step or progressive fashion to examine profit or loss after each type of expense item is deducted |
| COGS | the cost of generating sales. subtracted from sales to find GP -the cost of everything it takes to manufacture the product (Raw mat, labor, P and Equip) |
| what is the 2nd most important number on the IS? | GP |
| GP | can be very indicative of the success for some companies. Not as much for others. 1st stopping point on the IS |
| After you find GP, what kind of exp are subtracted next? | "Expenses". Includes selling and admin and depreciation. |
| EBIT | Earnings Before Interest and Taxes. aka "operating income" -Most impt stop on top half of IS |
| EBT | Earnings Before Taxes. Do not subtract the principle, only the interest payed. |
| where is the principal amount found? | BS and Cash Flow |
| EBT-Taxes= | Net Income. The earnings of the company after taxes. The earnings of the company. |
| 3 forms of organization | Sole Proprietorship Partnership Corporation |
| 80 % of business are what legal form? | Proprietorships. |
| why are most businesses s. proprietorships? | Because they are relatively easy and cheap to form one. |
| Adv of proprietorship? | Simplicity of decision-making Low organizational and operational costs |
| Drawback or proprietorship? | Unlimited liability to the owner. Also, difficult to raise capitol. Is sole proprietor dies, then cannot pass non bus to someone else, bc they are the bus. But can pass on assets, just not the company. |
| How does taxation work under a Proprietorship? (Adv or dis adv)? | Profits and losses are taxed as though they belong to the individual owner. Another advantage. Know why. |
| Partnership def | Similar to sole proprietorship except there are two or more owners |
| What does the "articles of partnership" specify? | The ownership interest The methods for distributing profits The means of withdrawing from the partnership |
| 2 types of partnership agreements? | Informal, where just shake hands assume to agree. Formal, articles of partnership. Have a lawyer/legal component. |
| Adv of Partnership? | easy and inexpensive to start one. (But more than a proprietorship) |
| Dis adv of partnership? | Carries unlimited liability for the owners. Also, you cannot give away partnership interest. |
| Limited Partnership | limit your liability to the % of the company you own. Has both genral (untld liab) and limited prtners (limited Liab) |
| Disadvantage of LT Liability | not all financial institutions extend funds to it |
| Def of corporation | Unique; it is a legal entity unto itself Formed through Articles of Incorporation, which specify the rights and limitations of the entity |
| Adv of corp | Owned by shareholders who enjoy the privilege of limited liability Has a continual life |
| what is the "key feature" of a corporation? | Easy divisibility of ownership interest by issuing shares of a stock |
| Disadvantages of a corp | The potential of double taxation of earnings (Both taxed at corporate level as well as shareholder/owner level) |
| Been talking about cCorp, but what about sCorp? | Income is taxed as direct income to stockholders and is thus taxed only once as normal income. Gets rid of Dbl taxation. small corp (35 or less owners). Cant bounce back and forth between legal forms. |
| LLC | Limited Liability Corp. What a lot of professionals have to limit their personal liability. Lawyers, doctors, accountants, etc. |
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