The document discusses preparing management ratios from financial statements to evaluate the economic health of a company. It provides examples of ratios that can be expressed as a ratio, percentage, or dollar amount. These include activity ratios, liquidity ratios, solvency ratios, and profitability ratios. The document also discusses establishing accounting records, developing a one-day budget for a grand opening, managing a cash transaction system, and preparing summary financial statements including a statement of retained earnings and balance sheet.
2. PREPARE SELECTED MANAGEMENT RATIOS
Quick evaluations of the economic health of a company, from
balance sheet or income statement amounts.
Ratios can be expressed in three different
ways:
1. Ratio (e.g., current ratio of 2:1)
2. % (e.g., profit margin of 2%)
3. $ (e.g., EPS of $2.25)
3. FINANCIAL RATIO ANALYSIS
Activity Ratios
Effectiveness
in putting its
asset
investment to
use.
Liquidity Ratios
Ability to
meet short-
term,
immediate
obligations.
Solvency Ratios
Ability to
satisfy debt
obligations.
Profitability Ratios
Ability to
manage
expenses to
produce
profits from
sales.
4. ESTABLISH ACCOUNTING AND INVENTORY
RECORDS
“Transforming
stray dogs into
guide dogs”
Revenues 2500
Gross Sales 500
Cost of Goods
Sold:
1000
Gross Profit 500
An adjusting entry is
recorded to bring an
asset or liability
account balance to its
proper amount.
5. ESTABLISH ACCOUNTING AND INVENTORY RECORDS
“Transforming
stray dogs into
guide dogs”
Expenses
Sales and
Marketing
500 General Office 1,400
Research and
development
1000 Entertainment 30
Insurance 500 Licenses 50
Legal and
professional
Services
1.500
Salaries and
Benefits
670
Bookkeeping 300 Bank Fees 50
Rent 700 Interest 40
Utilities 300
Miscellaneous
Expenses
300
Repair s and
Maintenance
150 Total Expenses: 7,690 Net Income 8.190
6. DEVELOP ONE-DAY BUDGET FOR GRAND
OPENING
Expenditure Low High
Bar Equipment 500 600
Tables / Chairs 100 200
Signage 50 60
Security 100 150
Music 200 250
Liquor License 30 40
Insurance 60 80
Opening Inventory 100 150
Pre-opening hiring /training 200 250
Social Media 300 400
Opening Marketing 500 550
Initial Operating Capital 2140 2730
The manager prepares and
delivers the opening budget
even though there may be
unforeseen events that
generate changes in the
budget.