Each chapter of the book is written by an outstanding expert on the topic of that particular chapter. Most of these professors are on the faculty of Babson College, which is known for its major contributions to the field of entrepreneurship and which year after year tops the annual list of leading independent business schools compiled by U.S. Whether you fall into one, some, or even none of the above categories, you will find much of value in this book, and the book is reader-friendly.
We would like to thank the authors of the chapters that make up this book for their clear and informative explanations of the powerful concepts and tools of finance and accounting. While most of the underlying concepts in this world of technology and the Internet remain fixed, the applications are constantly changing, forcing authors to continually rededicate themselves to their profession.
PART ONE UNDERSTANDING THE NUMBERS 1
PART TWO PLANNING AND FORECASTING 223
PART THREE MAKING KEY
STR ATEGIC DECISIONS 457
UNDERSTANDING THE NUMBERS
1 STATEMENTS
Pat: Now I see why it's called a "balance sheet". The money invested in assets must be equal to the available financing - it is like the two sides of a coin. Kim: This is the usual accounting term for sales minus the amount your suppliers charged you for the goods you sold to your customers. They authorized Kim to tell Pat that – if she fulfilled all her responsibilities regarding the loan throughout the year – the bank would renew the loan at the end of the year and even increase the amount.
Accounts receivable are amounts owed by customers and should be shown on the balance sheet at "realizable value," meaning "the amount that can reasonably be expected to be collected in cash." All accounts whose collectability is doubtful must be reduced to their realizable value by deducting the allowance for doubtful debts. This concludes our review of short-term liquidity ratios—. current relationship; rapid or acid test ratio; Turnover of receivables;.
2 BUSINESS EARNINGS
Many of the one-time costs or loss items involve declines in the value of specific assets. A sample of non-recurring items found in the category other income and costs in the multi-step profit and loss statements for a number of companies can be found in appendix 2.7. The cumulative effect is the impact of the change on previous years' results.
The partial cash flow statement of Escalon Medical Corporation in Exhibit 2.14 illustrates the disclosure of non-recurring items in the operating activities section of the cash flow statement. The one-time items appear to be (1) the amortization of intangible assets, (2) the net profit on the sale of the Betadine product line, (3) the net profit on the sale of the Silicone Oil product. Often, one-time items appear in both the income statement and the operating activities section of the cash flow statement.
EXHIBIT 2.15 Disclosure of non-recurring items in both the income statement and operating activities section of the statement of cash flows. In the case of the multi-step format, the composition of other income and expenses is sometimes detailed on the face of the income statement. The other income and expense note of The Sherwin-Williams Company is provided in Exhibit 2.20.
Disclosure in the section of the MD&A dealing with earnings (step 6 in the search sequence). However, effective use of the worksheet requires the background provided earlier in the chapter. In the Petrolite acquisition, the company allocated $118.0 million of the purchase price to in-process research and development.
The MD&A included discussion of the gain on the sale of the Varco investment. Many non-recurring material items will be disclosed separately in the income statement.
3 PROFIT ANALYSIS
We would have to contract with others to provide the necessary chain parts, but selling the book through our website is possible. They can be expressed on a per unit basis or as a percentage of the selling price. Another way to think about it is that if we set up our own website, there is an additional variable cost for each book we sell—the $12 we could earn from the publisher (see Exhibit 3.6).
The special order was a great opportunity, but both Abbey and Stephen knew that the success of the site would ultimately depend on regular, day-to-day business activity. The key to CVP analysis is correctly identifying the cost structure of the business opportunity being analyzed. Without proper knowledge of cost behavior—identification of costs over a fixed period and variable costs per unit or as a percentage of sales revenue—business planning cannot be done properly.
The data came from conversations with process partners such as the website designer and the logistics company and from Abbey's first-hand knowledge of the book world. To use CVP analysis in this situation, one starts with market-driven price estimates and then calculates profitability based on likely unit demand and current cost structure. Only here does one start with value-based price estimates and then calculate profitability given likely unit demand and current cost structure.
One of the common tests is whether there is a consistent pattern of prices below average variable cost. We should note that the variable cost used in the test is that of the putative predator, not the putative victim. Of course, this is only an indication of predatory pricing and all relevant evidence should be considered.
4 COSTING
We remembered Metcalf's law: the value of a network is equal to the square of the number of nodes. 875,000 reflects your best estimate of the total customer identification cost pool for the past 12 months. So our end goal of this 'long journey' is simply that, transparency of the costing system.
Unfortunately, of the ten contracts signed in our sample, only three were of this type. But when you factor in the costs of the 70 customers lost during the process, these costs increase dramatically. What we did was take last month's cost of the system and annualize it.
But note also that the final result of the analysis was not an ABC model. If an external advisory group is used, its role should be that of facilitator rather than system designer. Start with an industry-level value system map that shows all participants in the value creation process.
This is necessary because all members must agree on the strategic basis for the analysis. For example, the driving force behind the ETN/W customer sales cost pool was the potential customer's technical sophistication. All costs from the general ledger must be traced to activity pools using the activity card.
5 TECHNOLOGY AND YOU
The speed is expressed as a multiple of the speed of the original CD ROMs that were produced in the early 1990s. Some of the real power of windowing software is the ability to view multiple windows of data simultaneously. Microsoft Office is one of the most widely used packages; includes Word for Windows (word processing), Excel (spreadsheets), PowerPoint (presentation graphics), Access (database), and many other applications.
As with the peer-to-peer network, there is a hub that acts as a concentrator for all cabling. Preventing unauthorized access to confidential information is one of the biggest challenges of networking. Although the terms Internet, World Wide Web, the Web and the Net have become synonymous, the Web is actually a subsystem of the Internet.
One of the main attractions of the Web is that it is fairly easy for the average person to access any of the millions of sites on the Internet. Available on that website are many of the AICPA's services, including information on their membership, conferences,. This site provides information on all association services with links to other sites.
The computer revolution began around 1950, and the microprocessor – the heart of the PC revolution – has only been exploited in the past twenty years. Technologists talk about the rapid changes in the development of the Internet and related products. One of the biggest trends in recent years has been the merging of previously separate technologies.
6 AND BUDGETS
Most of the time and effort devoted to budgeting is spent in the planning phase. A logical first step towards effective budgeting is to formalize the organization's goals. Budgeting is not wishful thinking; it is a process designed to optimize the use of scarce resources in accordance with the company's goals.
The financial impact of this strategy is then assessed when preparing the budget. If, on the one hand, conversations with managers yield comments such as, "If we fail to reach the budget, we'll just add more to it next period," the budget control process is probably ineffective. For example, instead of telling a department head that his or her budget request for three additional employees is not compelling compared to all other budget requests, the vice president says, “The budget simply wouldn't allow for any new hires this year. ” In another example, the director of the marketing department requests travel funds to send all of his staff to an overseas training program.
Regardless of the size or type of organization, most budgets can be divided into two categories: the operational budget and the financial budget. The master budget is the total budget package for an organization; it is the end product of the budget preparation process. The exact composition of the master budget depends on the type and size of the company.
The components of the master budget form the firm's detailed operating plan for the coming year. The operating budget includes revenue, product costs, operating expenses and other components of the income statement. A large part of the financial budget is determined by the operating budget and the opening balance sheet.
