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Lecture No.2
Chapter 2
Contemporary Engineering Economics
Copyright 2006
Contemporary Engineering Economics, 4th
edition. 2007
Accounting: The
Basis of DecisionMaking
Financial Statements:
Financial Status for
Businesses
Financial Ratios:
Using Ratios to Make
Business Decisions
Contemporary Engineering Economics, 4th
edition. 2007
2.
3.
Liabilities
Assets
Owners
Equity
LIABILITIES
Current Liabilities
Current Assets
Long-Term Liabilities
Long-Term Assets
Equity
1.
2.
Owner Contributions
Retained Earnings
10
Equity
11
Liquidity
12
LIABILITIES
Current Assets
Current Liabilities
Long-Term Liabilities
Long-Term Assets
Equity
1.
2.
Owner Contributions
Retained Earnings
13
LIABILITIES
Current Assets
Current Liabilities
Debt
ASSETS
Long-Term Liabilities
Long-Term Assets
1.
2.
Equity
Equity
Owner Contributions
Retained Earnings
14
Owners Contributions
Retained Earnings
15
3.
16
Expenses
Net Income (Loss)
17
Sales
Cost of Goods Sold
Gross Margin
Contemporary Engineering Economics, 4th
edition. 2007
18
+ Additions to Inventory
- Ending Inventory
Cost of Goods Sold
Contemporary Engineering Economics, 4th
edition. 2007
19
Sales
$5,000,000
100.0%
3,250,000
65.0%
1,750,000
35.0%
1,000,000
20.0%
Operating Profit
750,000
15.0%
Less: Interest
250,000
5.0%
500,000
10.0%
175,000
3.5%
$325,000
6.5%
Bottom line
Contemporary Engineering Economics, 4th
edition. 2007
20
100.00%
18.32%
8.65%
6.18%
1
8
.
3
2
%
Gross margin
Operating margin
Net margin
21
2.
3.
22
From sale
of shares
Government
To pay taxes
From sale
CASH
To pay interest
and principal
Customers
Fixed Assets
From credit
sales
From sale
of debt
To pay labor,
materials, and
overhead
Debt holders
Inventory
Contemporary Engineering Economics, 4th
edition. 2007
23
Changes in equity
Pay interest
Pay dividends
Changes in liabilities
Cash
Collection of
receivable
Production
Labor
Materials
Overhead
Investment
Accounts
receivable
Cash
Sales
Credit
Sales
Inventory
Depreciation
Fixed assets
Contemporary Engineering Economics, 4th
edition. 2007
24
25
Statement of
Changes in
Financial Position
Sources and
Uses of Funds
Sources
Financial
position
Balance Sheet
Uses
Increase in equity
Decrease in assets
Increase in liabilities
Decrease in equity
Increase in assets
Decrease in liabilities
26
Cash from
Investments
Information
Cash from operations
(profit)
Cash spent on
Property, Plant,
Equip.
Cash received from
bonds and stocks
27