MGMT 3320 Chapter Notes - Chapter 2: Tax Shield, Accrual, Investment

• School: University of Guelph
• Department: Management
• Course: MGMT 3320
• Professor: Elliot Currie

Document Summary

Finance is about making decisions to produce value. It is important to understand a firms past and present financial position. Information is organized into 4 financial statements: income statement, statement of retained earnings, balance sheet, statement of cash flows. An income statement measures profitability for a time period (e. g. month, 1 year) Assists financial decision making and analysis, utilizing past patterns for predicting the timing, uncertainty, and amount of future earnings and cash flows. Revenues from customers for services or merchandise. Expenses from vendors for merchandise, services or supplies. Revenues (less) expenses = net incomes. Gross profit: sales (revenues) less cost of goods sold (direct costs related to sales). May contain some fixed costs but exclude overheads. Operating income: gross profit minus selling and admin expenses and amortization (or fixed costs from contribution margin) Operating profit: (earnings before interest and taxes) a measure of how efficient management is in generating revenues and controlling expenses.