FIN 2050 Chapter Notes - Chapter 2: Safe Deposit Box, Financial Institution, Money Management

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silvergnu123

13 Sep 2016

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Assets- cash and other property with a monetary value. Balance sheet- also known as a net worth statement is a statement of what you own and what you owe (assets and liabilities) Budget- a specific plan for spending income (also known as spending plan) Budget variance- the difference between the amount budgeted and the actual amount you end up receiving or spending. Cash flow- the actual inflow and outflow of cash during a given time period. Cash flow statement- also known as personal income and expenditure statement is a summary of cash receipts and payments for a given period of time such as a month or even a year. Current liabilities- debts that must be paid within a short time, usually less than a year. Deficit- the amount by which actual spending exceeds planned spending. Discretionary income- money left over after paying for housing, food and other necessities. Income- inflows of cash to an individual or a household.

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Find an article dealing with budgeting and prepare a 1 page summary of how you can apply the information to your personal finances.

ARTICLE:

Budgeting is the foundation of personal finance. Whether or not you write a personal budget, use a budget spreadsheet, use a budgeting app, or simply keep track in your head â youâre probably already budgeting.

And budgeting is never more important than in your early adult life as you figure out how to stretch a paycheck, pay off debt, and â hopefully â save a little bit, too.

This page will give you the basic tools youâll need to start budgeting.

What is a Budget, Exactly?

A monthly budget is a plan for how you will allocate income to meet your expenses for a designated month. Some think of budgets as spending constraints, but budgets are better described as âspending plansâ. If you budget correctly you will be able to spend money on things you enjoy without worrying about meeting other financial obligations, overdrawing your accounts, or going into credit card debt.

A monthly budget typically consists of a list describing your income sources and expenses. Each description is followed by the amount you project for the amount of the income or expense for the designated month. A monthly budget can be an Excel spreadsheet, managed within a software program like Quicken, or simply jotted on a piece of notebook paper.

Writing Your Budget

A monthly budget is an estimate, but your goal should be to make as educated an estimate as possible. To do this, you will want to collect a monthâs worth of pay stubs, bills, and bank statements, if possible.

INCOME

Assuming you are budgeting for an upcoming calendar month, start by looking at your previous monthâs take-home pay.

If you are paid monthly or semi-monthly, this will be easy.

If you are paid every other week, multiply your paycheck by 2.166 to determine your monthly pay.

Paid weekly? Multiply your check amounts by 4.333.

Budgeting is a bit trickier if your main source of monthly income varies (if you work variable hours or earn tips), you can average several months of income or estimate based upon experience. But be conservative. In a monthâs time you want to have spent less than you planned for in your budgetâa difficult goal when you donât bank as much cash as you thought.

You also want to take other income sources into account.

Do you work more than one job?

Will you get a bonus next month?

Do you pick up odd gigs or sell old stuff from time to time?

Do you have any investments paying dividends?

Create entries in your monthly budget for these additional income sources and create a line for your total monthly income. This is the amount you have to spend for the month and the basis for your âspending planâ. You cannot spend more than this in any one month. If you anticipate unusually large expenses next month for which you have money saved (a vacation, for example), consider including the savings you will use to pay for the expense as income. This will allow you to see a more typical monthly spending plan despite the inclusion of a non-monthly expense.

EXPENSES

For your monthly budget to work, your expense projections need to be as accurate as possible. Some expenses, like your rent, car payment, and insurance bill, are simple. From there, it gets trickier.

Chances are your utility bills fluctuate from month to month and how much you spend on groceries, dining out, and clothing may vary drastically. Hereâs where having a few bills and bank statements will be useful so you can average several monthâs worth of data.

Place each expense on a line and write down the amount next to it. You may find it useful to create categories of expenses like:

âTransportationâ

âHouseholdâ

âFoodâ

âEntertainmentâ

âDebtâ

Consider expenses that may not be monthly, such as clothing or car maintenance. You should still budget for these items. If you allocate money every month for these things, that money will be available when you do need it.

Tracking and estimating your monthly expenses will be harder, but not impossible, if you frequently pay in cash. While cash is a good way to moderate your spending, you need to be diligent about collecting receipts if you want to know where your money went. A new benefit of credit and debit cards now that you can use them virtually everywhere, even for micro payments of just a few dollars, is at the end of the month you get a statement with all of your monthly expenses on one page. If youâre struggling with credit card debt, definitely stick with debit cards or cash. But if you can learn to use a credit card responsibly and pay it off in full each month, I actually think a good credit card can make budgeting easier.

Your Bottom Line

When you have a complete list of your monthly expenses, add them up and subtract the sum from your monthly income. You should have a positive number. No? Uh-oh. If you have been spending according to this budget, you are going into debt. You will need to find out why your expenses exceed your income and find ways to cut your expenses â fast! Look at your list of expenses and separate discretionary spending. This includes entertainment, travel, gifts, and all dining (including lunches!) Most people can cut their monthly expenses significantly by learning to give up small daily expenditures like coffee or snacks.

If your budgeted expenses fall below your income, congratulations! You are successfully living below your means. The question, now, is how to use your extra money. Follow our six steps to financial stability to help you prioritize your money goals.

Finally, Keep It Simple

If you ever want to build wealth and stay out of debt, you have to spend less than you earn. And a budget can ensure that you do that. Still, rigidly tracking every dime you spend is like counting calories â it sounds good in theory, but most of us fail to keep up with it.

But you can stick with a budget if:

You keep your budget as simple as possible.

You harness the power of automating your money.

After you get a handle on your budget, youâll be able to focus on other priorities like getting out of debt, building emergency savings, and begin to save for retirement. They arenât the most exciting financial goals of your lifetime, but once they are out of the way they provide solid footing for financial security for the rest of your life.

Read more at: https://www.moneyunder30.com/budgeting-in-your-twenties

magentadeer293

INSTRUCTION: Answer all questions in this section. Each question carries 2 marks. Answer True or False to the following questions.

1. The cash conversion cycle of a firm is the length of time between the actual cash outflow for materials and the actual cash inflow from sales. To calculate this cycle, we need all the information used to calculate the operating cycle plus Days Payables Outstanding (DPO).

2. Net working capital is defined as current liabilities minus current assets.

3. Sales volume and collection period will be affected by a firm's credit policy.

4. Accounts payable, or trade credit, increases net working capital.

5. Efficient cash management is often concerned with speeding up the collection of cheques received and slowing down the payment of cheques issued.

Choose the letter a, b, c, or d that carries the best response.

6. The income statement reports the results of operations during the past year, the most important item being:

Net Income

Interest Expense

Earnings Before Interest and Taxes

Earnings Per Share

7. Which would represent claims against assets in the balance sheet:

Liabilities

Liabilities and stockholders' equity

Common stockholders' equity

Both common and preferred stockholders' equity

8. The two accounts that normally make up the common equity section of the balance sheet are and

accounts payable; accruals

common stock; retained earnings

long-term bonds; common stock

equity; liabilities

9. Accounting profits is different from net cash flow because

Net cash flow includes profits from operations.

Non-cash items are not included in the accounting profits

Net-cash flows take account of all non-cash items

Accounting profits overlooks depreciation and taxes

MGMT2023

Page 3

10. Which of the following represents an investing cash outflow?

An increase in holdings of stocks of other companies

A decrease in accounts payable

A decrease in gross property, plant and equipment

A decrease in accumulated depreciation

11. Which group of ratios show the combined effect of liquidity, asset management and debt on operating results?

Liquidity ratios

Debt ratios

Coverage ratios

Profitability ratios

12. Cottler Ltd. has current_. assets equal to $4.5 million. The company's current ratio is 1.25, and its quick ratio is 0.75. What is the firm's level of current liabilities in millions
	$3.6
	$0.18
	$2.4
	$2.9

13. You are given the following cash flows. What is the present value (t = 0) if the discount rate is 12 percent?

Time	0	1	2	3	4	5	6
Cash flows	0	1,000	2,000	2,000	2,000	0	-2,000

	PV= ?
	$3,277
	$4,169
	$5,302
	$4,289

14. You invest $5,000 today. You will earn 8% interest. How much will you have in 4 years? (Pick the closest answer.)

	$6,802
	$6,843
	$3,675
	$3,475

15. You are buying your first house for $220,000 and are paying $30,000 as a down payment. You have arranged a 30-year mortgage loan With a 7% nominal interest rate and monthly payments. What are the equal monthly payments you must make?

	$1,513
	$1,464
	$1,264
	$6,922

amaranthyak153

Please analyze the future of IBM with a company that does not have solid financials, such as Tesla. Qualitative measures will be required. What are tthe likelihoods of success and how could that be determined (for Tesla) if current numbers do not provide promise. Tesla is breaking into an emerging market of hybrid vehicle technology, and though the technology has not fully evovled, will it? How do Telsa's finaincial compare to IBM as they compare to success or failre?

Thank you

TESLA INC (TSLA) CashFlowFlag INCOME STATEMENT
Fiscal year ends in December. USD in millions except per share data.	2015-12	2016-12
Revenue	4046	7000
Cost of revenue	3123	5401
Gross profit	924	1599
Operating expenses
Research and development	718	834
Sales, General and administrative	922	1432
Total operating expenses	1640	2267
Operating income	-717	-667
Interest Expense	119	199
Other income (expense)	-40	120
Income before taxes	-876	-746
Provision for income taxes	13	27
Net income from continuing operations	-889	-773
Other		98
Net income	-889	-675
Net income available to common shareholders	-889	-675
Earnings per share
Basic	-6.93	-4.68
Diluted	-6.93	-4.68
Weighted average shares outstanding
Basic	128	144
Diluted	128	144
EBITDA	-334	400

TESLA INC (TSLA) Statement of CASH FLOW
Fiscal year ends in December. USD in millions except per share data.	2015-12	2016-12
Cash Flows From Operating Activities
Net income	-889	-773
Depreciation & amortization	423	947
Amortization of debt discount/premium and issuance costs	72	87
Stock based compensation	198	334
Accounts receivable	46	-217
Inventory	-1574	-2466
Prepaid expenses	-30	57
Accounts payable
Accrued liabilities
Other working capital	1064	1932
Other non-cash items	165	-26
Net cash provided by operating activities	-524	-124
Cash Flows From Investing Activities
Investments in property, plant, and equipment	-1635	-1440
Acquisitions, net	-12	214
Purchases of investments
Sales/Maturities of investments		17
Other investing activities	-26	-206
Net cash used for investing activities	-1674	-1416
Cash Flows From Financing Activities
Debt issued	319	2853
Debt repayment	-204	-1904
Warrant issued
Common stock issued	750	1702
Other financing activities	658	1094
Net cash provided by (used for) financing activities	1524	3744
Effect of exchange rate changes	-34	-7
Net change in cash	-709	2196
Cash at beginning of period	1906	1197
Cash at end of period	1197	3393
Free Cash Flow
Operating cash flow	-524	-124
Capital expenditure	-1635	-1440
Free cash flow	-2159	-1564

TESLA INC (TSLA) CashFlowFlag BALANCE SHEET
Fiscal year ends in December. USD in millions except per share data.	2015-12	2016-12
Assets
Current assets
Cash
Cash and cash equivalents	1197	3393
Total cash	1197	3393
Receivables	169	499
Inventories	1278	2067
Prepaid expenses	125	194
Other current assets	23	106
Total current assets	2792	6260
Non-current assets
Property, plant and equipment
Gross property, plant and equipment	5766	12920
Accumulated Depreciation	-571	-1018
Net property, plant and equipment	5195	15037
Intangible assets		376
Other long-term assets	106	991
Total non-current assets	5301	16404
Total assets	8092	22664
Liabilities and stockholders' equity
Liabilities
Current liabilities
Short-term debt		1150
Capital leases	633
Accounts payable	916	1860
Taxes payable	101	153
Accrued liabilities	322	1005
Deferred revenues	707	1427
Other current liabilities	137	232
Total current liabilities	2816	5827
Non-current liabilities
Long-term debt	2082	118
Capital leases
Deferred taxes liabilities
Accrued liabilities		150
Deferred revenues	446	852
Minority interest		785
Other long-term liabilities	1659	10179
Total non-current liabilities	4187	12084
Total liabilities	7004	17911
Stockholders' equity
Common stock	0	0
Additional paid-in capital	3415	7774
Retained earnings	-2322	-2997
Accumulated other comprehensive income	-4	-24
Total stockholders' equity	1089	4753
Total liabilities and stockholders' equity	8092	22664


INTERNATIONAL BUSINESS MACHINES CORP (IBM) CashFlowFlag INCOME STATEMENT
Fiscal year ends in December. USD in millions except per share data.	2015-12	2016-12
Revenue	81741	79919
Cost of revenue	41057	41625
Gross profit	40684	38294
Operating expenses
Research and development	4565	4120
Sales, General and administrative	19894	20479
Other operating expenses	535	590
Total operating expenses	24994	25189
Operating income	15690	13105
Interest Expense	468	630
Other income (expense)	723	-145
Income before taxes	15945	12330
Provision for income taxes	2581	449
Net income from continuing operations	13364	11881
Net income from discontinuing ops	-174	-9
Net income	13190	11872
Net income available to common shareholders	13190	11872
Earnings per share
Basic	13.48	12.43
Diluted	13.42	12.38
Weighted average shares outstanding
Basic	979	955
Diluted	983	959
EBITDA	20268	17341

INTERNATIONAL BUSINESS MACHINES CORP (IBM) Statement of CASH FLOW
Fiscal year ends in December. USD in millions except per share data.	2015-12	2016-12
Cash Flows From Operating Activities
Net income	13190	11872
Depreciation & amortization	3855	4381
Deferred income taxes	1387	-1132
Stock based compensation	468	544
Inventory	133	-14
Accounts payable	81	197
Accrued liabilities
Other working capital	-2658	1048
Other non-cash items	552	62
Net cash provided by operating activities	17008	16958
Cash Flows From Investing Activities
Investments in property, plant, and equipment	-3579	-3567
Property, plant, and equipment reductions	370	424
Acquisitions, net	-3750	-6133
Purchases of investments	-3073	-5917
Sales/Maturities of investments	2842	5692
Purchases of intangibles	-572	-583
Other investing activities	-397	-892
Net cash used for investing activities	-8159	-10976
Cash Flows From Financing Activities
Debt issued	5540	9132
Debt repayment	-5622	-6395
Common stock issued	322	204
Common stock repurchased	-4609	-3502
Dividend paid	-4897	-5256
Other financing activities	100	26
Net cash provided by (used for) financing activities	-9166	-5791
Effect of exchange rate changes
Net change in cash	-317	191
Cash at beginning of period	8476	7686
Cash at end of period	8159	7877
Free Cash Flow
Operating cash flow	17008	16958
Capital expenditure	-4151	-4150
Free cash flow	12857	12808

INTERNATIONAL BUSINESS MACHINES CORP (IBM) CashFlowFlag BALANCE SHEET
Fiscal year ends in December. USD in millions except per share data.	2015-12	2016-12
Assets
Current assets
Cash
Cash and cash equivalents	7686	7826
Short-term investments	508	701
Total cash	8194	8527
Receivables	1201	1057
Inventories	1551	1553
Deferred income taxes
Prepaid expenses	4205	4564
Other current assets	27353	28187
Total current assets	42504	43888
Non-current assets
Property, plant and equipment
Gross property, plant and equipment	29341	60267
Accumulated Depreciation	-18616	-38606
Net property, plant and equipment	10725	21661
Equity and other investments	5187	4585
Goodwill	32021	36199
Intangible assets	3486	4689
Deferred income taxes	4822	5224
Prepaid pension benefit
Other long-term assets	11747	12055
Total non-current assets	67988	84413
Total assets	110492	128301
Liabilities and stockholders' equity
Liabilities
Current liabilities
Short-term debt	6461	7513
Accounts payable	6028	6209
Taxes payable	2847	3235
Accrued liabilities	7913	8282
Deferred revenues	11021	11035
Other current liabilities	-1	1
Total current liabilities	34269	36275
Non-current liabilities
Long-term debt	33428	34655
Deferred taxes liabilities
Accrued liabilities
Deferred revenues	3771	3600
Pensions and other benefits	16504	17070
Minority interest	162	146
Other long-term liabilities	8099	7478
Total non-current liabilities	61964	62949
Total liabilities	96233	99224
Stockholders' equity
Common stock	53262	53935
Retained earnings	146124	152759
Treasury stock	-155518	-159050
Accumulated other comprehensive income	-29606	-29398
Total stockholders' equity	14262	18246
Total liabilities and stockholders' equity	110495	117470

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FIN 2050 Chapter Notes - Chapter 2: Safe Deposit Box, Financial Institution, Money Management

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