Category Archives: Finance

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Financial Analysis Example – Planning for Retirement

While a robust financial analysis example can teach you many things and span across numerous practical applications, there is none that is as relevant as the one involved in your own personal financial planning. This particular financial analysis example shows you how you can set up a spreadsheet model to evaluate and attain your personal financial goals. Relevant concepts such as Present Value, Future Value and Real Rate of Return, among others, are discussed. The exportable spreadsheet can be found at the end of the tutorial.

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Cash Flow Analysis

Cash flow analysis is so crucial because cash is king to any business. When evaluating a company’s performance, most stakeholders, both internal and external, are interested in how well the company is generating cash. Having a strong grasp of cash flow analysis can give you great insights into the company’s past, present and future performance. There are a few types of cash flow analysis methods available and in a series of tutorials, we will explore the cash flow statement, cash flow ratios, discounted cash flow and free cash flow.

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How To Price A Bond

This tutorial will give you step by step instructions on how to price a bond. If you were thinking of investing in bonds or looking to learn how to price a bond for your class, you’ve come to the right place! (There is a spreadsheet bond price calculator at the end of the tutorial)

Individual investors and companies that are fortunate enough to have excess cash sitting around may invest in debt securities that are either issued by the government or other private entities. Issuance of a bond is usually done by large organizations and governments. These organizations issue bonds because they have a financing need to improve their overall cash position.

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Accounting for Bonds

Accounting for Bonds is not a difficult topic to comprehend, nor is it a difficult task to execute. The journal entries involved are pretty straight forward and setting up the amortization schedule is also intuitive. Accounting for Bonds is a continuation of “The Basics and Pricing of Debt Securities” post. If you have not read that post or if you are unfamiliar with how bonds are priced, please do so before reading this article as it will only help you understand the concepts better. 

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Basics of Inventory Valuation

This tutorial covers the basics of inventory valuation. For merchandisers, manufacturers and wholesalers, inventory is often times the largest asset item represented on the balance sheet as a current asset. It is considered one of the more liquid assets because the basic assumption is that inventory owned by a company will be sold in the near future and converted to cash (the most liquid of any asset type). Inventory includes items that are ready for sale (finished goods), items in the process of being produced (work in progress) and raw materials that will be used to produce the final goods.

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Difference Between Financial & Management Accounting

Accounting as we know it can be separated into two distinct branches. Although both involve heavy analysis and interpretation of performance data, use of assumptions and reporting in some form or fashion, they are very different in terms of approach and ultimate purpose. For starters, one of the two deals with information that is prepared specifically for external users of the economic information pertaining to a company’s ongoing operations (financial accounting) and the other prepared specifically for a corporation’s internal users enabling them to make better operating decisions (management accounting).

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Earned Value Simplified

Need to understand what Earned Value is? This tutorial will help you understand those crucial concepts.

Evaluating a project’s performance can seem like an overwhelming task, but with the right tools in hand the process can become a lot more manageable. One very popular method used by many project managers is a concept called Earned Value. EV is used to look at how well or not so well a project is performing from the perspective of a single unit of measurement (money). It takes the two dimensions associated with project performance measurement, cost and time, and combines them so that even the project’s schedule performance (time) can be expressed in dollars.

Relationship Between Financial Statements

Relationship Between Financial Statements

Understanding the relationship between financial statements enable you to manage business operations better. These relationships stem from the accounting information system and the way double-entry accounting is setup. The accounting cycle makes continuous utilization of this system to output four standard financial statements at the end of each accounting period. Those statements are :

(1) The Income Statement (2) Statement of Owner’s (Shareholder’s) Equity (3) The Balance Sheet (4) The Statement of Cash Flows

While each statement tells its own story, there are specific links and relationships between them that provide insights into the “bigger picture”. Moreover, a thorough comprehension of  the relationship between financial statements will make you feel more confident about the information you are looking at and in your ability to analyze the numbers.

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Cost Volume Profit – Breakeven Analysis

Cost-Volume-Profit analysis is used in the planning process by looking at the effects caused by varying levels of units sold, unit pricing, fixed costs and variable costs on bottom line profit. The primary objective from a managerial perspective is to maximize contribution margin (revenue less variable costs) and minimize fixed costs. In the process of planning, key stakeholders within an organization are likely to ask some very important questions such as “What’s the effect on profit if units sold decreased 3%?” “How much of an impact will a 10% price hike have on profit?” or “what’s the impact to the bottom line if variable cost per unit increased 8%?”

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The Accounting Equation

Under U.S. GAAP (generally accepted accounting principles) financial accounting revolves more or less around one very important but simple equation. And that is: