Sure, you've glanced at the organization's balance sheet. But do you know what all those financial terms really mean?
Knowing your company’s numbers may keep your job secure or help you advance. You have to know the numbers to really know your job. And often there’s no time to research financial concepts and their meanings – you have to make decisions right away.
If you’re anxious about studying your business’s numbers, you don’t have to be. With Mastering Business Finance, even the least experienced number cruncher can gain confidence in understanding the terms and making financial decisions.
"Take the initiative to understand what the numbers say about the current status of the business and what you can do to personally contribute to its future success," suggests Rita Bailey, CEO of consulting firm QVF Partners and a 25-year veteran of Southwest Airlines.
Once you've brushed up on your vocabulary, she says, you might try asking your boss to talk with you about how the business makes money and what role you play in that. The knowledge can be powerful, for you and your organization.
Example: At Southwest Airlines, every employee knows how many customers the company needs on each plane to break even, how many it takes to be profitable, the cost of fuel and supplies and the cost of a flight delay. So every employee knows how he can affect profitability.
You don't have to get caught in a tangle of financial language. Learn to talk like a Wall Street pro.
First step: Match the financial terms below left with their correct definitions on the right.
|1. Balance sheet||a. Assets that are expected to be converted to cash within one year. This includes cash, accounts receivable and inventory.|
|2. Cash and equivalents||b. Also called "shareholders' equity," the portion of an organization's assets that the shareholders own, as opposed to what they've borrowed: equal to total assets minus liabilities. It represents the source of the business's funding.|
|3. Current liabilities||c. Liabilities that must be paid within one year. The ratio between this and current assets is important: A company should have enough of the former to cover the latter. This includes such items as dividends payable, accounts payable (what the company owes to suppliers for buying raw materials or retail products on credit), interest payments on long-term debt and taxes payable.|
|4. Current assets||d. Actual cash plus investments that are "as good as cash" and can be cashed-in within three months, e.g., checking accounts, CDs, money market accounts and Treasury bills.|
|5. Good will||e. What an organization owns and what it owes. The main categories of assets are usually listed first and are followed by the liabilities. The difference between the assets and the liabilities is known as the organization's "net worth" or "net assets."|
|6. Long-term assets||f. Debt to be paid off in a year or less.|
|7. Owners' equity||g. A class of intangible assets such as an organization's name and reputation. This shows up on an organization's books when it acquires another organization, then depreciates over a period of years.|
|8. Short-term debt||h. Also known as fixed assets, these have a life span of more than one year. They can refer to tangible assets such as machinery, computers, buildings and land. Depreciation is calculated and deducted from these types of assets. They can also be intangible assets, such as a Web site domain, or a patent or copyright.
Answers: 1e, 2d, 3c, 4a, 5g, 6h, 7b, 8f
Mastering Business Finance explains expense and capital budgets, how to raise money, cash management and financial analysis, all in a way you can understand. This guide isn’t just a how-to, it’s also a why-to.
You’ll learn how to:
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- Analyze financial statements
- Manage fixed assets, inventory and receivables
- Forecast your business’s cash flow for a whole year
- Prepare financial proposals for venture capitalists and banks
- Choose a technique for sales forecasting
- Rate your loan worthiness
- Choose between a variable and fixed budget
- Troubleshoot with ratio analysis
- Reap extra profit from your budget
- Identify and distribute hidden costs
- Coordinate your business plan and budget
- Use zero-based budgeting effectively