Financial Performance Measures ______.

involves conversion of raw financial numbers for a company into ratios

ratio analysis

allows comparison of one company to another

ratio analysis

ratio analysis provides a __ basis for __

broader, comparison

the result of dividing one financial statement item by another

financial ratio

helps analysts interpret financial statements by focusing on specific relationships

financial ratio

analysis of a company's financial statement, usually by an accountant or financial analyst

financial statement analysis

usually includes in-depth financial ratio analysis comparisons over time periods

financial statement analysis

usually each individual revenue and expense is shown as % of total revenue

vertical

refers to the proces of comparing the financial performance and current condition of a company in relation to a base amount (for ex: individual asset account balances on the company's balance sheet can be expresssed as a percent of total assets or various revenue and expense accounts from the income statement are shown as a percent of total sales

vertical

usually compares a company's results over several consecutive years

horizontal

types of ratios

solvency, profitability

measures a company's LONG-TERM ability to meet ALL financial obligations

solvency (Current assets exceed current liabilities)

assess the efficiency in the management of inventory

inventory turnover

equation for inventory turnover

cost of goods sold / average inventory

indicates the ability to meet currently maturing obligations

working capital, current ratio

equation for working captial

current assets-current liabilities

equation for current ratio

current assets/current liabilities

to indicate instant debt paying ability

acid-test ratio

equation for acid-test ratio

qiuck assets /current liabilities

measures a company's ability to make money

profitability

to indicate future earnings prospects, based on relationship between market value of common stock and earnings

price-earning's ratio

equation for price-earning's ratio

(market price per share of common stock) / (earnings per share of common stock)

what ratio is under profitability

price-earning's ratio

uses of ratios:
management decision making =(__ users);;;
financial statement users: ( __users)

internal, external

list some external users

stockholders, potential investors, potential lendors

cost of the inventory which as been sold during the period; or cost of buying raw material and producing finished goods

cost of goods sold (COGS)

types of inventory systems

perpetual inventory; periodic inventory

inventory accounting system whereby book inventory is kept in continuous agreement with stock on hand. A DAILY record is maintained of the dollar amount and physical quantity. Adjusted for SALES and PURCHAES on a daily basis. There are PHYSICAL inventories taken to reconcile the book inventory amount. In pharmacy this is usually done by applying the order to the existing inventory maintained in the pharmacy computer system

perpetual inventory

inventory accounting system whereby the book inventory does NOT show the amount available or sold during the period. NO daily record is maintained of the dollar amount and physical quantity. There are periodic physcial inventories taken to determine the amount and physical quantity of inventory at the end of the period and to determine COGS for the period

periodic inventory

how do you calculate COGS (cost of goods sold)

COGS= beginning inventory + purchases - ending inventory

this type of inventory is used less because NO COGS or inventory quantities on hand are available to management during the accounting period

periodic inventory

5 rights to negotiate/consider when ordering inventory

product, quantity, time, price, vendor

must find the balance; cycle vs safety stock; speculative stock; budget considerations

quantity

warehousing vs non-warehousing, wholesales, primary vs secondary

vendor

no longer salebale, too much on hand, out of date drugs, drug taken off market-->money out the door

obsolete inventory

DOLLAR AMOUNT of reduction in physical inventory caused primarily by shoplifting and employee theft.

inventory shrinkage (shrink)

sometimes expressed as a percentage of sales

inventory shrinkage (shrink)

is a reduction in the physical amount of inventory that is not easily explainable

inventory shrinkage (shrink)

the most common cuase of shrinkage is __, usually by __

theft, employees

__: ratio that shows how many times the inventory of a firm is __ and __ over a specific period

inventory turnover, sold, replaced

expressed as "turns per period"

inventory turnover (usually a year)

inventory turnover: usually __turn is better; inventory sold more __ can be priced __

higher, quickly, lower

how do you calculate inventory turnover

COGS/average inventory

used to assess efficency in inventory management

inventory turnover

why is the inventory turnover ratio used so often? __ flow; determine if efficient use of __ __; ___ to industry averatges

cash, limited supples, comparison

if inventory levels are too __: uses cash resources, may increase company borrowing and interest expense (cash flow use), chance of developing obsolete inventory (esp out of date drugs)= __ prescription costs; __profits available for pharmacist pay raises!

high, higher, less

if inventory levels are too __: decrease in proper patient care, loss of sales due to lack of drug, increased work load in pharmacy, increased customer complaints, poorer performance evaluations; causes __ in profits (less profits available for pharmacist pay raises!

low, decreases

gross profit amount equation

revenue - COGs

gross margin percentage equation

(revenue - COGS)/revenue

indicates what the company's pricing policy is and what the true mark-up margins are (proportion of each dollar of revenue that the company retains as gross profit). the higher this is the more the compnay retains on each dollar of sales to service its other costs and obligations

gross margin

smaller companies must keep better watch over this, and usually have a __ average __ __

larger, gross margin

differnce between a business total revenue and its total expenses

net income/net profit (amount)

this caption and amount is usually found at the bottom of a company's income statement)

net income/net profit (amount)

itemized listing of all ESTIMATED REVENUE and all ESTIMATED COSTS AND EXPENSES (during a given period), typically for one business cycle (such as a year), or for several cycles (such as a five year capital budget)

operational budget

shows ANTICIPATED cash flows

cash budget

lists EXPECTED payments of money

expense budget

shows the ANTICPATED payments for LONG-TERM CAPITAL ASSETS

capital budget

where do budgets come from

corporate headquarters

how are budgets made? (3 different methods)

last year's budget (plus or minus);;;industry norm (comparing to other companies in your industry);;;corporate norm (based upon historical measures)

budgets are NOT perfect-->__ only

estimates

controlled or restrained by management; some of the costs of doing business can be postponed or spread out over a longer period of time (example: personnesll costs, travel and entertainment; marketing expense)

controllable expenses

what is the most controllable expense in pharmacy

payroll