Key Business Concepts: Return, Value, and Financial Statements
Key Business Concepts
Return
Return is a measure of performance that we get because we apply resources during a period in order to obtain outputs.
- Return of Assets (Economic Analysis): Income before interest/Assets
- Return on Equity (Return for Stockholders): Net income/Equity
Management
Management is a process that includes a plan to make decisions, then implemented by making decisions happen and lastly, you must control and learn about your decision, if it was a good or a bad decision.
Value
Value is the money that buyers are going to pay in exchange for products and services.
Companies want to market products when value is higher than cost.
Value Chain
The Value Chain is a term created by Porter, used to describe the process by which businesses receive raw materials, add value to the raw materials through various processes to create a finished product, and then sell that end product to customers.
Company Earnings
Company earnings are a measure to check the company’s capacity for wealth creation during a period; it’s obtained by the difference between the value of the sales (revenue) and the expenses necessary to obtain sales, less the losses (because expenses that are not necessary).
Financial Statements
Balance Sheet
A Balance Sheet shows us the company’s wealth at a specific date.
Income Statement
An Income Statement shows how much is the variation of company wealth in a period. It compares the revenues obtained in the period with the expenses necessary to obtain it. It measures company efficiency. It is usually referred to one fiscal year.
Cash Flow Statement
A Cash Flow Statement shows the cash flow during a period.
Accounting
The objective of Accounting is to provide information that is useful for decision-making purposes. It involves the entire process of identifying, recording, and communicating economic events. There are two main types: managerial and financial.
Bookkeeping
Bookkeeping refers to the ‘books’ in which accountants record transactions. People think that accountants simply count carefully and keep records, but accounting transcends counting. Usually, it only involves the recording of economic events.
Financial Statements Regulation
Financial statements are regulated by law. Companies have to make these statements and show them to the government at least once a year. However, they don’t have to include the cash flow statement.
Revenues
Revenues are increases in retained earnings from delivering goods or services to customers or clients. Its main source is the company’s sales.
Business Transaction
A Business transaction is any event that both affects the financial position of the business entity and can be reliably recorded.
Business Systems and Project Management
Financial Subsystem
The Financial subsystem is in charge of managing financial resources (collection, administration, control) necessary to run the real system processes.
Assets
Assets are goods and rights owned by the company. Two main components:
- Current Assets: Cash, accounts receivable, inventory.
- Non-current Assets: Machinery and facilities.
Liquidity
Liquidity is the capacity to turn assets into cash. Sometimes companies need to pay short-term liabilities. We have to consider if we have enough cash generation potential to pay our current liabilities.
Network Diagrams
Network diagrams are made of both tasks and events (the beginning and the end of the project). They provide a picture of the total project which can be used by the project manager to obtain the following information: final date, impact of schedule, activity interdependence, performance, and analyzing the changes.
Scope
Scope defines what is expected to be the product we’re producing. It’s the most important thing in the project. The first step is to understand what the customer wants.
Early Start/Early Finish
Early start and Early finish are dates you establish for the beginning and the end of the project, but you might have to start or end later if you encounter problems in the project. A critical path is the start because if you delay the start, you are going to delay all the project’s dates.
Benchmarking
Benchmarking is a measurement of the quality of an organization’s policies, products, programs, strategies, etc., and their comparison with standard measurements. It has three objectives:
- Determine what and where improvements are needed.
- Analyze how other organizations achieve their high-performance levels.
- Use this information to improve performance.