Definition (1) FINANCIAL ANALYSIS
(selection, evaluation, interpretation of
Financial data + other pertinent information
Sources of data (2)
Primary source (financial data in
financial statements and annual
reports) (3)
Secondary sources (3):
+ market data (4)
such as prices of the company shares/
products, etc.
available in financial press/ electronic media
+ economic data (5)
Such as GDP, CPI, consumer spending, etc.
Provided by government or private sources
+ events (6)
Show what are happening currently
Such as acquiring another company/
developing new products/ etc.
Help to explain the company’s present
condition and future prospects
Purposes of financial analysis How to analyze financial data
(for making decisions)
Different groups of users (7) Income statement analysis
need financial analysis for different 2 types of analysis (16)
purposes: + Vertical analysis (17)
The top management To compare every line item with revenue as
To make any managerial decisions (8) percentages
Such as: (9) + Horizontal analysis (18)
+ allocation of resources To evaluate the YoY change in each line
+ improving quality of products item
+ expanding the business Balance sheet analysis
The investors + To analyze the liquidity, leverage,
To decide whether to invest money (10) operational efficiency (19)
The creditors  Liquidity (20)
To decide whether to lend their money (11) Ratios used: quick ratio/ current ratio/ net
Others working capital
Including: (12)  Leverage (21)
+ tax offices: to determine tax liabilities (13) Ratios used: debt to equity/ debt to capital/
+ auditors: to review and evaluate the debt to EBIDA/ interest coverage/ fixed
financial data (14) charge coverage ratio
+ functional agencies for the whole industry  Operational efficiency (22)
management purposes (15) Ratios used: inventory turnover/ account
receivable days/ accounts payable days/
total asset turnover/ net asset turnover
Cash flow statement analysis
Rates of return and profitability
analysis
Definition of accounting (1)
Accounting books
Source documents (2)
Books of original (Journals) (3)
Purchase day book/ Cash book/ Sales day
book/ Purchase return day book
Ledgers (4)
Including all Accounts (5)
Trial balance (6)
Final accounts (Financial statements)
(7)
ACCOUNTING
Accounting process Methods of bookkeeping
Single entry bookkeeping (16)
Source documents
Double entry bookkeeping
Transactions are recorded in a journal  Definition (17)
daily (8) (Recording)  Advantages (18)
Books of original (Journals)
Periodically, data are transferred in a
ledger (9) (Classifying)
Ledgers
Act as preliminary check on accounts
before producing final accounts (10)
Trial balance
(Summarizing)
At the end of the fiscal year, financial
statements (final accounts) are prepared (11)
Financial statements (12)
(Interpreting)
- Balance sheets (13)
- Income statements (14)
- Cash flow statements (15)
 Definition of taxation (1)
Types of taxes
Based on what
imposed taxes:
+ corporate income tax (2)
+ personal income tax (3)
+ customs duty (4)
+ excise tax (5)
+ payroll tax (6)
+ inheritance tax (capital
transfer tax) (7)
+ capital gain tax (8)
+ VAT (9)
Based on tax rates
+ progressive taxes (10)
+ Regressive taxes (11)
Based on paying tax
manner
+ direct taxes (12)
+ indirect taxes (13)
TAXATION
Functions of taxation
Primary function: to raise
money for the government
spending (14)
Different types of taxes have
different functions:
+ Functions of income taxes (15)
- Redistribution of income
- Encouraging capital
investment
+ Functions of excise tax (16)
- To restrict the consumption
of some special G &S
+ Functions of customs duty (17)
- To protect the domestic
production and ensure jobs
for local people
+ Function of payroll tax (18)
- To ensure social security
and medicare
Tax avoidance Tax evasion
Definition (19) Definition (28)
Tax avoidance by individuals Tax evasion by individuals:
+ Employees: receiving perks (20)
self-employed people / people
Known as loopholes in the tax law
(21) with part time jobs (29)
+ Investing a part of income on Tax evasion by firms
pension plans/ insurance policies/ Making false declarations on
other investments – (22)
taxable incomes.
Known as tax shelters (23)
+ doing charity (24)
Tax deductibles (25)
Tax avoidance by companies
Reducing the tax bills to a legal
minimum (26)
+ bringing forward the capital
expenditure
+ applying LIFO methods to define
COGS

Advantages & Disadvantages
Advantages to exporting
countries (1)
- money accrues to exporting
countries
- increased production
- more employment
- increased market share for
exporting companies
Gs encourage exports by: (2)
- Providing marketing
information
- Establishing trade missions
- Subsidizing exports
- Providing tax incentives
Advantages to importing
countries (3)
- revenue by imposing tariffs
- more choice of goods
- lower prices due to more
competition
Disadvantages to
importing countries (4)
- declined domestic production
- more competition from foreign
producers
INTERNATIONAL BUSINESS
Theories of absolute advantage Trade barriers Measurements of international
& of comparative advantage trade
Theory of absolute Trade barriers (7) Balance of payments: (13)
advantage (5) - tariffs: (8) taxes on imports + financial account (14)
+ of Adam Smith - quotas: (9) quantity restrictions + capital account (15)
+ produce what is of the greatest - subsidy: (10) a sum of money + current account (16)
advantage provided by a government or + balance of trade (17)
+ there is international public fund to a person or
specialization organization for a specific
purpose
Theory of comparative - embargo: (11) an order by a
advantage (6) government or international
+ of David Ricardo body prohibiting trade with a
+ produce & export what can be country
produced more efficiently Justifications (12)
+ mutually beneficial trade arises - to protect domestic
when one country has a employment
comparative advantage - to protect relatively young
domestic industries
- to protect firms and industries
that produce goods and services
vital to the social security and
national defense
- to prevent the country from
depending on imports
- to allow greater reliance on
domestic production.
 BANKING & CENTRAL BANKING

THE CENTRAL BANK COMMERCIAL BANKS OTHER FINANCIAL MONEY

Functions of the central
bank
+ To serve as the government’s
banker
+ To act as the banker of the
banking system
+ To regulate the monetary system
for both domestic and international
policy goals
+ To issue the nation’s currency.
Monetary policy
 Tools of monetary policy
+ reserve requirement
+ discount rate
+ open market operation
INSTITURIONS
Seven main functions of
commercial banks:
1. Accepting deposits
2. Giving loans
3. Overdraft
4. Discounting of Bills of
Exchange
5. Investment of Funds
6. Agency Functions
7. Miscellaneous Functions
Savings institutions Definition
Personal trusts Four functions:
Insurance company + medium of exchange
+ measure of value
+ store of value
+ standard of deferred payment
Difference between:
 Commodity money
+ Examples of gold coins or
silver coins
+ the purchasing power (the
monetary value is equal the
intrinsic material value
 Token money
+ Examples of metal coins,
paper notes, …
+ the purchasing power exceeds
greatly the intrinsic material
value.