The Financial Accounting Standards Board (FASB) sets generally accepted accounting principles (GAAP), the financial reporting standards in the United States.
Financial literacy is the ability to understand and use financial skills. This includes personal finance, debt management, budgeting, and investing.
Finance is the study of money and investments. In a business, it is called corporate finance. For individuals, it is called personal finance. Finance broadly includes accounting, financial statements, and investments.
Financial ratios are used to evaluate a company. Common examples are the current ratio, return on assets, and the debt ratio. The typical categories of financial ratios are
- liquidity ratios
- activity ratios
- debt ratios
- profitability ratios
- valuation ratios
The financial statements report the financial condition of a company and its financial position. The four financial statements are:
- balance sheet
- income statement
- cash flow statement
- statement of stockholders’ equity
Financial Statement Analysis
Financial statement analysis examines the financial statements to make decisions. It uses three basic types of analysis:
- horizontal or trend analysis
- vertical or common-size analysis
- ratio analysis
Future value is a time value of money (TVM) concept. It is a lump sum of money at a date in the future. It can also be calculated as the value of all future cash flows. Future value uses compound interest. Compounding is the process of growing money into the future. Financial calculators and Excel use the FV function to calculate future value.
The future value formula uses the following variables: PV = present value, i = periodic interest rate, and n = number of periods.