Contents

Introduction............................................................................................................................................1
Setting up a business..............................................................................................................................2
Investment..............................................................................................................................................3
Business Cycle.......................................................................................................................................5
The Balance Sheet..................................................................................................................................7
Measuring Financial Performance..........................................................................................................8
The Break-even Point.............................................................................................................................9
Overheads.............................................................................................................................................10
Bankruptcy...........................................................................................................................................11
Money Matters.....................................................................................................................................12
Costs.....................................................................................................................................................13
Measuring Performance.......................................................................................................................14
Financial Centers..................................................................................................................................15
Success & Failure.................................................................................................................................16
Share Movements - Trends...................................................................................................................17
Financial Planning................................................................................................................................20
Charts - Graphs....................................................................................................................................21
Cash Flow Problems.............................................................................................................................23
Manager Investment Portfolio..............................................................................................................24
Managing Company Finances..............................................................................................................25
Master Budget......................................................................................................................................26
 Introduction
Economics: It is a science that deals with economies and analysis in 3 different areas:
Production, Distribution and consumption. Economics aims how economies work and
interact. It chooses the interdependence of the different economies in the world.
Economies is divided into 2 basic branches:
 Macroeconomic: it is a branch/ a discipline in economics that deals with big issues
related to the entire economy including unemployment, growth, inflation...
Macro economics examine the economies as a whole.
 Microeconomic: It deals with the basic elements in the economy such as the market,
the seller, costs, companies, buyers...

Growth: the growth of a country is measured by the change in the Gross Domestic Product
(GDP) or the Gross National Product (GNP):
 GDP: refers to any activity in the country (textile, transport, health, goods, services...).
It is inside the country
 GNP: refers to these activities in the country plus investments abroad (exports).
→→→ Economic growth is indeed the increase of GDP per capital.

Unemployment: is a social and economical phenomenon. It is the result of the industry

revolution. Man was substituted by the machine. Man is a victim of the new technology.

Inflation: refers to continuous Effects of Inflation

Deflation: a decrease in prices
rise of prices.  The ↘ of the value of the
 High inflation: hyper currency
inflation → a quick rise of  The ↘ in investment.
prices.  The ↘ savings
 Low inflation: a slow rise of  shortage of goods and
prices. It is the best situation services.
for the economy.

Supply and Demand are considered as two basic concepts of economics. Indeed, they form
(constitute) the backbone of a market economies.
 Supply: refers to how much the market can offer the consumer.
 Demand: refers to how much quantity of product is needed by consumers.
→→→ In business, we refer a balanced situation between supply and demand in a balanced
way.
The equation supply (S) and demand (D) has a direct impact on the price:
S < D : Prices increase
S > D : Prices decrease
S = D : Remain the same. this situation is called Market Price
International Trade: it is an exchange of capital, goods and services, money across
international borders. I.T. is influenced by globalization, industrialization, free trade...
Trade deficit: it occurs when: Export < Import
Trade balance: it occurs when: Export ≥ Import

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 Setting up a business
There are at least 3 points to be taken into consideration to start up a business:
 Personal qualities
 Professional qualities
 Financial issues
There are areas that perhaps appeals to the entrepreneur: agriculture, tourism, farming, trade.
A new businessman before starting up a business should answer these questions:
 Future of the product?
 Needs of the market?
 The end of the product?
 Planning?
 Who will guide you? Who would you consult?
 Who to employ (skilled or unskilled)?
 Where to invest (infrastructure)?
 How much money do you need (capital)?
→ Certain (big) companies may have between 6 & 8 departments: R&D, Financial,
Technical, Management, Transport.
→ For small companies, we only find a unique department responsible for everything.
 Goals? How to reach them?
 How to insure profit? gain Profit?
 When the time to start up a business?
 We have to carry out all these questions to guarantee success, to achieve fame, to make profit,
to be a leader.
 We also should think about costs: How much does it cost to set up a new business? How
much money you need to spend?
Cost: refers to expenditure. Costs include buying raw material,... involve also equipment,
buying machines, payment (salaries & wages). It's all money spent. It can also be taxes.
There are 2 types of costs:
Fixed costs: refer to expenses that do not change according to the volume
Variable costs: they do change according to the business. They depend on the volume
of production

Related Terms:
Income = Revenues = Earnings : refers to all money received by a person or a company
during a giving period of time.
Dividend: It is a share in the annual profit of a company.

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 Investment
Investment: It means the use of money in the hope of making more money and profit.
Investment presupposes making profit.
To invest (V): to put money into a business adventure or to buy a property with expectations
of making a profit.
Investor (person): someone who makes investments.
In economics, investment means the creation of capital or goods capable of producing other
goods or services (investment generates money). Indeed, it is an activity which gives the
investor the opportunity to gain profitable returns.
Incomes: they are also called revenues and earnings. they refer to money received through
investment or employment and renting.
The income is important to investors because it gives an indication of the company's future
potential growth.
Growth: good investments necessarily generate good income. This results in growing
economies and increasing sales.
Related terms to growth: advance, advancement, boost, increase, rise, prosperity ≠
decrease, failure, stagnation, reduction, decline, under development, poor lifestyle.
The term growth, then, would refer to economic expansion which is measured by 2
indicators GDP and GNP.
Other related terms to investment:
Gross Profit: it's the profit gained before detecting expenses and interest, taxes...
Net profit = Net income = Net earnings: it refers to the profit gained after detecting
expenses
Net profit = Total expenses - Total revenues
Dividend: it is a part of earnings of a company that is distributed to its shareholders. A
dividend is a share of profit to pay to shareholders in a company depending on the amount of
investment.
It is indeed a distribution of portion of a company's earnings based on investment. For
example, if shareholder "A" own 70% of the share of a company, then he should get 70% of
the Net profit gained and if shareholder "B" own 30%, he should get 30% of the Net Profit.
Types of companies:
Sole Trader: it is a company run by one person who reports income from self-employment.
The self-employment person is defined as an independent worker. Example, working in
library, bookstore ...
Private Limited Company (LTd): it is a type that has shareholders with limited liability and
its shares may not be offered to the public. Owners of LTd company can only raise capital
from friends or banks. It cannot be traded on a public stock exchange.
Unlike the sole trader structure, the LTd company's personal finances are kept separate (the
sole traders are inseparable)
A LTd company is owned by its shareholders (sole trader has one owner/ one holder)

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Public Limited Company (PLC): it refers to a company that has offered its shares to public.
Its shares (stocks) can be owned, purchased by anyone. Its shares (securities) are traded on
stock exchange.
PLC are strictly regulated and are required by law to publish their true worth of its shares.

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 Business Cycle
A business cycle is the recurring and fluctuation level of economic activity and an economic
experience over a long period of time. The stages of a business cycle are Peak, Expansion,
Contraction, Trough.

 Fluctuation: movement not stable.

A trough: It is the stage of the economist business cycle that marks the end of the period of
climb and the beginning of the expansion.
contraction: It is the stage of business cycle in which economic growth weakens. Indeed, it
occurs after a peak and before it reaches a trough. Contraction in the economy is a source of
difficulties, hardships and crisis. One major result of contraction is unemployment.
Expansion: It is the phase of business cycle that comes after a trough and before a peak. In
this phase, the business activity is witnessing prosperity (good times).
Peak: It is the highest point of the upper turning of a business cycle. It signals that the
economy is healthy and prosperous.
 The business cycle is therefore the periodic up and down movement in an economic
activity, measured by fluctuation in GDP and GNP.
A business cycle is not a regular stable phenomenon. It is rather changing because it
undergoes (goes through) upturns and downturns. In fact, several factors affect the runny of
a business such as crisis, war crisis, mismanagement, bad working conditions, competition...

Related terms:
A boom: it is a period of time during which sales increase rapidly.
Recovery: it is an increase in the economic activity after recession
Recession: it is a period of time during which a business activity falls down and
unemployment rises.
Depression: signals that the economy is in crisis.
Upturns: a period of time that marks the end of recession and signals the beginning of
expansion.

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Downturns: a period of time that marks the end of expansion and signals the beginning of
contraction.
Terms associated with upturns:
growth, boom, rise, prosperity, peak, expansion, increase, to expend, advancement, success,
move up, improvement, skyrocket, surge, upward...
Terms associated with downturns:
fall, decrease, decline, depression, collapse, move, down, downward...

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 The Balance Sheet
Definition: It is a financial statement that records summaries of the company assets (what the
company owns), liabilities (owes/debts) and shareholders' equity at a specific time normally
of the financial year.
The balance sheet gives a clear idea about the company' financial conditions. It follows the
following formula:

Assets = Liabilities + Equity

This equation represents the structure of the balance sheet.

The balance sheet has 3 major parts:
A. Assets: They are anything of value owned by a business (machine, money, building,
capital, goods, reputation...).
B. Liabilities: They refer to debts, bills, taxes, that the company should pay.
C. Shareholders' equity: This refers to the amount invested by shareholders.
Positive equity: Assets > Liabilities
Negative equity: Assets < Liabilities
The balance sheet is called as such because its parts should be balance out. Indeed, the
company has to pay all the things it owns by borrowing money or getting its shareholders.

Related terms:
Depression: the decrease in the value of something overtime. (e.g. currency)
Appreciation: the increase in the value of something overtime.
Cash flow statement: it is a financial statement report that the public company should
publish. It is indeed a document that records the amount of cash and like entering/leaving a
company. The CFS allows investors to understand how the company’s operation are done and
how is spent, therefore, is important since it helps investors to know whether the company has
trouble with cash or not.
Equity assets: they are anything that can be turned into cash quickly.
Wasting assets: they are gradually exhausted or used up in production and cannot be
replaced.
Mortgage: a loan used to buy property. The property itself serves as a security for the loan
liquidity. It is the ease with which an asset can be sold and spent.

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 Measuring Financial Performance
Financial performance is a subjective measure of how well a firm, or a company can use
assets from its business and generates revenues. The term is also used as a general measure of
the company's overall financial health and can be used to compare similar firm in the same
industry. In fact, the financial strength of companies is measured in terms of different criteria
such as capital expenditure, assets, liabilities.
Capital expenditure: it refers to money invested in a business and used to buy the assets like
land, buildings, and equipment.
Assets: an asset is something that has a value. It is any item of economic value owned by an
individual or a company or a government (anything of value that belongs to a person or a
government).
An asset could be converted into cash. It is also used to produce goods or pay liabilities
(debts) (e.g.: cash, shares, machine, equipment and copy rights)
Assets are divided into 3 categories:

Curre Fixed Intan

nt Assets gible
Assets Assets
Cash and Buildings Copy right
other liquid Factories Trade market
assets. Lands good will
reputation)
1. Current assets: they are also called circulating or floating assets. They refer to a
balance sheet account that represents the value of all assets that are expected to be
converted into cash. Current assets include cash, accounts, receivable/marketable
securities (shares), expenses. Indeed, they are important to most companies as a source
of funds for day-to-day operations.
2. Fixed assets: they are also called long term assets, permanent assets. They are held
for business use and not expected to be converted into cash (e.g.: equipment, building
and furniture).
3. Intangible assets: they are things of value that can be physically touched such as a
brand name/ identity, brand recognition, trade market and a patent. Intangible assets
like good will or good reputation and fame are very important in business in today's
marketplace. While intangible assets do not have the obvious physical value of a
factory or equipment, they can proof very valuable for a firm and can be critical to its
long term success or failure (e.g. : a company such as "Coca cola" wouldn't be
successful if it was not of its brand name recognition). Although brand recognition is
not physical assets that you can see or touch, it has positive effects on bottom line-
profits such as HP, Nokia, Addidas... whose brand strength drives global sales year
after year and generates revenues day after day.

Liabilities: a financial obligation, debt or loss. The company has to pay bills, taxes, debts,
interests and other payments.

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 The Break-even Point

It is the point at which costs and revenues are equal. It occurs when total revenues equal total
costs. There is in the B.E.P neither lost nor gain. There is no profit yet.
The B.E.P means that the company has covered its costs and starts to make profit. For
business, reaching the B.E.P is the first step towards making profitability. In fact, it is the
point at which the product stops costing you money and starts to generate a profit.

Related terms:
Costs:
Fixed costs: they refer to cost that do not change according to the volume of
production.
Variable costs: they to costs which depend on the volume of production.
→ Both of costs make total cost.
Loss: it is a condition in which a company's expenses goes beyond its profit/revenues
(costs > revenues).
Profit: it describes a condition in which company revenues are greater than costs.
Price war: it is a situation in which powerful competitors cut/reduce prices in order to gain
customers interest and confidence.
→ This results in one of the competitor leaves the market / gives up doing business because
he can't endure to continuous reduction of prices.
Loss-leader pricing: it refers to selling a popular product at a discount in order to attract
customers and encourage them to buy other products.

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 Overheads
It refers to all expenses (costs) that contribute to the functioning of business. They are also
called operating expenses because they are necessary for the business.
Overheads may include rent, insurance, gas, electricity, equipment, bills, advertising, and
travel expenditure.
Insurance: it is designed to protect the financial well-being of an individual or a company in
the case of unexpected loss. Insurance is therefore, a financial protection for property life and
health... against risks such as accident, damage, thief, and fire.
Indemnity in insurance: (to composite someone for loss or injury). Indemnity in insurance is
an insurance policy that aims to protect business owners.
Mortgage: it is a loan to finance the purchase of a property of a real estate. (e.g.: A home
buyer pledges his house to the bank. The person who had a mortgage is a mortgager
(borrower)).
Lease: it is a written agreement under which a property owner allows a tenant (the renter) to
use the property for a period.

Related terms:
Fixed overhead costs: it refers to overhead expenses or business expenses that are not
directly related to the production process. They neither increase nor decrease with volume of
production. Expenses like rent and property tax, tend to remain the same whether productivity
rises or falls.
Variable costs: it is a cost of labor or material (equipment) that changes according to a
change in the volume of production.
Manufacturing overhead: they are all manufacturing costs other than direct labor or
materials.

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 Bankruptcy
It is a legal proceeding involving a person or business that is unable to pay debts. It is a legal
procedure in which an individual or a company is declared to bankrupt.
Related terms:
Debt: it refers to money, loans that a business borrows from banks. They are liabilities that a
company should pay.
Insolvency: it describes a situation when individuals or business fail to meet their financial
obligation (they cannot pay their debt). Insolvency is a legal action taking against the
insolvent entity and assets may be liquidated to pay off these debts.

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 Money Matters
Money Supply: it is also called money stock. it is the total supply of money in circulation in a
country's economies at a giving time. It refers to the entire stock of currency and other liquid
instruments. Money supply includes coins, cash, credit, loans, bills. Economists analyze the
money supply and develop policies revolving around it through controlling interest rates and
decreasing or increasing the amount of money flowing in the economy. The money supply is
considered as an important factor for controlling inflation. Money supply is divided into
various categories. In fact, the different types in the money supply are generally classified as
Ms: M0, M1, M2, M3
M0 & M1: they are also called narrow money and include coins and notes (10, 20 DT)
that are in circulation. They also include money equivalence that could be converted
into cash, currency, checking and credit accounts.
M2: it includes M1 + short term deposits in banks.
M3: it includes M2 + long term deposits.
It is worth noticing an increase in the supply of money typically lowers interests (money
supply ↗, interests’ rate ↘). This situation generates more investment and stimulates
spending, allowing business to prosper, production to increase and demand for labor to rise. If
money supply falls, the growth rate declines, and unemployment dominates.
→ Investments drop and business fail.
Related terms:
Monetarism: it is a theory denoting that prices and economics activities are determined by
the quality of money in circulation.
Monetarist: he is an economist who believes that money supply is the most important
economic measure.
Tight money: it is called dear money. It describes a situation in which money is difficult to
obtain.
Interest rate: it refers to the amount charged by the lender to a borrower for the use of assets.
Interest rates is usually expressed as a percentage of principal. In the case of a larger set like a
vehicle or building, the interest rate is sometime known as the lease-rate.

Interest rate = Principal × annual interest × number of years

Commercial bank: a business that trades in money, receives money, holds deposits and
lands/gives loans.
Output: it refers to the total value of goods produced, or services performed by an individual,
a company, or a country.

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 Costs
Costs: refer to money spent or used in production, distribution and marketing...
Costs: expenditure = expenses = fees = legal charges...

Types:
Fixed costs: they are costs that do not change with the level of sales of production (e.g.:
rent, salaries of permanent employees, storage costs...). Fixed costs remain constant
regardless of any change in a company's activity (e.g.: if you are renting a car or a
building at 200 DT/month, then you will pay that amount each month regardless to the
performance of your business). Other fixed costs include labor costs and administrative
costs.
Variable costs: they change in proportion to a change in a company's activity. They vary
according to the volume of production. (e.g.: fuel, raw material, production costs, selling
costs, advertising costs...)

Production Costs Selling Costs Advertising Costs Distribution Costs

They refer to all costs They include all They refer to all They refer to costs
necessary for making expenses involved in expenditures related related to the
goods and services. the marketing and to advertising the distribution finished
They include 2 types: the distribution of the product. product.
 Indirect Costs: product. (promoting the
Different product)
overheads such as
taxes, securities
costs, and
administration
costs.
 Direct costs:
Refer to costs for
raw material+
labor

Overheads: they are the ongoing expenses of operating a business-like rent, gas, wages,
electricity...

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 Measuring Performance
The main objective for measuring performance is to evaluate/assess how well the company is
performing, how companies are being run and how money is being used.

A. The Financial Reporting:

It is a statement that records the financial activities of a company or an individual. It gives
an idea about the performance of a firm or a business. Every year, a report is produced
with 3 basic financial statements:
1. Balance Sheet: It shows a company financial condition (assets, liabilities, equity).
2. Profit & Loss account: It is also called Income Statement. It reports companies’
incomes, expenses, profit & loss made by the business during a period of time.
3. Cash flow statement: It also referred to as Funds Flow. It is one of the financial
report a company should give to public. It is concerned with cash/amount of cash
made during a specific period of time. Cash flow statement provides dates about
cash inflows & cash outflows that is what a company receives from a business or
investments and what it pays for business & investments during a period of time.
The 3 above are key statements that appear in the financial results.

B. The Financial Year:

It is an accounting period that can starts at any time/date. At the end of the financial
year account books are closed, profit or loss is computed, and financial reports are
prepared for filling. In some countries (UK), companies publish interim results or
interims after the 6 months of the year.

C. Shareholders - bondholders & lenders:

A share is money invested by someone in a company. Shareholders (B.E) /
Stockholders (A.E) are paid from profit usually in the form of dividend.
Bond which is a dead instrument which certifies a contract between the borrower and
the lender (between the bond issuer and the bondholder). The issuer promises to pay
the loan principal to the bondholder + a fixed interest rate on a fixed date.

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 Financial Centers
A financial center is a place with banks and stock exchanges, a place where investors and
businesses need the investment.
Example: Wall Street in New York and London Stock Exchange. Indeed New York city is
the financial capital of the world. There a saying which shoows the importance of the
American Economy and its impact: " When the USA sneezes, the rest of the world catch up a
cold ".
The followings are major US stocks exchanges:
NYSE / NASDAQ / NYBOT / NYMEX / AMEX ...
The london stock exchange was founded in 1773 and is located in London.
Related terms:
Speculation: A financial action that involves the landing of money or the purchase of assets
in the hope of making profit. Speculation is not safe or secure. It may result in the loss of the
principal investment (e.g.: gambling).
Speculator: he is an investor who wants to make a quick profit.
Speculative: bad, risky, not financially secure.
A broker: he is an individual or a company or an agency acting as a go-between, an
intermediary between a buyer and a seller usually charging a commission.
A trader: someone who buys and sells goods, services, commodities and securities for his
own profit.
A dealer: he is a person who buys and re-sells merchandises and goods to make a profit. In
fact, brokers, traders and dealers buy and sell for investor and for themselves.
Stock market exchange: it means the trading of stocks trough exchanges. It is, in fact, an
exchange on which shares are bought and sold.
Floatation: it refers to the number shares publicly owned and available for trading.
→ Going in public allows the original owners and early investors to make profit.
Floatation also refers to offering shares for sale to the public for the first time.
Commercial paper: it is a debt which is insecure and short term issued by a corporation or a
bank to finance its credit needs or pay liabilities. It is usually issued at a discount.
Commodities: refer to food, metal, electronic, raw materials and primary products like
coffee, tea, cereal. They are interchangeable with one another.
currencies: they refer to buying and selling the money of countries.
Derivatives: it is a financial instrument whose characteristics and value depend upon the
characteristics and value of a commodity, bond, equity, or currency... (e.g. futures & options).
Investors sell or purchase derivatives to manage risks, protect against fluctuation in value and
to profit from period of decline.
Futures = future contract: it is an agreement that requires delivery of a commodity or bond
or a stock at a specified price on a specific future date.
Options = Option contract: it is the right to buy and sell commodity, bond, product,
currency, service at a specified price during a specified period.
Unlike options, futures display an obligation to buy.
Options refer to the right but not the obligation.

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 Success & Failure
Business companies may expect success and/or failure.
Cash mountains and surpluses refers to the money a company has to spend on a business
(e.g. buying new companies or gives small companies to different shareholders). Cash
mountain also refers to cash pile. It may be used for doing research and development for
investment, buying new machines and equipment.
Related terms:
retained surplus, retained earnings, cash reserves, cash pile.
→ These terms mean that the company is doing a successful business.
Retained earnings: they are part of the profit, and they are saved to be used in time of hard
times. They are not paid to shareholders as dividends. The retained earnings, however, could
be re-invested by the company in other business or be used to pay debts.
Cash mountains and surpluses are good signs of a good business.
Debt: it is an amount of money borrowed by one party from another (e.g. bonds, commercial
paper, loans...)
Related terms:
Debt burden: it describes a situation where the debt becomes a real problem.
Debt crisis: it describes a situation when a company has serious difficulties when repaying its
debt.
Debt default: it occurs when a company fails to make a debt repayment.
Debt rescheduling: it occurs when a company fails to pay its debt and asks the lenders
(banks, government...) to reschedule the repayment of debt. This would be an opportunity for
the indebted countries to repay its debts with a new measure and favorable interest rates.
Turnarounds and bailouts:
Turnarounds: they refer to a situation when a company experiences a positive
reversal after having a poor performance. Turnarounds signals a complete change
from a bad situation to a good one.
Bailouts: the term refers to a financial help giving to a person, a company, or a
government in difficulty.
Government or banks may offer money to a failing business to save it from collapse.
Bailouts take the form of loans, bonds, stocks, or cash. Most of the time government
step in to save the bankrupt companies by offering a huge sum of money.
Bankruptcy: it describes a situation where companies are in serious financial difficulties
(they are unable to repay debts and liabilities, salaries, taxes...)
In the USA, companies may file for bankruptcy at the court asking for a recovery plan to be
temporarily protected from creditors and given time to try to solve problems. Bankruptcy
applies to companies that are unable to be saved or bailed out.
Insolvent company: it refers to a company that is unable to pay its debt.
Liquidation: when a company stop trading.

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 Share Movements - Trends
Trend: it refers to a current general direction of movement for prices, sales, ... on short-mid-
long-term basis. A trend that moves generally higher is called an uptrend and one that moves
lower is called downtrend. Trends which remain at the same level are referred to as constant
trends.
Uptrend: it refers to the dominant directional movement of the price or rate of an
asset when it is increasing
 Verbs: go up, rise, improve, advance, step out, get better, to peak, to reach a peak,
to hit record, to skyrocket, record high...
Down trend: refers to the dominant directional movement of the price or rate of an
asset when it is decreasing. The technical description of a downtrend movement
consists of a continual downward slope on a chart/diagram.
 Verbs: go down, decrease, fall, drop, decline, collapse, edge down, fall back, get
worst, hit bottom, reach a trough, to reach a low point...
Constant trend: it is the stability in the trend of an asset.
 Verbs: to stay the same, to stabilize, to remain unchanged, to level off.
Trend analysis: it is a method of predicting share movement on foreign exchange markets
through technical analysis of its past trends during different situation. The theory behind trend
analysis is that a stock / a share performance is often a good indicator of how it might perform
in the future when similar conditions arrive.
Fluctuation: it refers to the up and down movement of a trend.
 Verbs: to fluctuate, to undulate, to undergo, change, to ebb and flow, to shift back and
forth.
Adverbs and adjectives of speed and intensity may be used with the above verbs:

Adverbs Adjectives
Sharply Sharp
Slightly Slight
Dramatically Dramatic
continuously Continuous
Gradually Gradual
Significantly Significant
Quickly Quick

Trend patterns:
The V bottom: the chart pattern associated with the end of a downtrend. It describes a
sharp followed by an equally sharp reversal.
Head and shoulder pattern: it is named for its resemblance to a head and to
shoulder. The neckline represents the end of the upward movement.
Reversal head and shoulder pattern: it is a common trend several chart patterns
associated with a market top. The neckline represents the end of the down trend
movement.

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Double top: it is a trend pattern formed when an index rises two times to the same
level before reversing direction and the beginning of a down trend.
Double bottom: it is reversal trend pattern formed when an index falls two times to
the same level before reversing direction and beginning an uptrend.
Triple top: it is a chart pattern formed at the end of an uptrend when the index/price
rises three time to the same level before reversing.
Triple bottom: it is reversal trend pattern formed at the end of a down trend when the
price or index or chart declines three times to the same level or somehow before
reversing direction and beginning an uptrend.

26
26
 Financial Planning
Definition:
To run a company effectively you need to plan for the impact and the influence of different
action on the financial situation of your company. Thus, there is an urgent need to plan.
Indeed, in business we cannot do financial operation without planning. Businesspeople have
to predict the result of the business operation before entering the adventure. To ensure profit,
they should calculate every movement and step. Therefore, financial planning is vital for the
success of the company.

Related terms:
Profit: it is a financial benefit realized when the amount of revenue gained from a business
activity is greater than expenses, costs and taxes.
Profitability: it refers to the ability of a company to earn a profit and generate earning. It is
expressed in terms of how much they make, with what they have.
Profit margin: it is a ratio of profitability calculated as Net Income over Revenues, or Net
Profit over Sales. It measures how much out of every dinar or sales a company keeps in
earning. Profit margin is useful when comparing companies in similar industries.
A higher profit margin indicates a more profitable company that has better control over its
costs compared between its competitors.
Profit margin is displayed in % (e.g., a 20% profit margin means that the company has a Net
Income of 0,20 dinars for each dinar of sales).
Return on assets (ROA): it is also called Return on Investments. It is indeed an indicator of
how profitable a company is, relative to its total assets. ROA gives an idea as to how efficient
management is at using assets to generate earning. It is calculated by dividing a company's
annual earning over its assets.

Return on assets = Net Income / Total assets

Return on equity: it is also referred to as Return on Net worth (RONW). It describes the
amount of Net income returned as a % of shareholders equity. The RONW measures
profitability by revealing how much a company generates with the money shareholders have
invested.

Return on equity = Net Income / Shareholders' equity

The RONW is useful for comparing the profitability of a company to that of other firms in the
same industry.

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 Charts - Graphs
Graph: it is a diagram that shows the relationship between 2 sets of quantities or values. Each
one of it is represented on an axe (e.g., " The graph below is used to show salary increases in
a relation to increase in output " or " According to the graph under study, salaries have
increased remarkably for the last 2 years ).
Chart: is also a graph used to analyze historical price or selling (historical performance) and
make predictions about future movement.

Type of Chart Definition Presentation

The top and bottom of the
bar represent the highest
and the lowest point in the
trend.
Example: the opening
Bar Chart price is displayed on the
left side while the closing
price is shown on the right
side of the part.
The bar chart uses time as
"X" and price as "Y".
It is a graph used to
analyze stock
performance and make
Pie Chart assumption about future
behavior. It is composed
of a serie of vertical of
vertical lines called bars.
It is a chart that display
the higher, the lower, the
opening and the closing
prices for a share or any
item.
If the price is closed, high,
the body will be green and
white.
If the price is closed,
Candlestick Chart
lower, the body will be
black and red.
The candlesticks reflect
the impact of investors'
emotions on stock prices
or share prices and are
used by technical analysts
to decide when to enter or
when to leave business.

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 It is a style of chart
created by connecting a
series of dated points
together with a line.
This is the most basic time
Line Chart of chart used in finest
curved graphs (the upward
curve, the down curve)

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 Cash Flow Problems
Cash flow refers to a revenue or an expense that changes a cash account over a given period.
Cash inflows: It usually arises from one of the following activities:
 Financing
 Operation
 Investing
Cash outflows: it results from expenses if investments. It is a measure a company's
financial health and strength. Indeed, cash flow is crucial to the survival of the
company. Therefore, having ample (a lot of) cash on hand will ensure that creditors,
employees and suppliers can be paid on time and investors would be able to invest
their money in different business activities. However, if a person does not have
enough cash to support its operations and to pay liabilities, it's said to be insolvent.
→Cash flow generates more cash and more profit.
→ Cash outflow results in economic crisis.
Related terms:
Cash flow statement (CFS): it is a financial document that provides data regarding all cash
inflows that a company receives from both operations and investment/ external investment, as
well as cash outflows that are paid for business activities and investments during a given
period of time.
The CFS is a financial report. a publicly traded company is asked to disclose/publish to the
Securities and Exchange Commission, known as SEC and to the public. A SEC is a federal
agency for securities industries. Its role is to protect investors against fraudulent practices and
manipulative actions.
Overdrafts: meaning the amount by which withdraws go beyond deposits. Overdrafts allow
the individual to continue withdrawing money even if the account is empty.
Liquidity: it is the ability of an asset to be converted into cash. The asset can be easily bought
or sold, are known as liquid assets.
Liquidity Crisis: it is a negative financial situation characterized by a lack of cash flow. The
business/company is unable to meet its obligations such as paying bills, salaries, loans... If the
liquidity crisis is not solved, the company must declare bankruptcy.
Liquidity crisis means that the two main sources of liquidity (banks, commercial
payment/paper market) reduce the number of loans. They stop making loans all together.
Opportunity Costs: it is the cost of an alternative that must be forgone in order to follow
certain actions. It refers to the benefits you could have received by taking an alternative
action.

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 Manager Investment Portfolio
A portfolio is a collection of investment carried out by an individual or a company.
An investment portfolio is the total of investor's different investments by which an investor
tends to make profit or income.
Related terms:
Investment: it is the purchase of material, machines, securities or other items of value in
order to make profit. Briefly, it is the use of money in the hope of making more money.
Investor: it is a person or organization that buys properties or securities in order to receive
income.
Investment broker: a broker is someone who arranges transactions between a buyer and a
seller and gets a commission. He is an agent who brings together a buyer and a seller of
investments. He charges a commission on the trades he makes (selling and buying stocks,
selling and buying shares).
Sector: the term refers to the area of the economy where investments is conducted (oil sector,
gas sector, wood industry sector). Sector investing is a business specializing in a particular
economic sector.
Stake: it is the amount of the financial investment in a business.
Risk: it refers to the possibility of a loss. It refers to the amount that one of us may lose when
investing (risky business, risky investment, risky activity).
Pension: It is a regular sum of money paid to a retired worker in return for past services or
contribution.

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 Managing Company Finances
To finance is to provide funding for a person on a company.
Finance is the branch of economic concerned with management and investments. It deals with
money and markets.
Finance refers to the management and circulation of money, the making of investments and
the granting of credits.
Related terms:
Equity financing: it is a finance by selling shares to investors, it is indeed, the finance that a
company receives from selling stocks/securities/shares rather than borrowing money.
Capital costs: they refer to the cost of buying fixed assets (building, cars, machinery,
equipment).
Income from sales: it refers to turnover business total sales and revenues.
Wealth: it is the stock of goods or money that a person or a country has.
Retained profit: it refers to the profits that are not distributed to shareholders but re-invested.
the company decides to keep the retained profit as a saving.
Contribution:
Contribution = Sales Income - Variable Costs

Contribution ratio: it refers to the gross profit margin (profit before detecting costs).
Unit contribution:

Unit Contribution = (Selling price - Variable Costs) / Volume of Production

Work in progress: it refers to the goods/finished goods (goods which are already produced)
but not yet sold.

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 Master Budget
Definition:
Companies use budgeting to facilitate planning and control within the business firm in order
to manage the financial aspects or their business and plans for new product expansion in the
future.
Master budget is a one-year budget planning document. It is an overall financial and
operating plan for the coming financial year. It is really several sub budgets tied/related
together to summarize the planned activities of the business.
The master budget is a comprehensive budget planning-document. It usually has two parts:
1. The Operating Budget: it shows the income-generating activities of the company
including revenues and expenses. The result is a budgeted income statement (CFS).
2. The Financial Budget: it shows the inflows and outflows of cash and other elements
of the company's financial position.
Master budget is a summary of the company plans which sets specific targets/goals for sales,
production, distribution and financing activities. Indeed, it is a set of operating budgets related
to finance and production. The master budget culminates in cash budget, a budgeted cash flow
statement, and a budgeted balance sheet. In short, this budget represents a comprehensive
expression of management's plans for future and how these plans are to be accomplished
(how, when, where to be used).
The master budget usually consists of several separate but interdependent budgets.
The following are the major components of the master budget:
Sales budget: it is a detailed schedule showing the expected sales for the budget
period. It helps determine how many units will have to be produced.
Production budget: it is prepared after the sales budget. It is used to determine the
number of units that must be produced during each budget period.
Budgeted cash flow/Income statement: it is one of the key schedules in the budget
process. It shows the company's planned profit for the upcoming budget period, and it
stands as a benchmarking against which a subsequent company performance can be
measured.
Budgeted balance sheet: it is developed by beginning with the current balance sheet
and adjusting (adopting) it for the data contained by the other budget.
Cash budget: it is a detailed plan showing how cash resources will be acquired over a
specific period. It is composed of 4 main sections: the receipts sector, the
disbursements sector, the cash access of deficiency and the financing sector.

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