FINANCE AND ACCOUNTING

Financial accountancy - is used to prepare accounting information for people outside the organization or not involved in the day to day running of the company.

Financial accountants produce financial statements based on Generally Accepted Accounting Principles (GAAP) of a respective country. Financial accounting serves following purposes:

• producing general purpose financial statements
• provision of information used by management of a business entity for decision making, planning and performance evaluation
• for meeting regulatory requirements

Accounting - recording and reporting of financial transactions, including the origination of the transaction, its recognition, processing, and summarization in the FINANCIAL STATEMENTS.

Financial Statements - presentation of financial data including BALANCE SHEETS, INCOME STATEMENTS and STATEMENTS OF CASH FLOW, or any supporting statement that is intended to communicate an entity's financial position at a point in time and its results of operations for a period then ended.

A balance sheet - a statement of the book value of all of the assets and liabilities (including equity) of a business or other organization or person at a particular date, such as the end of a "fiscal year". A modern balance sheet usually has three parts: assets, liabilities and shareholders' equity. The main categories of assets are usually listed first and are followed by the liabilities. The difference between the assets and the liabilities is known as the 'net assets' or the 'net worth' of the company.

Income statements - a financial statement for companies that indicates how net revenue (money received from the sale of products and services before expenses are taken out, also known as the "top line") is transformed into net income (the result after all revenues and expenses have been accounted for, also known as the "bottom line"). The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported. Income statements, along with balance sheets, are the most basic elements required by potential lenders, such as banks, investors, and vendors. They will use the financial reporting contained there in to determine credit limits.

A cash flow statement - a financial statement that shows incoming and outgoing money during a particular period (often monthly or quarterly).
The statement shows how changes in balance sheet and income accounts affected cash and cash equivalents, and breaks the analysis down according to operating, investing, and financing activities.

PRICING STRATEGIES

There are many kinds of pricing strategies, such as: Penetration Pricing, Influence of Elasticity, Cost - Plus Pricing, Contribution Pricing, Target Pricing, Marginal Cost Pricing, Absorption/full Cost Pricing, Market Skimming, Value Pricing, Loss Leader, Psychological Pricing, Going Rate (Price Leadership), Tender Pricing, Price Discrimination, Destroyer Pricing/Predatory Pricing.

Penetration Pricing

Is the pricing technique of setting a relatively low initial entry price, a price that is often lower than the eventual market price.

Market Skimming

• High price, Low volumes;
• Skim the profit from the market;
• Suitable for products that have short life cycles or which will face competition at some point in the future (e.g. after a patent runs out).

Value Pricing

Is the practice of setting prices based on the value of a product to the customer, in contrast with other approaches such as pricing based on cost.

Loss Leader

Is a type of pricing strategy where an item is sold below cost in an effort to stimulate other, profitable sales. It is a kind of sales promotion.

Psychological Pricing

Is a markwting practice based on the theory that certain prices have a psychological impact.

Going Rate (Price Leadership)

In case of price leader, rivals have difficulty in competing on price – too high and they lose market share, too low and the price leader would match price and force smaller rival out of market.

Tender Pricing

Many contracts awarded on a tender basis, firm (or firms) submit their price for carrying out the work, purchaser then chooses which represents best value, mostly done in secret.

Price Discrimination

Charging a different price for the same good/service in different markets, requires different price elasticity of demand in each market.

Destroyer Pricing/Predatory Pricing

Is the practice of a firm selling a product at very low price with the intent of driving competitors out of the market, or create a barrier to entry into the market for potential new competitors.

Absorption/Full Cost Pricing

Full Cost Pricing – attempting to set price to cover both fixed and variable costs.
Absorption Cost Pricing – Price set to ‘absorb’ some of the fixed costs of production.

Marginal Cost Pricing

Marginal cost – the cost of producing ONE extra or ONE fewer item of production. Marginal Cost Pricing – allows flexibility.

Contribution Pricing

Contribution = Selling Price – Variable (direct costs). Prices set to ensure coverage of variable costs and a ‘contribution’ to the fixed costs. Similar in principle to marginal cost pricing.

Target Pricing

Setting price to ‘target’ a specified profit level. Estimates of the cost and potential revenue at different prices, and thus the break-even have to be made, to determine the mark-up.

Cost-Plus Pricing

Calculation of the average cost (AC) plus a mark up.

Influence of Elasticity

Any pricing decision must be mindful of the impact of price elasticity. The degree of price elasticity impacts on the level of sales and hence revenue. Elasticity focuses on proportionate (percentage) changes. PED = % Change in Quantity demanded/% Change in Price.