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FIN 571 Final Exam Guide (New)

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1.A proxy fight occurs when: the board of directors
disagree on the members of the management team

Financial Statements

Today, I will be describing a balance sheet, income statement, retained


earnings statement, and statement of cash flows and how a company
uses these financial statements as a tool to make future decisions for the
company.
Balance Sheet
A balance sheet a statement sheet that reports the companys financial
balances of the business. This sheet includes the companys total of
assets and liabilities. It is used for all three types of business sole
proprietorship, business partnership and corporate business companys.
Creditors rely on this financial sheet to determine if the company will be
able to repay.
Income Statement
An Income Statement is a financial statement that shows the companys
profit and losses. It basically shows all the companys gains and losses
that were made during a period of time. After the company deducts the
expenses from the revenue then you will get a total net income. This is a
great statement to use especially because this will show investors how
much net income is the company bringing in, or how financially stable the
company truly is.
Retained Earnings Statements
Retained Earnings Statements reports the changes to the retained
earnings (net income in a corporation) during a certain time period. This
financial statement shows dividends, profits and loses. Investors and
Lenders monitor the retained Earning Statements especially when it
comes to monitoring dividends. Some invest use this tool to see if the
company is paying high/low dividends. Retained Earnings Statement is
part of the balance sheet under Stockholders equity.
Statement of Cash Flow
Statement of Cash Flows provides information regarding the companys
cash receipts. This statement gives a detailed account of the operating,
investing and financial activities of the company. It also allows investors a
chance to observe how financially stable the company is so that they can
make a choice if they want to take a risk on investing into the company.
Also the accounting department needs this statement in order to see if the
company has enough money for payroll uses.

All four of these financial statements are all extremely important tools to
use in the business. Another statement that was not listed but is often
used is called comparative statements. Comparative statement gives a
side by side comparison of the financial statements above.

Reference

http:yourdictionary.com /accounting_statements.org Retrieved 1/28/10


Thomas, Y. 2005-08-27 Accounting 101 pg. 52 Statements
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FIN 571 Final Exam Guide Set 2 (NEW)

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1. Financial managers should primarily strive to: 2. The
process of planning and managing a firm's long-term
assets is called: Compare and contrast sole
proprietorships, partnerships, and corporations.
Sole proprietorships means that a business that owned
by one person. That includes and not limited to all
profits and losses, debts and unlimited liability, all will
come from the solely one owner and not a group or in
this case a partner or co-owner etc. Partnerships are
seen much differently than sole proprietorships.
Partnerships is a business that owned by more that one
person/s. This is the number one difference from being
a sole proprietorship or sole owner. Basically, two or
more people come together and split the cost, debts,
and liability. Corporations is an business that has
separate entity owned by stockholders. The huge
difference between corporations and the other two is
that they are owned by stockholders. Stockholders
make decisions that is first best for their company,
secondly the company that they have together.
Why would a entrepreneur want to choose one over the
other?
An Entrepreneur is a person that wants to start a
business with their vision and have more power of the
decision making. The best choice for an entrepreneur is
to choose sole proprietorship out of all the three
choices. The first and most important reason is
because it is much easier to start a business as sole
proprietorships. Sole proprietorship takes all the profit
that and doesn't have to split it between any other
owners or corporations.
If I was to start a new business which one would I
choose?
In this case it depends on the type of business. My case
I will be opening a hair salon and I would prefer sole
partnerships. i choose that because I want to be in
control and I don't want to split the profit.
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FIN 571 Week 1 Connect Problems (Math and


Accounting Review)

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FIN 571 Week 1 Connect Problems (Math & Accounting
Review) 1 Current assets
When it comes to a company's classified balance
sheets you will find current assets sheet. Current
assets is cash or cash equilivants that the company will
use. What you will find on a current asset sheet is Cash
and equilvants, Short term investments, Accounts
receivables, and other assets.
Long-term investments
Long-term investments when it comes to balance sheet
are investments that the company intends to hold onto.
The investments that are listed are as follows, bonds,
stocks and cash. You will also find short-term
investments in the company. The difference between
short-term and long-term investments is that the short-
term investments will be sold and the long-term
investments normally the company will choose to keep
it.
Property, plant, and equipment
Property, plant, and equipment are what the company
calls "fixed assets". Property, plant and equipment are
assets that can not be easily converted into cash.
These are basically items such as company car (used to
deliver products), computers and copier machine, and
freezer used for restaurants.
Intangible assets
Intangible assets are non-monetary items that can not
be seen or touched. For example, trademarks,
copywriters, patents and goodwill. Intangible assets are
normally listed in the separate assets.

references
http://www.investopedia.com/terms/i/intangibleasset.as
p
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FIN 571 Week 1 Connect Problems (Week 1


Problem Set)

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FIN 571 Week 1 Connect Problems (Week 1 Problem
Set) 1.The ultimate control of a corporation lies in the
hands of the corporate: president. board of directors.
chairman of the board. chief executive officer.
stockholders. For Discussion Question 1: Post your
response to the following:
When reviewing a financial report, why should
information be reliable, relevant, consistent, and
comparable?
In other words, why are these accounting
characteristics important?
What kinds of problems could be created if a
financial report is not reliable, relevant, consistent, or
comparable?
It is extremely vital that the company has accurate
financial reporting. This information determines
whether or not to invest in your company's stock. This
information will help them decide if it is profitable to
invest or not to invest in your company based what is
in your financial history. The information must be
relevant because it will help the company, investors
and lenders make decisions. It helps answer questions
like, "how stable is your company", or "what future
does this company have". The information should be
reliable. In other words the information that is reported
must be able to be verified, backed up with truthful
information. Comparable occurs when different
companies use the same accounting principles. This
makes it much easier to compare results between
company's. Consistency happens when the company
uses the same accounting method every year. When
the financial statements are reported each year, it
paints a financial picture of where the company is
headed now and in the future.

What kinds of problems will occur if the information


does not include these things?

Falsified or manipulated statements doesn't only effect


the company but it also to name a few effects the
lenders, creditors, investor's, etc. This will result in the
company not having a faithful representation.

Another response
The main objective of generating financial information
is providing useful information that can be used in
decision-making... only if this information is relevant,
reliable, comparable, and consistent, can it be useful
for decision makers. (Kieso, 2003).
Relevance gives a basis for making decisions that will
impact the future of a business, and it confirms and
corrects expectations from the past. If the information
makes a difference in making decisions, it is relevant.
Reliability means that the information can be depended
on and it can be proven to be free of error, and the
information is factual. The information cannot favor
one set of users over another. CPAs audit financial
statements to ensure reliability.
Comparability is also an important characteristic of
financial reporting... this happens when different
businesses use similar accounting principles, making it
much easier for one to compare companies, and the
method used in a business must be disclosed to the
users of the information to enable the users to convert
the information as accurately as possible.
Consistency simply means that the business uses the
same accounting principles on a yearly basis...
consistently. This helps decision makers analyze a
company's trends. A company can change the
methods used if they can justify the change, showing
that the new method is more useful for analysis. If the
method is changed, it must be disclosed in the notes
that go with the statements to show users a lack of
consistency.
These characteristics are very important to a
business... decisions cannot be made based on
incorrect information, and everyone involved in a
business venture of any kind, whether they be
management, owners, or investors and creditors, as
well as consumers, etc. must be able to rely on the
financial information provided in order to make any
type of decision. Without this information, it is difficult
to imagine any business succeeding, even for a short
time.
Examples of problems that could occur without reliable,
relevant, consistent, or comparable information
includes not being able to get loans or investments;
management could make decisions that cause
irreparable damage to entire operations, consumers
could easily lose faith and cut their ties... the
possibilities are endless for companies that lack these
qualities in their financial reporting.

DQ2
For Discussion Question 2: Post your response to
the following:
How does information from financial reports
influence business decisions?
Why is it important for business managers to
understand the information found on financial reports?

How does information from financial reports influence


business decisions?

Once the information from the financial reports have


been posted then a team will review the
company's financial history to see what decision were
profitable or not. The decisions that were made
previous to the financial reports being posted will show
which way the company needs to go to continue to
remain #1.
Why is it important for business managers to
understand the information found on financial reports?

IT is extremely important for he business managers to


understand the information found on the financial
reports. The business managers are going to be the
people that are going to make decisions for the
company. They need to know how to interpret the
financial reports and come up with different strategies
that will continue to make the company money.

Another response
The information from financial reports influences
business decisions because it shows where the
company stands. The managers use the information
from the financial report compared to the current year
from the previous year, whether the company growths
or losses. It is very important for business managers to
understand the information found on financial reports
because the information from the financial reports
enables business managers to see how to improve and
keep the business afloat. It also gives business
managers an insight what came in and went out and
the total operating cost of the company as well as
cutting cost in a certain areas. The information from
the financial reports helps the manager manages the
business accurately.
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FIN 571 Week 1 DQ 1

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What is ethics
Internal Cash Control
By
Kamilah Crooms
Accounting 220
Jess Stern

Internal Cash Control

The accounting department receives from sales


invoices once a month. Most of the information
is missing on the invoices.

The accounting department relies on each department


within the company and all the information has to be
submitted completely and in a timely matter. In this
scenario most of the information that has been turned
in has information that is missing on the invoices. I
would say that the internal controls that are not being
followed are Documentation procedures. Company
documentation is very important and must be turned in
complete. These documents show proof of delivery or
proof of services to the customer. Any incomplete
documents can be very costly and can cause a delay in
the company being paid for any services rendered. For
example, one of the requirements in a transportation
department is to make sure that the drivers verify the
load and sign for the load prior to leaving the yard,
these documents says that the load left in good
condition. Well, it so happened that we allowed a driver
to leave without signing the paperwork. This caused a
delay in accounting because we had to get signatures
from the driver and the customer which took a month
later to complete.

Rob, Sue, and Bob use the same cash register at


the donut shop.

Rob, Sue, and Bob all use one register has often turned
into not the best decision ideally for the company. It
can increase the risk for the drawer being short and it
will be hard for the company to find out which
employee or employees had shorted the register. The
internal controls that are not being followed are
Establishment of responsibility. Happens when the
company assigns one person to be in control of a
specific job or have authority to make decisions (pg
161 Internal Control and Cash). When the company
signs one person to be responsible over the register it
will allow the company to hold that one person
responsible for any shortages.
Sam does the ordering of materials at the
beginning of every month and pays the bill.
In this case Sam is ordering materials and paying all
the bills. This process is actually known as related
activities (pg 162 Internal Control and Cash). This
occurs when one person is doing two different
responsibilities just like Sam. The internal Control that
is not being applied is Segregation of Duties. It is better
for the two to be a separate responsibility because it
will minimize the billing errors.

Bank reconciliations are done by the person who


is responsible for all cash responsibilities.

The problem with this scenario is that the same person


is responsible for all cash responsibilities, why is this
person doing the only one that does this job? Having
one person take on such a major responsibility
increases the chances of embezzlement and thief. The
internal control that is not being applied is rotating
employees duties and requiring employees to take
vacations. One person should not be completely in
control of one job, the company should encourage
vacations or switching positions to prevent incorrect
handling of the companys valuable information.

New checks came in and are left on the shelf


with other supplies.

This is a tough scenario because there are all sorts of


internal controls that are not being used in this case. I
would say in my opinion that the first internal control
that comes to my mind that is not being applied is
bonding of employees who handle cash.
Every employee that works near or with expensive
equipment should be held reliable or responsible for
the companys assets. Bonding of employees who
handle cash protects the company by insuring that the
employee is or isnt a risky applicant (background
checks) or reassuring that the employee that they will
be prosecuted to the fullest extinct if they are found
guilty of thief. For example, I had worked at Mc
Donalds and

there were my shift managers and one employee that


were caught with stealing money from the company.
This situation had happen very differently. The armor
truck dropped off a deposit that belonged to another
company (armors mistake) but they signed it. Those
employees thought that nothing was going to be traced
back to them but the little did they know, all evidence
traced back to them. They each received jail time, and
felony records.
Everyone has access to the computer system and
the last audit was seven years ago by the former
accountant

This scenario has two things that are going on at the


same time. I will first start off with the computer
system and how everyone has access to the computer.
The internal control that is not being applied is
Physical, Mechanical, and Electronic Controls. This
allows the company to control assets through physical
or electronic based systems or programs. It is
extremely important for a company to invest in
computer or informational protection for the company
and for their employees. Todays technology age most
companies are investing in a computerized program.
This will help protect from internal errors and external
protection. For example, all companies invest in a virus
protection this will ensure that the companys
information is protected and not in the wrong hands.

Invest idle cash


Invest idle cash occurs when any excess funds or cash
needs to be invested. The money should be highly
invest and risk free. For example, a major company
should make investments with their assets into
profitably investments and risk free.
Plan the timing of major expenditures
This is when a company sets aside money for major
cash needs. We live in a world that things happen daily.
A good company would set aside emergency funds. For
example, during a terrible thunderstorm, the winds
practically ripped off the roofing shingles off a
commercial business. The company will be able to use
the money for emergency.
Delay payment of liabilities
Delay payment of liabilities is when a company pays
bills not too soon and not late. This allows the company
to have money available for bills that that really need
to be paid allowing excess funds to be free for other
uses.
Keep inventory levels low
This occurs when the company keeps the inventory low
so that it will bring in more profits. For example, if the
managers at a fast-food over plan and fix too many
hamburgers and the customers dont buy it, then the
food will go bad and the company will lose profit.

Increase the speed of collection on receivables


This occurs when money is owed to the company, the
company cannot claim these until the funds have been
received. Some companies offer incentives to
encourage customers to pay early or on time. For
example, my job encourages their customers by letting
them know that there will be a price increase on or
after a certain date and this really works because the
customers want to pay at a lower price.
References:

http:yourdictionary.com /accounting_statements.org
Retrieved 2/13/2010
Thomas, Y. 2005-08-27 Accounting 101 pg. 52
Statements

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FIN 571 Week 1 DQ 2

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Assume that interest rates have increased substantially. Axia College
Material

Appendix B

Cash Management Matrix

Directions: Using the matrix, list how each of the principles of


internal control works, and give an example for each. Next, list how
each of the principles of cash management works, and give an
example for each.

Principles of Internal Control How it Works Example

Establishment of responsibility Happens when the company My job, Our


assigns one person to be in is the only o
control of a specific job or a restocking
have authority to make Sales team to
decisions. the customer

Segregation of duties This is when the company has A church- Yo


more than one person to who count th
control a task or job then you hav
writes down
was received

Documentation procedures Evidence or proof of all My job we d


company transactions shingles to o
we make the
to leaving an
customer sig
Delivery fo

Physical, mechanical, and Allows the company to control Our job has
electronic controls assets through physical or Cisco and th
electronic based systems or employees b
programs. lunches. Als
long the CSR
or working.

Physical con
security gua
identification

Independent internal Any information that can be My job has a


verification reviewed , compare, and our inventor
reconciliation by a employee someone say
shorted on th
go back and
inventory an
numbers in
physical cou
the numbers

Other controls Bonding of employees, Our compan


company protects against recently beca
abuse of assets. the company
card for pers
not work rel

Principles of Cash How it Works Example


Management

Invest idle cash Occurs when any My fathers


excess funds or cash company makes
wise investments
needs to be invested, and it turns around
in his favor

Plan the timing of A company wants to During the


major expenditures make sure that there recession profits
is money set aside dropped lower than
for major cash expected so some
needs companies pulled
from these funds

Delay payment of When a company Ok, when times are


liabilities pays the bills at an tough at home and
appropriate time not bills are due I
late and not too organize the bills by
soon. which bills needs to
be paid the soonest,
because if I pay the
bills too early I will
cut off my excess
funds that could be
used for something
else

Keep inventory levels Happens when a Sees Chocolate


low company keeps the factory has to make
inventory low so sure that they are
that it will continue not over producing
to bring profit or making too much
or else the sit and
the company will
lose money

Increase the speed of Money that is owe When a customer


collection on to the company by places a order for a
receivables other people or product and has not
customers is money paid yet, the
that can not be company can not
counted towards the count the money as
companies funds theirs until it is
received.
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FIN 571 Week 1 Individual Assignment Business


Structures

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Watch the "Your Business Structure" and "Corporate Business


Structures" videos on the Electronics Reserve Readings page. Income
statement is a financial statement that shows how much money is
coming from product sales and services prior to any expenses being
taken out. Both internal and external users such as managers and
investors are able to access this. For example, if a investor wanted to
see if the company made money or lost money they would use this
financial statement report.
Balance sheet shows what condition the company is currently in.
whereas the other financial statements only came monthly or
annually. For example, what if the management planning team
wanted to see the company's current assets, ownership equity and
liabilities? All they have to do is run the balance sheet report.
CVP income statement or Cost Volume statement reports or monitors
the effects of the changes in cost and volume when it comes to the
company profits. For example, I work at a manufacturing plant for
roofing shingles. The CVP analyst studies the cost which includes but
not limited too, manufacturing, material, labor cost. This financial
statement report would help the management team budget the cost of
manufacturing goods.
Statement of cash flow tracks the movement of cash coming in or out
of the business. This financial statement will show if the company
made cash or not, or if the net income increased or decreased. For
example, the owner or the management department will use this to
determine if the company has earned enough money to be able to for
any expenses.
Retained earnings statements is a percentage that is kept by the
company to be reinvested or to be used to pay debts. For example, if a
company was looking to expand their business by purchasing top of
the line equipment they can use this statement to see how much money
the company has put away.

References:

http://www.investopedia.com/terms/r/retainedearnings.asphttp://finan
cial- Retrieved 2/18/2010

statements.suite101.com/article.cfm/financial_statements_the_p_l.
Retrieved 2/18/2010
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FIN 571 Week 2 Connect Problems

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FIN 571 Week 2 Connect Problems 1.Sankey, Inc., has
current assets of $4,230, net fixed assets of $25,700,
current liabilities of $3,500, and long-term debt of
$14,400. Discussion Question 1: Post your response
to the following:
How would you describe the difference between
financial and managerial accounting? What are the
distinguishing features of managerial accounting?
There are many differences between financial and
managerial accounting. The financial accounting
statements are available to external users such as
employees, stockholders, creditors, investors, etc. This
is available to them so that they can monitor the
company's performances quarterly or annually.
Managerial accounting provides financial information
for managers and other internal people or department.
Managerial accounting is confidential so it is only
observed by internal users such as management,
owner, and will provided to external users such as the
public. Management uses this for budgeting purposes
or to monitor profit loss/gain within the company.
Managerial accounting can be available to them as
often as needed. Managerial accounting statements is
a great way for management to make decisions based
on what has been reported.
Another response
The differences between managerial accounting and
financial accounting are distinct. Managerial accounting
reports are for those in managerial and decision
making positions. The managers use the financial
report to answer questions, which would advance the
company and its employees. The manager would want
to know if certain investments should be made and
should the company advance an employee's salary.
The manager needs the report to decide if a factory is
built or if a certain stock is brought. The financial
accountant has the job of showing the external users
such as creditors and stockholders a picture of the
company's stability.

The manager's purpose is to manage by making stable


plans, delegate duties, motivate the workers, and
control the atmosphere. Distinguishing features of
managerial accounting are the fact no cpa will audit
the report, and there is no specific frequency of the
report. The reports are done in a need to know basis
and for a specific reason, which is for business
purposes. The reports are detailed and pertain to
specific business decisions. The financial accountant
need only be concerned with the company's finances.

DQ2
Discussion Question 2: Post your response to the
following:
Select a management function (planning,
directing and motivating, or controlling) and explain
how that function relates to business as a whole. Next,
select a different function listed by a classmate.
Discuss with your classmate how the functions you
each selected complement each other.
The management functions that I choose was
controlling. Controlling job is to make sure that
the each department/person is keeping the company's
activities or plans on track and in order to achieve that
they must work closely with Management planning
function. Controlling continually compares the
company's performance to make sure that the planned
standards are being met. In my opinion this is known as
the "dirty work". Controlling operations have to know
what to look for and how to keep track of all the
company's activities. They have to take actions and
quickly correct any errors and make sure that the
company goals are being achieved in a timely matter
or the time that it was planned. If there are errors it is
job of the controlling operations to take quick action.
The controlling operations not only correct errors after
it happens but they also are in charge of foreseeing
any potential errors and act quickly to get that
resolved.

Another response
I chose Controlling as part of the management
function. The controlling function relates to business as
a whole because it helps monitoring the firms
performance to make sure the planned goals are being
met. Managers need to pay attention to costs versus
performance of the organization. let say, if the
company has a goal of increasing sales by 10% over
the next two months, the manager may check the
progress toward the goal at the end of month one. If
they are not reaching the goal the manager must
decide what changes are needed to get back on track.
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FIN 571 Week 2 DQ 1

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In order to receive proper credit, please reply to this
message when posting your answers to WK2 DQ1.

Cost, Volume, and Profit Formulas

By
Kamilah Crooms

Due February 28, 2010

Explain the components of cost-volume-profit


analysis.

The components of cost volume-profit analysis


consist of Level or volume of activity, Unit Selling
Price, Variable Cost per unit, total fixed costs, and
Sales mix.

What does each of the components mean?

Level or volume of activity is the activity that


causes change or behavior when it comes to the
cost. Unit selling Price is the cost for the product
basically how much each unit is selling for. The
Variable Cost per unit is something that can
change depending on the activity. The total fixed
cost does stay the same as activities change but
differ per unit. The Sales mix is basically what the
name says. Its a mixture of sale items when more
than one product sold the sales will remain the
consistent.
Based on the formulas you have reviewed,
what happens to contribution margin per
unit when unit selling prices increase?
Contribution margin is the amount of revenue left
over after subtracting the variable cost. So
basically Unit sales price subtracting or minus
variable cost.

Illustrate your explanation with an example


from a fictitious company of how an increase
in unit selling prices might affect
contribution margin.

Kellys Sweetheart Flowers

The owner of Kellys Sweetheart Flowers is


selling their bouquet of flowers for $10 per
unit. The Variable Cost per unit is $4.00. The
contribution margin will be ($10-$4) = $6. If
the sells price increases to say $15, then the
contribution margin will be ($15-$6) = $9 per
unit.

When fixed costs decrease, what does this


do for sales? Illustrate your explanation with
an example from a fictitious company.

Kellys Sweetheart Flowers


When the fixed cost decreases, the contribution
margin ratio the net income and sales will
increase.

For example,
The flowers are $10 per unit. The variable
cost per unit is $4.00. The contribution
margin will be ($10-$4) = $6. The fixed cost
is $3. We subtract Contribution margin
Fixed Cost= Net income. The net income is
$3.00.
Define contribution ratios
The contribution margin ratio is the contribution
margin per unit margin divided by the unit selling
price.

What happens to contribution ratios as one


of the components changes?
Shown in the example above, if one or more of the
components changes is will cause the net income
to increase or decrease.
Reference

statements.suite101.com/article.cfm/cost_volume_
profits*the_p_l. Retrieved 2/28/2010
//http:yourdictionary.com /CVP.org Retrieved
2/26/2010
Thomas, Y. 2005-08-27 Accounting 101 pg. 52
Statements
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FIN 571 Week 2 DQ 2

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Suppose rf is 5% and rM is 10%. According to the SML and the


CAPM, an asset with a beta of 2.0

7 How should mixed costs be classified in CVP analysis? What


approach is used to effect the appropriate classification?
According to our class materials all mixed cost must be classified
into their fixed and variable and variable elements. The method
that can be used to determine is called the high/low method. To
determine the variable cost the analysis takes the total cost and
divide it with the low activity level. To get the fixed cost then the
company would have to subtract the total variable with either the
high or low activity level.
9. Cost volume profit CVP analysis is based entirely on unit costs.
Do you agree? Explain.
In my opinion when it comes to making financial decisions for the
company, often times more than one method is used. Cost volume
profit is also based on Volume or level activities, unit selling prices,
variable cost per unit, total fixed and sales mix.
14. You can find the break point in dollars by drawing a horizontal
line to the vertical axis. I you want to find the break even point in
units it will be a vertical line from the break even point to the
horizontal axis.
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FIN 571 Week 2 Individual Assignment Business


Structure Advice

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Write a 350 to 700 word response to the following e-mail:

Dear Consultant,

I am currently starting a business and developing my business plan.


Axia College Material

Appendix C

Budgets Matrix

Directions: Using the matrix, define each of the budgets listed and
briefly describe its uses.

Budget Definition Describe its uses

Sales budget Estimate of the The sales budget


expected sales for shows dollars and
the period. All of the units. This will allow
other budgets management to see
depend on the sales how many units will
budget. This is be produced for the
where all the other period
budgets will start
from

Production budget A production of Shows management


units needed to be how many units will
produced in order to be produced during
meet the projected each budget period
sales and what amount is
needed to fulfill
inventory demands

Direct materials Is the estimated Shows management


budget quantity or cost of how much raw
the raw materials materials that is
that is needed in already on hand and
order to produce the or that needs to be
units required to ordered to meet
fulfill inventory inventory demands.

Direct labor budget A estimate of cost Shows how many


and quantity of hours, how many
direct labor needed laborers needed to
in order to meet produce the units for
production that budget period.
Management will
decide what will be
the right amount of
laborers needed and
if the company will
be able to meet the
budget

Manufacturing An estimated This list all overhead


overhead budget expected amount of cost involving cash
manufacturing cost disbursement in a
for the budget quarter
period

Selling and Anticipated selling Shows area of


administrative and administrative budget expenses that
expense budget expenses in the are not listed other
budget period than manufacturing.
Expenses such as
marketing,
promotion cost etc
for the budget period

Budgeted income Estimate of expected Is a very important


statement profitability of tool because it shows
operations in a the company
budget period estimated profit for
the budget period.

Cash budget A projection of Cash budget helps


expected cash flows management keep a
in and out of the tally or total of all
business. cash balances.
--------------------------------------------------

FIN 571 Week 2 Individual Assignment Ethics and


Finance

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The Sarbanes-Oxley Act of 2002 (SOX) was passed as
the result of the Enron scandal and other instances of
accounting fraud. This act was passed to strengthen
the role of the Securities and Exchange Commission
(SEC). Discussion Question 1: Post your response to
the following:
You know how important it is to create budgets
for your household. How does budgeting help
management make good business decisions?
Budgeting is a very important skill that can be applied
to everyday life and also when it comes to making
good business decisions. I really like the way our class
resources says about Budgeting. Budgeting is used as
a planning tool used by management to make good
decision for the company. If a company is successful
than more than likely that means that the management
team is very good at managing the company finances.
Budgeting helps management plan ahead, defines
what is most important, shows warning signs, reach a
company target without over or under budgeting and
etc.

Another response
In a business, a budget helps a business make good
decisions because they are used by the company to
plan for future events and coordinate the events and
duties in the company. They also gives objectives used
to evaluate the performance of the company on each
level which can help to make future decisions that will
not hurt the company based on the projected
objectives. It can also be used to alert the company of
possible problems or negative trends in the company
that need to be addressed so that there is a clear
picture of the overall health of the company before
decisions are made. The budget helps the company to
be able to make an informed decision when making
one. It is there in order to make sure that making a
decision like taking on another company will not hurt
the company and is something that the compnay can
sustain based on the budget.

DQ2
Discussion Question 2: Post your response to the
following:
What are some of the different types of
budgets?
Describe in detail one type of budget covered in
the text.
Describe what the budget is used for and what
information it provides a business.
Then, as you respond to your classmates,
discuss how the budget you described relates to the
budgets they described.
Discuss how a business benefits from each of
the budgets.

There are many different types of budgetting. For


example, there sales budget which allows management
to see how many units that need to be produced,
production budget which will allows everyone to see
how many units are going to be produced in or needed
to be produced in order to meet the inventory for that
budget period. One budget that I can describe in detail
is called the direct labor budget and this budget shows
how many people, hours is needed in order to meet the
required budget for that period. This will give
management an idea of how much money is needed
such as paying the cost of labor. The company benefits
by each of these budgets because it will help manage
just how much money it will cost the company during
this period. Management can also see if there are
different ways to cost the company out of pocket cost
down during this period.

Another response
I chose to write about the Production Budget. The
Production Budget shows the cost of each unit needed
to produce an item or manufacture a product. The
formula used by the Production Budget :

Budget sales units + Desired ending finished goods


units - Beginning finished goods units = Required
production units.

An example would be, every Easter the bakeries in the


Bronx loads up on Hot Cross Buns. My mother and
grandmother would buy these tasty sweet breads,and
eat them for breakfast. I personally would like to eat
them every week but, they are only sold during the
Easter season. Maybe, it has something to do with the
glazed cross on the top.

Every Easter Holiday, there appears these Hot Cross


Buns and the bakeries production department allows
for the purchases for items needed to make the buns.
After Easter has gone, Hot Cross Buns are not included
in the budget.
--------------------------------------------------

FIN 571 Week 2 Individual Assignment Ratio


Analysis Problems

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Ratio Analysis

(Individual Assignment)

You may use excel or word.doc format for this assignment.


Please post your homework as a word.doc or excel file in the class
discussion section below by the due date.

What is a Flexible budget?


A Flexible budget is a budget that change or is flexible
during different levels or activity. Unlike the static budget which is a
budget based on one activity level, the flexible budget is based off of
more than one activity level.

The steps to development a flexible budget is :

a) Identify the activity index, and the range of activity

b) Find out what the variable cost, and determine the variable
cost per unit

c) Find out what the fixed cost and determine the budgeted
amount for each unit
d) Organize the budget for selected additional activity within the
appropriate range

The information found on a flexible budget cannot begin


with the master budget. The flexible budget uses the same
guidelines the original budget. The budget consists of Sales, Cost of
Goods Sold, Selling Expenses, General and Administrative
Expenses, Income Taxes, and finally the Net Income.

The information on the budget is a great tool to be used for


evaluation performances. The flexible budget can be used for
monthly comparison purposes. Also during the process that
management is identifying the activity index and the range of
activity it will allow them to see the cost of direct labor hours for
that budget period.
--------------------------------------------------

FIN 571 Week 2 Learning Team Reflection

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Read the Ethics case, "A Sad Tale: The Demise of Arthur Anderson"
located in the WileyPLUS Week Fundamentals of Corporate Finance
Chapter readings.

Capstone Discussion Question: Post your response to the following:

Think back over what you have studied and learned in this
course. Do you have a new perception of or appreciation for the
field of accounting and how it contributes to business? Explain.
To be perfectly honest with you I truly had no clue what accounting
did for a company and how important it was. I always thought that
accounting only dealt with payroll. In fact accounting does much
more that just payroll and monitor company supplies (coffee, paper,
pens & pencils). The accounting sets budgets for the
entire company, monitors outflow and inflow of profits,
plans budgets for each department, and much more. When I first
begun this class I was really nervous, I truly thought that I was
going to have a hard time understanding the accounting but I
happy to say that I was wrong. I understood every part of this
course.

On a personal note I would like to thank you Jess. If it wasn't for


your pep talk I probably would had gave up. You are truly a
great instructor. I wish you all the best! God Bless

Another response
Accounting has taken a whole new meaning to me in my
vocabulary. Prior to this course, I just took accounting as a
calculator and crunching numbers. I now have a new respect for
accounting and all the aspects that are involved. I never once took
into consideration profit, sales, revenue, and balance sheets also
being included with accounting. There is so much more involved
with accounting, and had I not taken this course I would have
never known. Accounting is a very important part of running a
business. I feel that it is imperative to all people thinking of opening
a business should take some type of accounting class to become
more aware of how to run the accounting part of a business.
--------------------------------------------------

FIN 571 Week 3 Connect Problems

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FIN 571 Week 3 Connect Problems If the Garnett Corp.
has a 15 percent ROE and a 25 percent payout ratio,
what is its sustainable growth rate?

Business Plan

By

Kamilah T. Crooms
The name of my business is called DestinyWear.
DestinyWear is a urban fashion clothing company for
woman, men and youth. DestinyWear specializes in
making clothing for every occasion. My name is
Kamilah Crooms and I am the owner and CEO of
DestinyWear.My goal is to ensure that my company will
be succesfull in all areas and in each department. In
order for me to make sure that the company was going
to begin in the right direction I had to priortize what
was most important in establishing my business plan.
The main priority is that I had to first choose the
appropriate business structure, a high demanding
product, and most of all an outstanding accounting
team.
Business Structure
Upon establishing DestinyWear I had to decide which
business struture that I felt was best for me to pursue. I
decided that as a Entreprenuer the best choice for me
abd the direction of the company would be for me to be
sole proprietorship. Sole proprietorship allowed me to
be the sole owner of DestinyWear. The first and most
important reason that I wanted sole proprietorship is
because it is much easier to start a business as sole
proprietorships. Sole proprietorship takes all the profit
that and doesn't have to split it between any other
owners or corporations. I also want the power to make
and change decisions along the way without having to
first consult anyone else.

DestinyWear Products
DestinyWear products will range from jeans, shirts,
accessories and shoes. The company will first start off
with its most profitable product and that will be the
DestinyWear designer jeans line. The jeans line has
over twenty different jeans designs
from straight leg, baggy, cargo, overalls, shorts and
much more. The jeans line will provide services within
the United States and Canada and will eventually
service International customers. The DestinyWear jeans
line will have its own building. In this building the
bottom floor will consist of the factory and the top floor
will have the different departments such as
management, marketing and most importantly the
accounting department.

DestinyWear Accounting Department


The accounting plays a major role in establishing my
company DestinyWear. The accounting department
does more than managing and reporting the companys
financial documents it is the greatest tool in
establishing my business. The key to a powerful
accounting department here at DestinyWear is
applying the principles of internal control. These
principles consist of establishment of responsibilities,
segregation of responsibilities, documentation
procedures, Physical, mechanical, and electronic
controls, Independent internal verification and other
controls such as Bonding of employees. In order to
ensure that this business plan works DestinyWear has
to hire nothing but the best qualified employees.

DestinyWear Accounting Staff


DestinyWear accounting team of fine employees
will all be hired through the company. There are
several requirements that have to be met in order for
myself as the owner and Human Resource department
to even consider the applicant for accounting. We
looked for characteristics, education and work history
experience. The first and far most important qualifying
requirements are education. The applicant has to have
a Bachelor BA/BS in accounting degree a plus if he or
she has a masters.
The second requirement is experience. The applicant
must have the minimum of five years of experience
working in accounting. He or She must have knowledge
and employment experience of working with financial
statements, cash management and internal control.
Employees must be experienced in Invest idle cash,
planning the timing of major expenditures, delay
payment of liabilities keeping inventory levels low, and
increasing the speed of collection on receivables. In the
category of experience we had to hire applicants
according to the position that had to be filled in
accounting. For example, if a position in accounting
such as management or supervisory needed to be
filled, then we would look for years of experience in
management or supervisory positions. I personally
prefer that every employee have some type of
management experience.
Last but not least, the employees characteristics. It is a
must that every accounting staff member has and
applies professionalism, great ethic and moral skills,
accuracy, and most importantly punctuality, and
reaching company deadlines. These characteristics are
very important to have at DestinyWear.
DestinyWear Accounting Management Team
The DestinyWear accounting management team
will be reporting to me and to the other head staff each
week to report updates and any new changes. The
management team is responsible to have all the
different types of budgeting reports that includes Sales,
Labor, etc. Management must follow the responsibility
reporting system for each department. The managers
will use the companys financial information to predict
outcomes of the business. I require a report from each
responsibility center, cost center, profit center and
investment center to be reported each month.
Management is responsible to ensure that the company
does not over or under budget and if any changes it
must be reported immediately.
Conclusion
DestinyWear will be a very successful team not
only because of the products that we produce but
because of having a great accounting team. With the
help of accounting team I DestinyWear products will be
in every wardrobe in America.

REFERENCES
//http:yourdictionary.com /CVP.org Retrieved
3/20/2010
Thomas, Y. 2005-08-27 Accounting 101 pg. 52
Statements. March 19, 2010
Drucker, P. Managing in the next society 2002.
retrieved march 19,2010
--------------------------------------------------

FIN 571 Week 3 DQ 1

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Why are interest rates on short-term loans not
necessarily comparable to each other? Week 1 DQ 1
Due Tuesday, Day 2

Go to the U.S. Securities and Exchange Commissions


Web site at http://www.sec.gov and the Financial
Accounting Standards Boards Web site
athttp://www.fasb.org. Identify the mission and main
activities of each organization. Then, analyze the
similarities and differences between the roles of each
entity. Which entity has more influence over financial
statement reporting? Explain your answer.
According to the SEC website their mission is to protect
investors, maintain fair, orderly, and efficient markets,
and facilitate capital formation. The SEC also requires
public companies to disclose meaningful financial and
other information to the public. This provides a
common pool of knowledge for all investors to use to
judge for themselves whether to buy, sell, or hold a
particular security. The SEC is concerned primarily with
promoting the disclosure of important market-related
information, maintaining fair dealing, and protecting
against fraud.

According to the FASB website the mission of the FASB


is to establish and improve standards of financial
accounting and reporting that foster financial reporting
by nongovernmental entities that provides decision-
useful information to investors and other users of
financial reports. Since 1973, the Financial Accounting
Standards Board (FASB) has been the designated
organization in the private sector for establishing
standards of financial accounting that govern the
preparation of financial reports by nongovernmental
entities

The major difference in the SEC and the FASB is that


the SEC deals with reporting of financial statements for
all industries while the FASB deals mainly with the
private nongovernmental entities. Both are concerned
with the fairness of financial reports and work in the
interest of the public. I believe that the SEC has more
influence over financial statement reporting because
they can bring civil action against companies and
individuals for violations of securities laws. Although
according to the FASB website, the Commissions
policy has been to rely on the private sector for this
function to the extent that the private sector
demonstrates ability to fulfill the responsibility in the
public interest.

Response 2
Go to the U.S. Securities and Exchange Commissions
Web site at http://www.sec.gov and the Financial
Accounting Standards Boards Web site
athttp://www.fasb.org. Identify the mission and main
activities of each organization. Then, analyze the
similarities and differences between the roles of each
entity. Which entity has more influence over financial
statement reporting? Explain your answer.
U.S. Securities and Exchange Commission (SEC)
According to the SECs website The mission of the
U.S. Securities and Exchange Commission is to protect
investors, maintain fair, orderly, and efficient markets,
and facilitate capital formation(U.S. Securities and
Exchange Commission, 2010, Para. 1).
The main activities of the SEC are to interpret
federal securities laws; issue new rules and amend
existing rules; oversee the inspection of securities
firms, brokers, investment advisers, and ratings
agencies; oversee private regulatory organizations in
the securities, accounting, and auditing fields; and
coordinate U.S. securities regulation with federal, state,
and foreign authorities. (U.S. Securities and Exchange
Commission, 2010)
Financial Accounting Standards Board (FASB)
According to the FASBs website The mission of the
FASB is to establish and improve standards of financial
accounting and reporting that foster financial reporting
by nongovernmental entities that provides decision-
useful information to investors and other users of
financial reports. That mission is accomplished through
a comprehensive and independent process that
encourages broad participation, objectively considers
all stakeholder views, and is subject to oversight by the
Financial Accounting Foundations Board of Trustees
(Financial Accounting Standards Board, n.d., Para. 3).
The main activities of the FASB are to identify
financial reporting issues based on
requests/recommendations from stakeholders or
through other means. The FASB Chairman decides
whether to add a project to the technical agenda, after
consultation with FASB Members and others as
appropriate, and subject to oversight by the
Foundation's Board of Trustees. The Board deliberates
at one or more public meetings the various reporting
issues identified and analyzed by the staff. The Board
issues an Exposure Draft to solicit broad stakeholder
input. (In some projects, the Board may issue a
Discussion Paper to obtain input in the early stages of a
project) The Board holds a public roundtable meeting
on the Exposure Draft, if necessary. The staff analyzes
comment letters, public roundtable discussion, and any
other information obtained through due process
activities. The Board redeliberates the proposed
provisions, carefully considering the stakeholder input
received, at one or more public meetings. The Board
issues an Accounting Standards Update describing
amendments to the Accounting Standards Codification
(Financial Accounting Standards Board, n.d.).
Both the SEC and the FASB have the same goals of
fairness, accuracy, and understandability of financial
accounting and reporting. Both agenecys accomplish
these goals in the best interest of the overall public.
The differences between the SEC and the FASB is that
the FASB regulates financial reporting in the private
sector of businesses (but are subject to the rules and
regulations of the SEC) and the SEC deals with
regulating the financial reporting of publicly held
corporations.
I believe that the SEC has the greatest influence over
financial statements reporting because they have the
final approval on all changes of the rules and
regulations. The Sec can also bring civil or
administrative enforcement actions against individuals
and companies in violation of the securities laws.

References
Financial Accounting Standards Board. (n.d.). Facts
about FASB. Retrieved July 15, 2010, from Financial
Accounting Standards
Board:http://www.fasb.org/facts/index.shtml#mission
U.S. Securities and Exchange Commission. (2010, May
3). The Investors Advocate: How the SEC Protects
Investors, Maintains Market Integrity, and Facilitates
Capital Formation. Retrieved July 15, 2010, from U.S.
Securities and Exchange
Commission: http://www.sec.gov/about/whatwedo.shtm
l

Week 1 DQ 2
Due Thursday, Day 4
Search the Internet or the Online Library for
information about the Sarbanes-Oxley Act. A useful
guide to some of these provisions is located
at http://www.soxlaw.com. Summarize at least two
provisions of the law, and discuss your interpretation of
these provisions with your classmates. Do you think
this law will make financial statements more reliable?
Also, discuss how Sarbanes-Oxley establishes
boundaries to ensure ethical practices. What does the
law allow or prohibit, and why?

The Sarbanes-Oxley act has many provisions to give


companies guidelines for responsible, and ethical
financial reporting. One of those provisions is listed in
Section 302 of the act. The provision is that periodic
statutory financial reports be certified that signing
officers have reviewed the reports, the report does not
contain any untrue, or misleading information. The
financial statements fairly present the financial
condition. The signing officers are responsible for
internal controls. A list of all deficiencies in internal
controls, and a list of fraud involving employees, and
anything that could negatively affect the internal
controls.
Another provision pertains to the "management
assessment of internal controls". This provision
ensures that information is published in annual reports
regarding the adequacy of internal controls, structure
and procedures.
The Sarbanes-Oxley act is designed to help companies
promote ethical accounting procedures. The act gives
guidelines as to how financial statements are
reported. The act requires verification that officers
within the company have checked the information in
the reports for accuracy and true. The act also
requires that the companies have internal controls in
place to ensure ethical reporting practices. The main
thing that the Sarbanes-Oxley promotes is
transparency in reporting.

Response 2
Section 802 of the Sarbanes-Oxley Law defines the
penalties that may be assessed against individuals who
failed to comply with the Act. An individual could be
subject to 20 years in jail for altering, destroying,
mutilating, concealing, falsifying records, documents or
tangible objects. Guilt is define by the intent to impede
a legal investigation. This part of the law gets to the
heart of how Arthur Anderson reacted by destroying
documents important to Worldcom. The law further
defines that any accountant who knowingly violates
their ethics by wilfully violates the requirements of
maintenance of all audit or review papers. These
papers are subject to review up to five years.

The second Section that I reviewed was the Section


302. This actually is my favorite part of the law
because it directly holds the officers and directors
accountable for the accuracy of reporting in their
financial statements. It defines that the management
must review and understand the financial statements
and sign that they are true and accurate. It also holds
the management accountable for the internal controls,
requiring any deficiencies to be reported. In the past
directors of companies relied heavily on the internal
officers, management, to report the company
performance without questioning the accuracy or
taking their role on oversight committees seriously.
They could hide behind a veil of trust of the key
leaders. This Section clearly puts the responsibility for
the Board to remain independent of the executives and
function more effectively on the respective oversight
committees they serve. The example I would share is
what happened in WorldCom. The company leaders
shared what they wanted to with the Board, who
trusted implicitly the top leaders. Had they questioned
their legal representation or auditors, they potentially
could have uncovered the fraud that was committed by
the creation of shell companies, with WorldCom
employees as stockholders.

I would love to think this law would protect the


investing community. Financial reporting has improved
to some extent. Unfortunately the scams still
continue. Example would be Barney Madoff or what
happened in the financial mortgage industry. These
unethical practices were conducted after Sarbanes
Oxley was implemented. Madoff was able to provide
false financial information to investors. Financial
industry was allowed to get to aggressive in
underwriting and product suite. Fines and penalties
are deterrents. Ethics still must be inherent in an
individual and company. Laws and requirements are a
guide. There will never be enough auditors, inspectors
or oversight boards to catch all of the fraud in the
corporate community.

The law prohibits falsifying information, failing to notify


of material changes, and destruction of records.
--------------------------------------------------

FIN 571 Week 3 DQ 2

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Optical Supply Company offers credit terms of 2/10, net
60 Lucent Technologies
Axia College of University of Phoenix
Lucent Technologies is a company based on networking
for service providers, government, and enterprises
worldwide (Lucent Technologies, n.d., Para 1). The
products and services they work with are separated
into three categories; service and maintenance,
wireless mobility networking, and wire line networking.
Lucent Technologies is backed by Bell Labs, which does
research and development in networking technologies.
During the years of 2001 to 2003 this company has
experienced a decrease in demand because of other
companies loss or capital used toward spending. This
is mainly due to a downturn in the economy. As an
investor this information is necessary to know because
it explains the decrease or increase in sections of the
balance sheet. In order to compare the growth or
decline of the companys profit, an investor must
change a balance sheet into a common-size balance
sheet. First when looking at the balance sheet an
investor will see that the amount of paid in capital has
increased from the year of 2003 to 2004, the assets
have increased, but the liabilities have decreased.
When running a debt/asset ratio it is noticed that this
ratio drops from 1.2 in 2003 to 1.0 in 2004. This shows
the companys risk is low when concerning financial
leverage, usually when the debt ratio is less than one
percent it is financed mainly by company equity, so this
company is close to being debt free from creditors.
After changing the balance sheet to a common-size
balance sheet there are several factors an investor will
look at. The current assets have dropped to .48 from .
49 in 2004. This does not show harm to the company
because only the accounts receivable dropped while
the rest of the current assets increased. This means the
company is not in as much danger of default on money
owed to it. It does have a rise in marketable securities.
The one concern in the assets is the increase of prepaid
cost of pensions and goodwill. Goodwill can be used for
tax breaks but prepaid pensions cannot benefit the
company.
When looking at the liabilities section an investor will
see a drop in pension and liabilities and an increase in
long term debt, both of these could be affected
because of the drop in the economy. Long term
liabilities are often increased to help a company control
interest rate increases so as an investor cutting back
on pension liabilities cuts back cost to the company
and watching interest rate increase show the company
is concerned with its earning and investors. This would
be encouraging or an investor. The stockholders deficit
shows a drop in accumulated deficits from -1.43 to
-1.22 and total deficits of -.26 to -.08. This shows the
company is working to control any money loss and
turning it to the companys advantage. Overall it shows
the company is still earning a profit although small.
With an increase of assets and a drop in liabilities the
company is showing it is working in a low risk capital.
After reviewing this information, a creditor or investor
must be able to compare this company to the industry
totals. By comparing how this company compares to
other companies similar to it, a person can see if it is
competitive and worth taking a risk. Running ratios will
also show if the company is capable of paying off any
debts it has or if it can acquire the needed cash in case
of emergencies. Overall as an investor, I would say this
company would be worth investing in.
Reference
Axia College. (2007). Understanding Financial
Statements. Retrieved May 10, 2010 from Axia College,
Week 2 Assignment, ACC/230.
--------------------------------------------------

FIN 571 Week 3 Individual Assignment


Interpreting Financial Results

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Resource: Financial Statements for the company assigned by your


instructor in Week 2.

Differentiating Depreciation Methods

There is one main difference between straight


line depreciation and accelerated depreciation.
Straight line is decided by taking the cost of the
assets, figuring out the salvage cost when the
use of the asset is finished and how many years
of use the asset has. A person then takes the
cost minus salvage and divides the remainder by
the number of years of use. This amount is the
depreciation expense subtracted each year from
the cost. The accelerated depreciation does not
have the same amount of deprecation subtracted
each year. It does have the cost minus salvage
value to figure out the amount to use but is then
divided out differently. A person takes the sum of
the years of a products useful life, such as three
years is 3 + 2 + 1 = 6, then a person would
divide the depreciation amount by 3/6 the first
year, 2/6 the second and finally 1/6 for the final
year. So the amount of depreciation expense is
larger to smaller with accelerated and equal
amounts for straight line.
The advantages of straight line method are it is
easier and faster to figure. The advantage of
accelerated method is it is more accurate when
figuring depreciation expense. The accelerated
method has an advantage and disadvantage
concerning taxes. A company can use the
accelerated method to take advantage of bigger
tax breaks at the beginning of an assets life, but
since this amount drops during the lifespan if the
company needs added tax breaks it will not
receive them from these assets in the future.
With the straight line method the amount of tax
breaks are even through the life of the product.
Most companies choose this form of depreciation
for reporting purpose on taxes but will use the
accelerated method to figure taxable income.
As mentioned before the advantage of straight
line depreciation is it is easier to figure and uses
the same total each year for deduction of
depreciation expense but the disadvantage is
that if use for taxable income and reporting a
company does not get a bigger tax break at the
beginning of the assets life when they have just
put out the cost for the item and may need a
bigger tax break.
--------------------------------------------------

FIN 571 Week 3 Learning Team Reflection

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Watch the "Concept Review Video: Working Capital Management"


video located in theWileyPLUS Assignment: Week 3 Videos Activity.

Preparing an Income Statement


The companies net income is profitable when the sales exceed the
cost of goods sold. In this, the gross profit is $761k. This is
beneficial to the company. Though we took the cost of goods away
from the net sales there are still other areas which need to take a
piece of the pie. For this company, once the SG&A and depreciation
are taken out, the company still contains a profit of $290k. But the
buck does not stop there. Once the interest income and interest
expense are adjusted the balance before earnings and taxes is
$290k. After taxes are taken out, the company is left with a net
profit of $174k.

In this case I think the company has achieved success with a net
profit of $174k. If the company were unable to be profitable, the
company would eventually go out of business. We would be able to
tell if the company was not profitable by looking at each section
individually. The cost of goods sold is what stands out for me. If we
pay more to make the product then we are actually selling it for,
there is no profit to be made. So, I think it should all start there.
--------------------------------------------------

FIN 571 Week 3 Team Assignment Financial


Statement Interpretation

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Select three publicly traded companies. Choose one
each from the following sectors: manufacturing,
service, and retail.

Costco Wholesale Corporation


If we look at the financial statements of the company
we can find that the company is financially strong. Its
strength are:
1. It has enough amount of current asset to repay its
current liability. The current ratio of the company
8.18 indicates that the company has $8.18 liquid
asset to repay its $1 of current liability.
2. The operating cost of the company is increasing
because the company is able to reduce its
expenses.
3. Cash from operating activity has increased for the
company.
Apart from this strength the company also has some
weakness in its financial statement:
(i) Increasing inventory indicates that the company
inventory conversion period is increasing.
(ii) The cash from investing activity shows that the
company cash outflow is more in the short term
investment i.e. in non operating activity.
(iii) The overall has for the year 2008 has declined
for the company.
Net Income:
If we look at the trend in net income of the company
we can find that the company net income looks
fluctuating but it has improved it net income in 2008 as
compared to 2007.
Debt ratio as a percentage of total assets:

If we look at the debt ratio as percent of total asset we


can find that the debt ratio is declining in 2008 as
compared to 2007 i.e. the company is increasing equity
to finance debt.
Debt as a percentage of total equity:
As we can see that the debt as percent of total equity
is declining in 2008 as compared to 2007 i.e. the
company is increasing equity in its capital structure.
As we can see that there is nothing negative in 2008
for the company and this is the reason it has positive
trend as compared to 2007. Hence there is no need to
correct anything for the company.
--------------------------------------------------

FIN 571 Week 4 Connect Problems

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FIN 571 Week 4 Connect Problems Q-1 Even though
most corporate bonds in the United States make
coupon payments semiannually, bonds issued
elsewhere often have annual coupon payments.
Week 3 DQ 1
Due Tuesday, Day 2
Post your answer to Problem 3.5 on p. 109 (Ch. 3). How
might the information contained within the stockholder
equity statement be used for management and
investor decision-making? Provide specific examples of
situations in which the stockholder equity information
might be used.

The statement of stockholders equity provides the


changes in the equity accounts during the accounting
period more in depth than the balance sheet. The
information found on the statement of stockholders
equity includes retained earnings, common and
preferred stock, and additional paid in capital.
Management uses the statement of stockholders
equity to ensure they are reaching their goal of
maximizing shareholder's equity. The use of market
ratios help with the analysis of the statement of
stockholders equity, such as earnings per share, price-
to-earnings, dividend payout, and dividend yield. These
ratios will help both management and investors in
analyzing the company. For example, if I were looking
to invest in a companys stocks I would utilize all of the
financial ratios, as well as the market ratios. The
earnings per share ratio is calculated before the price
to earnings ratio, P/E, because the earnings per share
ratio is used in the second. If a company pays
dividends, the dividend payout ratio will come in handy.
It tells us The percentage of earnings paid to
shareholders in dividends (Investopedia, 2010, p. 1).
References
Investopedia. (2010). Dividend Payout Ratio. Retrieved
August 3, 2010, from
Investopedia:http://www.investopedia.com/terms/d/divi
dendpayoutratio.asp

Response 2
Explain what can be found on a statement of
stockholders equity.

The major elements of stockholders' equity include


capital stock, paid-in capital, retained earnings,
treasury stock, unrealized loss on long-term
investments, and foreign currency translation gains
and losses.

How might the information contained within the


stockholder equity statement be used for
management and investor decision-making?
Provide specific examples of situations in which
the stockholder equity information might be
used.

Management may look at the stockholders equity


statement retained earnings section to determine if
company should borrow money for capital investments
or finance it through various forms of equity. It may
also be used by the stockholder to evaluate the
compensation paid to the company officers. Investors
may also look at the statement for cumulative net
unrealized gains and losses before purchasing stock in
the company. Investors are also interested in the paid
in capital because they can compare it to the additional
paid in capital and the difference between the two
values will equal the premium paid by investors over
and above the par value of the shares.

DQ 2
Week 3 DQ 2
Due Thursday, Day 4

Provide an example from the text or the Internet that


demonstrates a situation in which a companys net
profits appeared good in the statements, but the gross
or operating profits presented a different picture.
Discuss how this might have occurred. Respond to the
following question, addressed in Problem 3.6 on p.
109 (Ch. 3): Why is the bottom-line figure, net income,
not necessarily a good indicator of a firms financial
success? Look for indicators like liquidity or solvency
to answer this discussion question.

An example that demonstrates the situation is Enron.


Enrons financial statements did not show all the
expenses and costs. Instead of showing them on the
income statement they made entries so the cost and
expenses would post in the balance sheet. The same
was done with the revenues. This way it would be less
expenses and the net profit appeared good. Many
debts and losses were not reported in the financial
statements. From the third quarter of 2000 through the
third quarter of 2001, the directors fraudulently used
reserve accounts within Enron Wholesale to mask the
extent and volatility of its windfall trading profits,
particularly its profits from theCalifornia energy
markets; avoid reporting large losses in other areas of
its business; and preserve the earnings for use in later
quarters. By early 2001, Enron Wholesale's undisclosed
reserve accounts contained over $1 billion in earnings.
The head of the company improperly used hundreds of
millions of dollars of these reserves to ensure that
analysts' expectations were met. In addition, Skilling
and others improperly used the reserves to conceal
hundreds of millions of dollars in losses within Enron's
EES business unit from the investing public.This would
show the creditors that Enron was making profits and
its position was solid.
The net income is not necessarily a good indicator of a
firms financial success because the income statement
only shows the profit or loss at a period of time and
does not show the whole picture of the company. The
Balance Sheet, Statement of cash flow, Statement of
shareholders equity and the Income Statement all
together give the real picture of the business. Each one
of them shows different aspects of the business. These
statements show where the income is actually coming
from; is it from sales or from loans the company is
borrowing? If the company is selling a building or any
other asset but that does not mean that it is selling
more products and making profit. Looking at the
Income Statements the company might be making
profit but at the same time it is extremely leveraged.
Response 2
A companys net income is not the whole picture, just
part of it. There are lots of things that contribute to the
net income that may not be significative to the
companys success. If the value of a dollar has a
sudden change that can affect the bottom line if the
company happens to hold the medium of exchange
that can benefit by the change that might occur. The
company can falsely inflate the bottom line. A
companys net income is coupled with liabilities, cash
flow, and selects financial ratios. Looking at it this way
is a much better way of seeing what the companys
success is like. A company can change up many things
to make it look like their income is better. These things
that can be changed are single sales events, cash
infusion, or false financial statements. Some things like
debt that a company has, the companys cash on hand,
their capital assets conditions, or even their sales
trends. To figure the success of the company, you must
look at the whole picture. One thing cannot tell you all
the facts of the companys affairs. You cannot tell the
net income of the company just from the bottom line.
Look at all the financial records.
Response 3
Provide an example from the text or the Internet that
demonstrates a situation in which a companys net
profits appeared good in the statements, but the gross
or operating profits presented a different picture.
Discuss how this might have occurred. Respond to the
following question, addressed in Problem 3.6 on p.
109 (Ch. 3): Why is the bottom-line figure, net income,
not necessarily a good indicator of a firms financial
success? Look for indicators like liquidity or solvency
to answer this discussion question.
Net income is not necessarily a good indicator of a
firms financial success because they have ways to
manipulate it by increasing their revenues or hiding
some of their expenses. For investors trying to decide
where to invest their money, they need to look more
into assessing how the company came up with the
numbers they presented.

An example of this situation is when Laribee Wire


Manufacturing Co. exaggerated in recording their
inventory value which allowed them in acquiring loans
from six banks totaling to about $130 million using it as
collateral. At the same time, they reported $3 million in
net income for the period, but in actuality they lost
$6.5 million.

This company showed a higher net income by reporting


fake inventory in which its value was overstated and
transferred over to their income statement. When the
banks assessed their financial statements, it was
enough to sway them into lending the loans they
needed.

Reference:

Investopedia. (2010). Spotting Creative Accounting On


The Balance Sheet. Retrieved
fromhttp://www.investopedia.com/search/searchresults.
aspx?
q=Spotting+Creative+Accounting+On+The+Balance+
Sheet&submit=Search
--------------------------------------------------

FIN 571 Week 4 DQ 1

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A firm uses a single discount rate to compute the NPV
of all its potential capital budgeting projects, even
though the projects have a wide range of
nondiversifiable risk
STOCK DIVIDEND

Stock Split
University of Phoenix

Stock Dividend
In the present time, the stock dividend has become
important concept. When dividend is given in form of
stock, it is called stock dividend. In this form of
dividend, the cash does not use. It is important, when
the corporation declares stock dividend, the market
value of the share decreases because the number of
stock increases. The many companies prefer stock
dividend due to the tax benefit. If the individual gets
stock dividend, he does not pay any tax on stock
dividend. Thus the stock dividend reduces tax burden.
On the other hand, the ownership of investors also
spurs up in the company because the number of
holding share increases. There is also disadvantage of
stock dividend. The market value of the share
decreases, so the market value of holding also
decreases (Kennon, 2009).
The ABC Company is leading company in its industry.
The number of outstanding share of the company is
one million. On the other hand, the number of investors
is five millions. The value of market capitalization is
$100 million. The management declares 20% stock
dividend. Thus the 200000 shares will be distributed as
a stock dividend. The number of outstanding share will
be increased by 200000 and the new total number of
outstanding stock will be 1.2 million. On the other
hand, the new value per share in the market will be
$83.33 (100 million/1.2 million). This example is taken
from below mentioned link:
Stock Split
The stock split is also an important concept. When the
management wants to increases number of shares, the
management follows this method. In this method, the
face value of the share is split and number of share
gets increased. Due to increment in number of
outstanding share, the market value of per share also
gets affected but the total market capitalization of the
company does not affect. Both stock split and stock
dividend increase number of outstanding shares but
both are different due to the accounting treatment. In
the stock split, the investors do not get any real
benefit. It is also known as non-cash distribution of
dividend. The motto behind stock split is to increase
trading of the shares in the market (Baker, 2009)
For example, the face value of per share is $100
and the total outstanding shares are 100 million. If the
management of the company announces stock split in
ratio of 1:2, the total outstanding shares will be
increased by 100 million, thus the new total number of
the share will be 200 million. On the other hand, the
face value of the share will reduce by 50%. So the new
face value of the share will be $50. Due to effect of
stock split, the holding share of the investor will also
increase in the prorate basis. If the investor has 10
shares, now he will have 20 shares. It is important
thing that the total issued capital will not be changed.
The illustration of stock split has been got from
following link:
Reverse Stock Split
The reverse stock split is just opposite of stock split. In
this process, the management reduces the number of
outstanding shares. The company increase face value
of the share. In this method corporation decides a ratio
such as 2:1. Thus the company accumulates two shares
in one share. In this method, the total market value of
company does not change. Due to reverse stock split,
the earning per share and face value of per share rises.
Thus the reverse stock split provides just opposite
result from stock split. It is important question, why
company selects this method. When the management
seems that the face value of the share is less as
compared to competitors then the company goes for
this method to make its share value to equal to
competitors shares face value. It is also a sound
strategy to increase treading of shares. If the face
value of share is too cheap in comparison to
competitors, the investors will be discouraged for
investment. For increasing the confidence of investors,
the management uses this method (Mladjenovic,
2009).
For example, an investor holds 100 shares of XYZ
Company and the face value per share is $50. If the
management go for reverse stock split option and
declares one share for 10 shares then the holding of
the individual will reduce 9 shares for every 10 shares.
Thus the new holding of the investor will be 10
(100/10) shares but the face value per share will be
$500. It is also important that the total market
capitalization will remain as same as before reverse
split. The example of the reverse split is take form
below mentioned link:
http://www.sec.gov/answers/reversesplit.htm.
References
Baker, H. K. (2009). Dividends and Dividend Policy. John
Wiley and Sons.
Kennon, J. (2009). All About Dividends. Retrieved May
31, 2010, from
http://beginnersinvest.about.com/od/dividendsdrips1/a/
aa040904_2.htm
Mladjenovic, P. (2009). Stock Investing for Dummies.
Dummies.
--------------------------------------------------

FIN 571 Week 4 DQ 2

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Phyllis believes that the firm should use straight-line
depreciation for a capital project because it results in
higher net income during the early years of the
projects life. Cash Flow Statement Analysis

Cash Flow Statement Analysis


The cash flow statement is important financial
statement of the corporation. The cash flow statement
states from where cash has come and where cash has
been gone. Thus the cash flow statement makes a
relationship between beginning balance and ending
balance of cash. The cash flow statement is prepaid on
the basis of income statement and balance sheet of the
company. The Little Bit Incs beginning cash balance
including marketable securities was $24000. On the
other hand, the ending cash balance including
marketable securities of the company was $40000
(Weygandt, Kimmel & Kieso, 2009).
The net income of the company was $5500 during
2009. The company generated cash inflow from
operating activity is less as compared cash out flow
from operating activities. The company generated
$9000 negative cash balance in operating activity
section of the cash flow statement. On the other hand,
in the investment section, the firm has also negative
cash balance. The firm has $7000 negative balance in
investment section of the cash flow statement. The
Little Bit Inc made investment during the year instead
of selling of assets. Last section of the cash flow
statement is financing activity section. In which, all
finance related activities come. The corporation sold
some shares and borrowed some money from outside
lenders therefore the company has positive case
balance by $32000 in financing activity section.

Reference
Weygandt, J.J.,Kimmel, P.D. & Kieso, D.E. (2009).
Managerial Accounting: Tools for Business Decision
Making. John Wiley and Sons.
--------------------------------------------------
FIN 571 Week 4 Individual Assignment Analyzing
Pro Forma Statements

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Decide upon an initiative you want to implement that would increase


sales over the next five years, (for example, market another product,
corporate expansion, and so on).

Analyzing an Income Statement

The net income of Kodak has decreased a bit; it appears that the
company is more profitable. By conducting a side by side analysis
from 2004 to 2003 the company has increased in current assets and
decreased in total assets. It appears that the company went down in
property, plant and equipment net as well as discontinued operations.
So, despite the decrease in total assets it looks like the company has
made a good decision.

The company has also decreased its total liabilities by about 4%. I
believe this to be good because the short term borrowings and long
term debt has decreased. To me, this means that the company is
tightening their belt and paying off old debt.
Total shareholders equity has down a little bit in dollars, but on the
percentage level the companys percentage has gone up. I believe this
is because the company issued $104k more shares in 2004 than in
2003. The company has the same amount of shares outstanding in
2004 that it did in 2003 as well. Retained earnings on the stock have
gone up in 2004 as well. I believe this is contributed by the more
shares that have been issued.

I believe the profitability of the company is under good standings.


They appear to be making the necessary adjustments in the company
to stay with in a profitable income.
--------------------------------------------------

FIN 571 Week 4 Learning Team Reflection

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Watch the "Concept Review Video: Stock Valuation" video located in


the WileyPLUS Assignment: Week 5 DQ 1
Due Tuesday, Day 2

In what ways does the statement of cash flows relate to the balance
sheet and income statement?

It is important to understand what we are doing with the numbers and


the results these numbers give us because the result is the information
that will be available to us from financial statements. Although some
want to see the income statement and ignore the other statements we
need to use them together to see the total picture of what is happening
to our business. The relationship between the numbers on the
financial statements shows us everything we need to know about the
business.

The income statement shows income and expenses for a period of


time and if we are making or loosing money. The balance sheet
compares the assets to liabilities and shows how much money the
business would have if everything is sold today.

The statement of cash flow might be the most critical statement


because there is plenty of information we can gain form it. This
statement relates with the income statement on operating activities to
see if they are generating cash or not. It is related to the balance
sheet on how much cash is used in investing activities. In relationship
with the balance sheet the cash flow statement shows what cash is
provided or used by financing activities. It will tell us how much debt
has been paid and will indicated if we are using more debt or have
paid down the credit line.

When the business makes a sale or receives payment for a sale on


credit that is an inflow. A sale shows up as income on the profit and
loss statement and as an inflow on the cash flow statement. It also
shows up either as cash or accounts receivable on the balance sheet.
Also, how quickly we can collect on accounts receivable will play a
big role in the cash flow. When the business spends money, it shows
up as an expense in the profit and loss statement and as an outflow on
the cash flow statement. It also shows up on the balance sheet as a
decrease in cash, or an increase or decrease in liabilities, depending
on what the expense represents.

Response 2
In what ways does the statement of cash flows relate to the
balance sheet and income statement?
The cash flow statement relates to the income statement and balance
sheet. The net income from the income statement is listed on the
statement of cash flows. Operating activities are analyzed on the
statement of cash flows; this section of the statement reconciles the
net income to the actual cash the company received from or used
during operations. The second section of the statement of cash Flows
is the cash flow from investing activities which include purchase or
sale of assets. The last section in the Statement of Cash Flows is the
cash flows from financing activities that includes raising cash by
selling stocks/bonds or borrowing from backs; or cash out flows from
paying back loans. The balance sheet shows the different account
balances at the end of the accounting period. The statement of cash
flows reflects changes in the accounts listed on the balance sheet
between accounting periods. The net cash from operating, financing,
and investing activities are added up to calculate the net change in
cash.

Week 5 DQ 2
Due Thursday, Day 4

Discuss how the statement of cash flows is utilized by investors. If you


were an investor reviewing a statement of cash flows, what section
might interest you most? Why? Discuss the circumstances in which
other sections of the statement might be important to an investor.

Prior to making an investment in a company, one would want to


understand the decisions the owners are making to fund the
operations of the company daily. Maintaining sufficient cash to
acquire new product, pay overhead, and satisfy generated sales would
be the predominant need of the company. Second need would be for
the company to have sufficient cash to remain competitive. This may
require cash to invest in research and development, increase
inventory as new product introduction, improve efficiency in plant
and equipment, or cash to satisfy prior borrowing obligations. By
reviewing the statement of cash flow, the investor can determine if the
company is generating sufficient cash internally to fund operations or
are they requiring outside injection of cash to finance the short fall in
cash needed to operate the company. Last, the investor can review
the statement of cash flow to better understand the leverage of the
company and the requirement for repayment of debt, or dividends to
reward prior investments.

Response 2
Discuss how the statement of cash flows is utilized by investors. If you
were an investor reviewing a statement of cash flows, what section
might interest you most? Why? Discuss the circumstances in which
other sections of the statement might be important to an investor.

The statement of cash flow is utilized by investors because it has all


information integrated from the balance sheet and the income
statement. The statement of cash flow is used by an investor to see if
the operating activities are greater than the net income to have
earnings that are called high quality. If operating activities are
less, then a red flag will be raised as to why the net income is not
becoming cash. Another reason would be investors believe cash is the
best. The statement shows all cash coming and going from the
business. If the company generates additional cash than what is being
used, then the company can reduce their debt, acquire another
business, or buy some of the stock back. The last reason why would be
that financial models are based upon the statement of cash flow.
If I was an investor reviewing a statement of cash flows the section
that might interest me the most would be the operating activities. I
would like to know how the company was doing and what areas need
to be improved to have more cash generated in the business. All the
sections are important to an investor so they can see the complete big
picture of their investment.
--------------------------------------------------

FIN 571 Week 4 Team Assignment Operating


Leverage and Forecasting

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Operating Leverage and Forecasting Problems Team Assignment

Please complete the following problems. When


calculating earnings per share and PE ratios, please
show your work. This problem is similar to the
examples shown in the lecture.

1.

2.

3. Candela Corporation

4. Axia College of University of Phoenix

5.

6. Candela Corporation

7. Candela Corporation and Subsidiaries have


been working for over 34 years developing and
commercialize aesthetic laser systems that allow
physicians and personal care providers to treat a
variety of cosmetic and medical conditions such as
removal of spider veins, scars, stretch marks,
warts, as well as hair removal and age spots,
freckles and tattoos. Other skin treatments such as
psoriasis and acne and acne scars are also treated.
(Axia College, 2007)

8. Going from top to bottom on The Candela


Corporation and Subsidiaries Consolidated
Statement of Cash Flows; for the operating
activities, 2002 shows an alarming loss in the net
income while 2003 and 2004 for the company are
showing a significant and steady climb in the net
income. In 2004 there was a new category added
called Provision for the disposal of discontinued
operations and the category has caused an
increased the account for 2004. Loss from
discontinued operations grew from 2002 to 2003
but had a significant decline for 2004. Depreciation
has increased over the last 3 years as well.
Provision for bad debts increased significantly too,
but an increase in bad dept is expected as revenue
increases. The provision for deferred taxes shows
the company went from a loss in 2002 and 2003 to
show there was no tax loss in 2004. The tax
benefit from exercised stock options has
practically doubled sense 2003. The changes in
assets and liabilities for the last 3 years have been
up and down. Receivables have increased, notes
receivable decreased, and inventories have
increased. Other current assets, other assets have
also increased. Accounts payable has made a
significant decrease in the last 3 years as well as
accrued payroll expenses. The accrued payroll
decreasing could mean that the amount of
employees over the years has decreased as well.
The accrued warranty costs have increased as
well; this could mean that the company renewed
equipment warranties. The net cash provided by
operating activities looks to have gone from a loss
in 2002 to a large profit in 2003 and then a
decrease, yet still a profit for 2004. It appears on
the operations level that management needs to do
more to regulate the companys finances so there
is not an up and down variance each year.

9. The cash flow from investing activities shows


me that in the last three years they had large
amount of investments in 2002 and 2003 but now
they are letting them decrease.

10. The cash flow from financing activities


states that the proceeds from issuance of common
stock have increased significantly from 2002 to
2003 and rose a little more in 2004. The
repurchases of stock has not happened sense
2002 and the principle payment of long-term debt
grew in 2003 from 2002 and shows no activity for
2004. Same goes for the net borrowing on line of
credit; it appears that Candela Corporation is
current on payments to line of credit. So, the net
cash from financial activities looks great for 2004.
The cash and cash equivalents for each year have
increased steadily.

11. After reviewing the consolidated statement


of cash flows for Candela Corporation, I believe the
company is making a profit, but perhaps need
some control over their operating activities.

12.

13.

14.

15.

16.
17.

18.

19.

20.

21.

22.

23.

24.

25.

26.

27.

28.

29.

30. Reference

31.

32. Axia College. (2007). Statement of Cash Flows.


Retrieved June 14, 2010 from Axia

33. College, Week Six, ACC 230.

34.

35.

36.
37. --------------------------------------------------
FIN 571 Week 5 Connect Problems

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1.The difference between the present value of an
investments future cash flows and its initial cost is the:
payback period. internal rate of return. profitability
index. discounted payback period. net present value.

Analyzing Statements of Cash Flows

4.8. Research Problem


Choose five companies from different industries and
locate their statements of cash flows
for the most recent year.
(a) Create a table to compare the dollars provided or
used by operating, investing, and financing activities,
as well as the overall increase or decrease in cash.
(b) Create a second table for each company comparing
this same information for each of the three years
presented in that companys statement of cash flows.
Include an additional column that looks at the
combined cash flows for all three years.
(c) Write a short analysis of the information gathered.
Your discussion should address, among other things,
whether cash flow from operating activities is large
enough to cover investing and financing activities, and
if not, how the company is financing its activities.
Discuss differences and similarities between the
companies you have chosen.

(a) Create a table to compare the dollars provided or


used by operating, investing, and financing activities,
as well as the overall increase or decrease in cash.

STATEMENT OF CASH FLOW ANALYSIS

HARELY
STARBU DAVIDSO
CKS N RITE AID
2008 2008 2008

NET INCOME /
STARTING $ $ $
LINE 315.5 - (1,079.0)
OPERATING $ $ $
ACTIVITIES 1,258.7 (684.7) 79.4
$
INVESTING (1,086. $ $
ACTIVITES 6) (393.3) (2,933.7)
FINANCING $ $ $
ACTIVITIES (184.5) 1,293.4 2,904.0
$ $ $
CASH (11.5) 190.7 49.9

(b) Create a second table for each company comparing


this same information for each of the three years
presented in that companys statement of cash flows.
Include an additional column that looks at the
combined cash flows for all three years.
STARBUCKS

2008 2007 2006

Net Income/Starting 315. 672.6 564.


Line 5 4 26
Cash from Operating 1258 1331. 1131
Activities .70 22 .63
- - -
Cash from Investing 1086 1201. 841.
Activities .60 95 04
- - -
Cash from Financing 184. 171.8 155.
Activities 50 9 33
-
11.5 - 138.
Net Change in Cash 0 31.35 80
Net Cash - Beginning 281. 312.6 173.
Balance 30 1 81
Net Cash - Ending 269. 281.2 312.
Balance 80 6 61
HARLEY
DAVIDSON

2008 2007 2006

Net
Income/Starti 933. 1043
ng Line 0 84 .15
Cash from -
Operating 684. 798. 761.
Activities 65 15 78
Cash from - -
Investing 393. 391. 35.2
Activities 25 21 6
Cash from - -
Financing 1293 1037 637.
Activities .39 .80 02
Net Change in 190. 164. 97.4
Cash 70 46 2
Net Cash -
Beginning 402. 238. 140.
Balance 85 40 98
Net Cash -
Ending 593. 402. 238.
Balance 56 85 4
RITE AID

200 200
8 7 2006

Net -
Income/Startin 107 26. 1273
g Line 8.99 83 .01
Cash from
Operating 79.3 309 417.
Activities 7 .15 17
Cash from - - -
Investing 293 312 231.
Activities 3.74 .78 08
Cash from -
Financing 290 33. 272.
Activities 3.99 72 84
-
Net Change in 49.6 30. 86.7
Cash 1 08 5
Net Cash -
Beginning 106. 76. 162.
Balance 15 07 82
Net Cash - 155. 106 76.0
Ending Balance 76 .15 7
(c) Write a short analysis
of the information
gathered. Your discussion
should address, among
other things, whether
cash flow from operating
activities is large enough
to cover investing and
financing activities, and if
not, how the company is
financing its activities.
Discuss differences and
similarities between the
companies you have
chosen.

Starbucks operating cash flow has gone up in 2007 and decrea


looks a on the down side but previously was doing well. The ne
previous year. This could mean that this year there can be a g

Harley Davidson's operating cash flow has significantly decreas


cycle from 2006. The decrease in cash from operating activitie
income. With the economy the way it is and not many people
income is decreasing. With a bounced back economy in the co

Rite Aid's operating cash flow has taken a significant decrease


from investing and cash from financing, the net change in cash
gain in cash could be from the ever growing needs in medical s
company.
FIN 571 Week 5 DQ 1

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Because the weighted average is always a correct
measure of a required return, Findwhat.com Case -
CheckPoint
ACC 230
Findwhat.com has recorded the 135 percent increase in
the revenue which is mainly due to the business
acquired of Espotting during the year. The different
accounting policies are present for the acquiring firm
and the acquired firm. The company has recorded
certain premature revenues for the amount which
advertisers had made only the advance deposit. As
result, the company is recognizing the vendor financing
as revenue. In some places, the gross revenue has
been recognized while in another, the net revenue has
been recognized. The network click revenue is
recognized at gross level while the private level
revenue is taken at net level. Some of the revenue
expenditures have been recognized as the capital
expenditures.
Revenue for set up network fee is treated as deferred
revenue and is recognized over a period of time. The
company is very inconsistent with regards to its
accounting policies in terms of recognition of revenue.
The provision and treatment of amount for doubtful
debt is also not satisfactory. When a customer clicks on
a sponsored advertisement, the whole of the revenue
due to him is recognized. The company is having a very
high amount of doubtful debt balance at the end of the
year ending December 31, 2004.
--------------------------------------------------

FIN 571 Week 5 DQ 2

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The development of the new issue junk bond market
had important implications for capital structure choice.
Week 7 DQ 1
Due Tuesday, Day 2
Post your answer to Study Question 5.2 on p. 180 (Ch.
5). As you read your classmates responses, consider
the following scenario: If you compared two different
companies that utilized two different valuation
methods, how might the quality of the results differ?
Also, comment on the difficulty of making comparisons
between two firms that use different valuation
methods.

Understanding the different inventory methods is


crucial. First the person that establishes the inventory
needs to determine which method to use. LIFO, or
FIFO. LIFO means Last in First Out. This means that
when a purchase is made, and sales are recorded the
newest product is used first. So if I bought 10 combs at
$2 on December 1st, and then I buy 5 combs at $2.50
on December 10th. When sales are made I am going
to record sales using the $2.50 until I sell through the 5
combs that were purchased on the 10th, and then the
cost will go to the previous purchase price of $2 until
those 10 combs are sold through. FIFO is just the
opposite. Meaning that goods are used in the order
that they are received. The first items ordered, are the
first items sold. Either method will pass an audit. It is
important to note though that managers can't switch
back and forth between the two methods. Profit will
vary depending on which method is being used. Say
you sold only 6 combs at $3 each. Using the LIFO
method this would equal $3.50 profit. If you used the
FIFO method, this would result in a $6.00 profit.

Response 2
Post your answer to Study Question 5.2 on p. 180 (Ch.
5). As you read your classmates responses, consider
the following scenario: If you compared two different
companies that utilized two different valuation
methods, how might the quality of the results differ?
Also, comment on the difficulty of making comparisons
between two firms that use different valuation
methods.
It is very important to understand which inventory
valuation method is being used to determine the profit
numbers quality. The balance sheet, statement of cash
flow and income statement can be directly impacted by
the valuation method that used to determine the costs
of inventory. The three methods that are used are FIFO,
LIFO and Average Cost. The valuation ratios can be
dramatically affected depending on the inventory
valuation that is being used over a long-term period;
especially because prices are likely to rise. When using
FIFO you can increase net income, but then at the
same time raise the amount taxes that business is
obligated to pay. When using LIFO the inventory can be
obsolete because they are old this will result in lower
net revenue because the products pricing is higher. The
Average Cost results usually fall between LIFO and
FIFO. The bottom line can be affected mainly by the
inventory analysis and the ratio results that are formed
from that analysis. It is easier to compare companies
that are in the same line of business, so I believe that
quality of results would differ tremendously if different
valuation methods were used. If you use LIFO that
company may seem unattractive but they are
performing well, as for FIFO it may look good as for
profit, but may not be performing well.

DQ 2
Week 7 DQ 2
Due Thursday, Day 4

Post your answer to Study Question 5.6 on p. 180 (Ch.


5). Discuss the consequences of poor quality reporting.
What has the U.S. government done to improve the
quality of reporting after recent financial scandals such
as Enron?

I think that the significance is that the analysts only


see this one HUGE transaction. The events that
actually led up to this large transaction actually took
place over a 2 year period. These items should have
been written off as they occurred. Wall Street would
not have known that the executives refused to write off
these accounts when they should have. Wall Street
only see's the one large transaction. If the company
would have been more honest in their reporting they
would have seen (more than likely) that there were
many accounts over a two year period that should have
been written off at different periods. So the analysts
would not have seen a pattern of recurring write-
offs. If the analysts only see the one transaction they
are less likely to be able to paint an accurate picture of
the financial standing of the business for investors, or
potential investors. If the investors could see that
there were many accounts that had to be written off
maybe their investing decisions would have been
different. The regulation of the accounting field has
grown by leaps and bounds since the Enron
scandal. The government has implemented several
agencies and regulations to ensure honesty in
accounting practices. SOX is one example of an agency
that has been put into place to ensure honesty in
accounting. SOX implements things like internal
controls, and accountability for CEO's and CFO's.

Response 2
I believe the impact and importance of this write-off
event is a very big matter. It is obvious how they
handled it that it was a scandal from the start. I think
that everyone involved had a big role in how things
played out. To me I think of the investors as a really
big hit to this but also feel that audit committees have
to be held responsible as well. It has been shown over
many examples that adit oversights are happening to
financial reporting. Although I do feel they are getting
better and tighter due to conforming tightly with the
GAAP requests. I feel over time the accounts
receivable should have been written off in smaller
increments and not all taken by $405 million at once.
Maybe that isn't correct but it would have been easier I
would think to take the receivables over time.

Response 3
Wall Street should have read the footnotes and seen
that the write off was for accounts receivables and
should have been reported in the allowance for
doubtful accounts. Every company that allow sales on
credit face doubtful accounts; therefore, the write off
may reoccur. The significance of this transaction is that
WorldCom want to cover up the $405 million dollars
that it was unable to collect from its customers, but
WorldCom wrote off a large sum of money rather
recording the write-off as needed and the analyst over
looked it. Depending on how the company policy is for
writing off accounts, from 1998 to the 3rd quarter in
2000 is 11 quarters. If the company wrote off bad
accounts quarterly it should have wrote off
36,818,181.82 per quarter. Investors would not want to
continue to invest into a company that has poor
collection skills, or poor management. Unusual items
are simply for those items that are not recurring
operating expenses. Bad debts do not fall under this
category. Since the Enron and WorldCom scandals
many rules and regulations have been put in place by
the government such as SOX. More people are being
held accountable for their actions and consequences
follow poor quality reporting such as fudging the
books.
--------------------------------------------------

FIN 571 Week 5 Individual Assignment DCF and


WACC Problems

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Discounted Cash Flows and WACC Homework Problems

Please post the answers (and show your work) in


the assignments section by midnight the last day
of the week assigned.
1.

2.

3.

4.

5. Presenting to Stakeholders

6. Axia College of University of Phoenix

7. Presenting to Stakeholders

8. Financial statements provide insight into the


companys current status and lead to the
development of policies and strategies for the
future (Axia, 2007). Financial statements and
notes to the financial statements should be used to
analyze the company. For instance, what do the
financial statements reveal about why the
company has requested a loan or purchased items
on credit? What is the firms capital structure and
what does the firm have outstanding? How well
can the company pay back debt? What recourses
are used to pay debt? What is the companys
performance record and are there any future
expansions? What are the expected returns and
how successful is the company compared to
industry averages? Which areas of operations
contributed to the companys success, and what
are the strengths and weaknesses of the
company? What changes can be made to improve
the future performance of the company?

9. Key financial ratios will assist in determining the


information requested. Liquid ratios measure a
firms ability to meet cash needs as they arise. The
current ratio is a good tool to use because it
measures the ability the firm has to pay debts
when due. The current ratio for REC is at 2.4 times
for 2007, although it is down from 2006 the
company is still able to pay current debt when due.
Cash flow ratio considers cash flow from operating
activities has increased from 2006, and this
indicates an improvement in short-run solvency.
Average collection period has gone down 5 days
within the last year. The cash conversion cycle
gives in-site on why the cash flow has improved or
decreased, in this case the conversion period for
REC has improved by 26 days.

10.

11.

12.

13. Activity ratios measure the liquidity of specific


assets and the efficiency of managing assets.
Accounts payable turnover is up seven times from
the prior year and inventory turnover is also up .25
from last year. Accounts payable turnover is down
9.05 from 12.10 in 2006. This means that the
company is taking longer to repay payables. The
fixed asset turnover and total asset turnover ratios
are used to assess managements skills in
generating sales from investments in assets. The
fixed asset turnover has dropped slightly, but the
total asset turnover has risen slightly. The increase
in total asset turnover comes from improvements
in inventory and accounts receivable turnover.

14. Leverage ratios measure the extent of a firms


financings with debt relative to equity and its
ability to cover interest and other fixed charges
(Axia, 2007). Debt ratio, long-term debt to total
capitalization and dept to equity have all raised
slightly implying a slightly riskier capital structure.
The times interest earned and the cash interest
coverage have increased since 2006. The interest
payments can be covered 7.4 times this year. The
cash interest has improved due to the operating
profits and cash from operations. The fixed
coverage ratio is also important in cases where
companies use operating leases. In this case, the
fixed charges have increased slightly.

15. Profitability ratios are used to measure the


overall performance of a firm and its efficiency in
managing assets, liabilities, and equity. The ratios
used are the gross profit margin, operating profit
margin and net profit margin. All of which have
improved for REC. As well as the cash flow
margin, return on total assets, return on equity
and cash return on assets. Over all the company
seems to be in well financial standings and looking
toward a profitable year.

16.

17.

18.

19.

20.

21.

22.

23. Reference
24. Axia College. (2007). The Analysis of Financial
Statements. Retrieved June 28, 2010,

25. from Axia College, Week Eight, ACC 230.

26.

27.

28.

29.

30.

31.

32.
33. --------------------------------------------------

FIN 571 Week 5 Learning Team Reflection

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Watch the "Concept Review Video: Cost of Capital" video located in


the WileyPLUS Assignment: Analysis of Scenarios:

Debt Scenario would increase the debt ratios from to 50%. Equity
Scenario would reduce the debt ratio to 40%. With Debt option,
earnings per share would be higher. Interest declines to 2.86 times
with the Debt option while times interest earned increases to 3.75
times with the Equity option. Either option exhibits a good use of
financial leverage because for both, the financial leverage index
being greater than 1. However, it is higher using the Debt option.
--------------------------------------------------

FIN 571 Week 5 Team Assignment Capital


Budgeting Assignment, Part 1 (New Heritage
Doll)

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Acting as the executive team for a small company, your
team will apply the principles of capital budgeting to
invest in growth and cash flow improvement
opportunities in three phases over 10 simulated years

Interpreting Financial Ratios

Luna Lighting, a retail firm, has experienced modest


sales growth over the past three years
but has had difficulty translating the expansion of sales
into improved profitability. Using
three years financial statements, you have developed
the following ratio calculations and
industry comparisons. Based on this information,
suggest possible reasons for Lunas profitability
problems.

Industry

2009 2008 2007 2009


Current 2.3X 2.3X 2.2X
2.1X
Average collection period 45 days 46 days 47 days
50 days
Inventory turnover 8.3X 8.2X
8.1X 8.3X
Fixed asset turnover 2.7X 3.0X
3.3X 3.5X
Total asset turnover 1.1X 1.2X
1.3X 1.5X
Debt ratio 50% 50% 50%
54%
Times interest earned 8.1X 8.2X
8.1X 7.2X
Fixed charge coverage 4.0X 4.5X
5.5X 5.1X
Gross profit margin 43% 43% 43%
40%
Operating profit margin 6.3% 7.2%
8.0% 7.5%
Net profit margin 3.5% 4.0% 4.3%
4.2%
Return on assets 3.7% 5.0% 5.7%
6.4%
Return on equity 7.4% 9.9% 11.4%
11.8%

Based on this information, some possible reasons for


Lunas profitability problems are suggested as under:
a) Net Profit margin of the company has degraded
and this might be due to decrease in the net
income of the company due to increase in
expenses. This needs to be improved upon by cost
control and cost reduction.
b)Return on equity of the company has degraded
further and this also indicates that there is a
decrease in the net income of the company due to
increase in expenses. This needs to be improved
upon by cost control and cost reduction.
c) Fixed charge coverage has fallen, which means
that the debt payment along with interest might
have increased and this will also lead to decrease
in the net income of the company and thus
degrading the profitability position of the company.
d)Operating profit margin has dropped even though
gross profit margin has remained constant. It
means that the operating expenses are higher and
need to e controlled to improve the profitability of
the company.
e) The fixed assets turnover and the return on assets
have also degraded; this also indicates decrease in
the net income of the company.
f) --------------------------------------------------

FIN 571 Week 5 Working Capital Simulation


Managing Growth, Part 1 (New Heritage Doll)

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Acting as the executive team for a small company, your
team will apply the principles of capital budgeting to
invest in growth and cash flow improvement
opportunities in three phases over 10 simulated years.
Capstone Discussion Question
Due Tuesday, Day 2

What have you learned in this course about the


process of analyzing financial statements?
I have learned that there is a lot more to analyzing
financial statements than I thought. This class has
made me question my decision to go into the
accounting field. I feel inadequate after taking this
class. I am not an articulate, or analytical person. I
tend to get confused easily and do better at putting the
information together than I am at figuring out what it
all means. This is my last block of classes before my
Bachelor program starts, and I don't know if I am ready,
or if I even want to continue. Analyzing financial
statements takes a very detail oriented mind, and one
that is great at problem solving. It is critical to
understand the financial statements, and how they
relate to one another. There is a lot of information that
is not as obvious as it would seem. Looking at the
bottom line will not give a good picture of how a
company is doing financially. It is important to know
the how and why the bottom line looks the way that it
does.

Response 2
I have learned that it takes someone that has the
patience, tenacity, and motivation to truly analyze the
statements. If you go about it not wanting to do the
work you wont give a good analysis. I found that you
have to be willing to dig deeper than most would to get
a full picture of the company. I found that it is not an
easy task to complete. For me the process is a tedious
one. I don't think I would want to go into that type of
accounting where I have to analyze the statements of a
company. I think for me I would be better in specialized
accounting like A/P or A/R. I am better at figuring out
problems and figuring out ways to make them better. I
am better at specific tasks so for me I wouldn't want to
analyze the statements. I am glad to have learned how,
because at some point I am sure it will come in handy.

Response 3
All financial statements are essential documents
because they tell what has happened to a business
over a period of time but most users of financial
statement are more concerned about what will happen
in the future. Stockholders and creditors are
concerned with future earnings and dividends and
company's future ability to repay its debts.
Management is concerned with the company's ability
to finance future expansion.
Working as a bookkeeper I do all the steps in monthly
cycles consisting of entering transactions into the
journals, working with A/R, A/P, payroll and preparing
the reports, but I have not been able to analyze the
reports the way I learned in this class. I learned how
important is to monitor and interpret the results. I
learned how to compare financial statements of a
company with a company from the same industry and
point out the differences and similarities. This class
taught me the importance of analyzing the Income
Statement, Balance Sheet, Cash Flow Statement and
Stockholders Equity each one individually. I learned
how essential is the quality reporting and how useful
this quality is in business decision making. I learned
about key financial ratios: liquidity ratios, activity
ratios, leverage ratios, and profitability ratios. All these
ratios are valuable as analytical tools and will help me
indicate the areas of strength and weakness in a
business. Even though I learned the information step
by step in this class I tent to go over every single
chapter all over again to better absorb the material.
This class taught us the potential of some management
manipulations of financial statements, thus following
the general accounting rules, being honest, ethical and
professional are the ways on leading to safe and
profitable decisions.
--------------------------------------------------

FIN 571 Week 6 Individual Assignment Working


Capital Simulation Managing Growth Assignment

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Resources:

Harvard Business Publishing: Working Capital Simulation:


Managing Growth Assignment

Evaluating Financial Health 1

Evaluating Financial Health

Apple Inc. (AAPL)

Axia College of University of Phoenix


Evaluating Financial Health 2

Apple Inc. (AAPL)

Apple is one of the strong market participants of computer industry. It


also involve in manufacturing of telecom devices, software and other
peripherals. It enjoys full advantage of USA as home country, as it
has a strong retail network of 273 physical stores whose majority is in
USA, beside the E-retail outlet around the globe. The diversified
product portfolio empowers the apple to strive in tough competition
against Dell, HP & Compaq (Electronista, 2010). Amongst its
competitor Apples outclass profitability is witnessed of its effective
diversification efficient reach of product to customer and state of an
art Research and Development.

Managements Strategy

It is clear from the financial and the strategic analysis of the Apple
Inc. that the management of the company believes in continued
research, innovation and product development. It may be the sole
reason that why the firm avoids the cash dividend and rely over the
stock options. Besides the hardware business of computer the apple is
also focus on developing application software operating system, and
all such software application which added the value of its product.
The management is of the view that R&D, integrated marketing
channels and its product diversification is the source of competitive
edge against rivals of its industry. Management is aware of the need
of the investment in the promotion and advertisement activities; it
increases the brand equity, brand loyalty and awareness about the
products. Management also considers focusing on the retail store as it
is the source to remain in contact with customer and a way to market
the product directly; it is also a way to cross sell the market to
customer.

Evaluating Financial Health 3


Financial returns in Comparison to Industry

An investor is always keen to know about the profitability. Hence we


start with the assessment of profitability. Apple Inc. has shown a
tremendous improvement in net sales and profitability since 2005 to
2009. In 2008 the net income increases 75.07% and in 2009 increases
34.58% shown that Apple cop. is continuously enhancing its profit.
Company earning P\S is also at increasing trend. In 2009 basic EPS
is 9.22 from 6.94 last year, and it was 4.04 in 2007. It should be noted
that no cash dividend is announced since 2005, although stock base
benefit and compensation is given. An increase in return on asset has
been observed in 2009 i.e.26.96% against 19.33% last year while
industries average is 19.8. Hence Apple is leading the Industry from
this angle. Return on equity is 18.92% into 2009 lower than 33.40%
of industry benchmark, meaning apple is at lower leverage with a roe
increase of 4.03% this year (Hardware Marketplace, 2010).

Financial Risk and Industry

At this stage of our analysis we extend our findings to assessment of


risk associated with the investment opportunities in APPLE Inc.
Analyzing the liquidity we observed that Apple has a sound ability to
meet its short term obligation. It is revealed by the healthy current
ratio of 2.74 for the year 2009; it is improved from 2.46 of the last
year 2008. If we had a glace on the industry it reflects a standard of
2.5. In the computer equipment industry a very low inventory has
been observed. That is why the acid test ratio fall lightly below the
current ratio i.e. acid test ratio is 2.70 for the year 209 in comparison
to 2008, which were 2.43. If we compare the acid test of 2009 i.e. 2.70
with industry average, which is 2.5 (msn.com, 2010). On the liquidity

Evaluating Financial Health 4


situation it is stated that the risk avoider will be glad to look at the
satisfactory liquidity position.

As far as the solvency risk is concern in the long run the debt
equity ratio is 0.11 for the year 2009, which is increased from 0.08 of
2008. Here it is important to refer to the industry average of 0.07
(OnlyHardwareBlog, 2010). Hence it is apparent that though the
APPLE Inc. is more risky in the long run, but it does not sound like
the alarm.

Cash Flow Analysis

Due to the increase in sale the operation of the firm expanded,


and hence besides other assets, the requirement of the cash also
increases in 2009. $1.11 billion is generated from operations, which
is 5.87% higher than the last year. The deferred tax expense in 2009
is v1040 million this noon cash expense last year it was 39 million
and 78 million in 2007 (Electronista, 2010).

The company actively invests in marketable securities that not only


improve its liquidity, but rather give a room to meet hazardous need
of raw inventory at any point of time. Investing activities gives
negative balance $ 17.434 billion. It is also clear from the cash flow
that firm does not announce any dividend in cash, rather it takes a tax
benefit form stock base benefit; secondly, firm keeps healthy cash in
hand.

Apple and its Main Competitor

When comparing the Apple with its major competitor like Dell
& HP, Apple marks higher price earning ratio of 19.10 times that is
greater than Dell and HP, which is 16 times and

Evaluating Financial Health 5


18.3 times respectively. We analyze the share price to book value it is
5.71 times; again higher than 4.1 times of Dell and 1.38 times of HP.
Cause of higher market price is the retention of profit and stock base
benefits. Apple also has high capitalization; the date is $ 250.0 billion
(Electronista, 2010).

Apples Performance and Economy

Global economic recession is on the way to recovery, although


Europe and America needs some more time to normalize. However,
reasonable growth is observed in emerging market like Brazil,
Malaysia, India and China. Triad block recorded a poor growth.
What is going to be with the world economic outlook is the global
economy is going to revive with the V shape pattern or its recovery
would be like expanded U as some economist say growth will be
slow. I am of the view that Apple Inc. should more focus on the
emerging market like India, China, South Pacific region countries. So
Apple needs to exploit more and more opportunities outside the USA.
I am optimistic that the idea of direct marketing will work out side the
USA as well. Hence Apple needs to introduce maximum retail store
outside the USA.

It is important to look at trend analysis and industry comparisons as


a means of determining if it is the best time to expand or stay put and
to see how its future products will be accepted by the public.

Evaluating Financial Health 6

References

Electronista. (2010). Apple only US computer builder to outgrow


industry average. Retrieved

July 2, 2010, from


http://www.electronista.com/articles/10/06/04/isuppli.sees.apple.at.34
pc.world.market.share/

Hardware Marketplace. (2010). Computer Hardware. Retrieved July


2, 2010 from

http://www.hardwaremarketplace.com/computer-hardware/

msn.com. (2010). Apple Inc: Key Ratios. Retrieved July 2, 2010 from

http://moneycentral.msn.com/investor/invsub/results/compare.asp?
Page=PriceRatios&Sy

mbol=AAPL

OnlyHarwareBlog. (2010). Highest debt to equity ratio in the


computer hardware industry

detected in shares of international business machines. Retrieved


July 2, 2010 from

http://onlyhardwareblog.com/?p=2107
--------------------------------------------------

FIN 571 Week 6 Learning Team Reflection

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Watch the "Corporate Finance Video: Stable Money Makers" located


in the WileyPLUS Assignment: Week 6 Videos Activity.

Identify a capital improvement that could help Betty with her Alpaca
business.
Financial Analysis

Wal-Mart Stores Incorporated operates chain of retail stores in USA


as well as outside the USA. The first Wal-Mart store was opened by
Sam Walton in Arkansas in USA in 1962. Within a span of five
years; he opened more stores and he number increased to 24 stores
across Arkansas. The incorporation of Wal-Mart Stores
Incorporated was done in 1969. Wal-Mart grew in the United States
of America by opening of more stores in to the country. The
company not only opened the stores across Arkansas but also across
the United States of America (Wal-Mart Corporate, 2010).

Wal-Mart was opposed by the unorganized retail business holders in


the USA as their business was affected by opening Wal-Mart stores.
The company also opened its first store outside the USA in South
America in 1995. Wal-Mart wanted to spread itself not only to the
USA, but in other countries as well. In 2006, the company was
having 3800 stores in USA and more than 2980 stores outside USA
making it one of the largest retail chains in the world. This
corporation was also having a vision to establish itself in to a global
entity. Wal-Mart was one of the first companies to operate in the
organized retail sector (Fishman, 2006). The modes of entry used
by the company were different for different countries. Wal-Mart
used the mode of entry in to various countries according to the rules
and regulations prevailing in to that country (Wal-Mart Stores Inc:
Financial Statement, 2010).

The sales of the company for the financial year ending in January
2010 are 413.8 billion dollars and income for the same period is
14.7 billion dollars. The quarterly sales growth for the company has
been 5.90%, while the industry average is 6.80 %. The five-year
annual growth in the sales of the company has been recorded at
7.50 % while five year annual growth of income is 6.58 %. By
analyzing the financial statements of WalMart Incorporated, we
find that debt equity ratio of Wal-Mart is 0.71 on 31st January 2010,
which is 0.68 for the industry. It means the proportion of debt of
the company in its capital structure is lesser than the equity. The
company is less leveraged so the interest burden on the company is
minimal. Wal-Mart has capacity to borrow from the market for its
CAPEX in the future. The interest coverage ratio is 13 times in
January 2010, which is 21.9 for the industry. Wal-Mart needs to
improve profitability to improve interest coverage ratio for the
reduction of risk of the lenders of the company (Wal-Mart Stores
Inc: Financial Statement, 2010).

The total revenues received by the organization in the year ending


January 2010 were $408.2 billion whereas revenues in the year
ending January 2009 were $404.3 billion dollars. The revenues in
the year ending January 2008 stood at $377 billion dollars. Thus, it
can be easily analyzed that the total revenues of the organization
has grown over the years steadily. This has also impacted the net
income of the organization and thus, increments could also be seen
in the net income of the organization. Net Income, which stood in
the year ending 2008 at $12.7 billion, increased to $13.4 billion for
the year ending 2009 and again increased to $14.3 billion in the
year ending 2010 (Wal-Mart Stores Inc: Financial Statement,
2010).

Again if cash flow statement of the organization is analyzed it can


easily be viewed that the cash flow from operating activities have
always increased from the last three years. The cash flow from
operating activities stood at $20.6 billion in the year ending 2008
has increased to $23.1 billion for the year ending 2009 and too
further increased to $26.2 billion for the year ending 2010. But the
cash flow from investing and financing activities has seen positive
and negative fluctuations both. Here where net cash outflow from
investing activities has decreased first and increased later again.
For the year ending 2008, it stood at $15.6 billion which decreased
to $10.7 billion but again increased to $11.6 billion. Again the net
cash outflow from financing activities increased constantly since at
the end of year 2008, it stood at $7.4 billion which further for the
year ending 2009 increased to $9.9 billion and further increased to
$14.1 billion for the year ending 2010 (Wal-Mart Stores Inc:
Financial Statement, 2010).

Wal-Marts return on equity has improved in the last three years,


which is a good sign for the shareholders of the company. It was
19.9% in January 2008, which increased to 20.3 % in 2009 and
then again marginally increased to 20.4 % in 2010. The return on
asset has also shown the same trends in the last three years. In 2008
the return on asset was 7.9 %. It increased to 8.1 % in 2009 and
then further increased to 8.4 % in 2010. It shows the increase in the
efficiency in the utilization of the assets of the company. The net
profit margins have been almost the same in the last three years in
the company. It was 3.4 % in 2008, 3.3 % in 2009 and 3.5 % in 2010
(Wal-Mart Stores Inc: Financial Statement, 2010).

The price to sales ratio and price to book value ratio have shown
negative trends in the last three years, which shows that the stock of
the company is available at cheap price as compare to the price it
was carrying three years back. The price to sales ratio, which was
0.55 in 2008, was decreased to 0.46 in 2009 and then improved to
0.51 in 2010. Similarly, price to book value ratio reduced from 3.12
in 2008 to 2.83 in 2009 and then improved marginally to 2.86 in
2010. This represents the better opportunity available for the
shareholders to invest in to the stock of the company. The book
value per share of the company has also increased in the last three
years. It was 16.26 dollars per share in 2008, which increased to
16.63 dollars per share in 2009 and further improved to 18.69
dollars per share in 2010. This represents the increase in the
retained earnings of the shareholders in the company (Shim &
Siegel, 2007).

Wal-Marts current assets level has shown stability in the last three
years for the company, which shows the lesser investment in current
assets for the company even with the increased sales. In 2008 the
cash and marketable securities available with the company was
48020 million dollars, which increased to 48949 million dollars in
2009 and then decreased to 48331 million dollars in 2010.

Quantitative Analysis holds huge significance while evaluating the


financial health of the organization. Three types of techniques are
used for quantitative analysis. The three techniques are trend
analysis, common-size analysis and ratio analysis. Trend analysis is
one of the significant quantitative analysis tools that assist in
analyzing the financial health of the company as compared to its
previous years. The year on year trends in the financial statements
are studied to analyze whether organization is improving upon its
past performance or it is further going down (Brigham & Houston,
2007).

Common-Size analysis is another quantitive analysis tool again one


of another tool that helps in making evaluation of the financial
health of the company as against its competitors. The financial
statements of the company and its industry competitors are
compared by taking a common base and then performance is
analyzed as against the competitors. It helps in knowing whether
the organization is performing better than its competitors or not.
Ratio analysis is also used to evaluate the financial statements of an
organization. This analysis is used to interpret the performance
shown in the financial statements of the organization. The ratio
analysis helps the organization compare performance over the years
or in the same year (Brigham & Houston, 2007).

Quantitative Analysis is used by the company and its stakeholders to


analyze the financial performance of the organization. Trend
analysis is used by the company, the shareholders and the investors
to analyze the performance of the company over the years.
Common-Size analysis is used by the competitors, management, and
investors to evaluate the organization that is performing better
whereas ratio analysis is used specifically by all the stakeholders to
interpret clear and well defined results shown in the financial
statements of the company (Brigham & Houston, 2007).

These techniques help to evaluate the liquidity or short-term


solvency. By using current ratio, one can analyze the effectiveness
of the liquidity position of the organization. Profitability of the
organization is also analyzed through profitability ratios, common-
size analysis, as it helps to know the organizations profits earned by
the company as compared to others. Trend analysis and ratio
analysis with the help of different asset turnover ratios and trends
could easily analyze that assets are effectively used or not (Brigham
& Houston, 2007).

Wal-Marts current stock price is 50.56 dollars. The stock has gone
up as high as 56.27 dollars, and as low as 47.35 dollars in the last
year. The earnings per share of the company which was 3.16 dollars
per share in 2008, was increased to 3.35 dollars in 2009. Earnings
per share further increased to 3.76 dollars in 2010. The analysis
shows the improvement in the earnings of the company in the last
three year. The current price earnings ratio of the company is 13.2
which is less than the industry average of P/E ratio of 15 times
(Wal-Mart Stores Inc (WMT), 2010).

Analyzing the stock of the company from the investment point of


view, we can estimates that the fundamentals of the company are
very strong. The stock has return on equity, return on assets better
than the industry average of 22.9 % and 9.1 % respectively. The
company has given a better annual average return on asset and
return on equity in the last five years as compared to the industry.
The company has a debt equity ratio and net profit margin, which is
less than the industry. However, Wal-Mart is improving on the
efficiency front. As a result, Wal-Mart stock is recommended for
investment.

References
Brigham, E.F. & Houston, J.F. (2007). Fundamentals of Financial
Management. (11th ed.). Cengage Learning.

Fishman, C. (2006). The Wal-Mart Effect: How the World Most


Powerful Company Really Works-- and How it's Transforming the
American Economy. Penguin Group

Shim, J.K. & Siegel, J.G. (2007). Schaum's Outline of Financial


Management. (3rd ed.). McGraw-Hill Professional.

Wal-Mart Corporate. (2010). History. Retrieved July 25, 2010 from


http://walmartstores.com/AboutUs/297.aspx

Wal-Mart Stores Inc: Financial Statement (2010). Retrieved May


31, 2010, from
http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?
Symbol=WMT

Wal-Mart Stores Inc. (WMT) (2010). Retrieved May 31, 2010, from
http://finance.yahoo.com/q/co?s=WMT+Competitors
--------------------------------------------------

FIN 571 Week 6 Team Assignment Capital


Budgeting Assignment, Part 2 (New Heritage
Doll)

FOR MORE CLASSES VISIT


www.fin571genius.com
The executive team of New Heritage Doll has
completed the decision making for capital budgeting
for the firm For this week's checkpoint we had to look
up three job postings in the field of accounting. I'm glad
that I got this opportunity because it actually opened
my eyes and expanded my knowledge in the
accounting field. The three job positions are listed
below. The first job title was Senior Internal Auditor. A
Senior Internal Auditor responsibilities is to plan and
perform financial, operational audits, and identify
business process risk. This job position only specified
that the pay was well over 100k a year!!!!
Qualifications BA/BS, and minimum of 3-4 years public
accounting. The second job posting was a Tax Manager.
Tax Manager is responsible for conducting basic tax
research, maintain tax records and ensure proper tax
accounting. This position requires a BA in Accounting,
and a minimum of 7-8 years of expereience.The job
pay is listed as 120k!!! The third job posting was
Assistant Corporate Controller- SR Management.
Assistant Corporate Controller- SR Management
position Inventory Accounting for North America, Credit
management for North America and Corporate
accounting for Latin America, responsible for assuring
accuracy of inventory and sales and works closely with
external auditors on receivable audits. The
requirements for this position is as follows, BA/BS,
public accounting experience preferred, Strong verbal
and written communication. For the Assistant
Corporate Controller- SR Management the salary pay
starts at 110k-130k with bonus and benefits.

I didn't know that Accounting career actually paid this


much. I might think about changing my careers.
--------------------------------------------------

FIN 571 Week 6 Working Capital Simulation


Managing Growth, Part 2 (New Heritage Doll)

FOR MORE CLASSES VISIT


www.fin571genius.com
The executive team of New Heritage Doll has
completed the decision making for capital budgeting
for the firm. Now the team must decide which decisions
and approach were the best for the company.
Discussion Question 1:

Based on what you know about accounting, what role


do you see it playing in business operations? How
dependent do you think a business is on its accounting
department? Why?
Accounting plays many important roles especially when
it comes to business operations. Accounting is mainly
responsible for almost all of the financial needs of the
business. It keeps track of all spending, profit and loss
that the company inquires.
The business is very dependent on it accounting
department. Accounting department is responsible for
monitoring more than the cash flow, it also works
closely with IRS, government to make sure that
everything is being done correctly (payroll, taxes, etc).
The accounting side of the business can be considered
to be the lungs of the company next to the heart.

Discussion Question 2:

Why are ethics so important in the field of accounting?


Wow where should I start? First of all the when dealing
with accounting there must be consistent clear
communication between the business and the
accounting department. Honesty is always the best
policy. Good ethnics keeps the business running at its
top level. The company's personal information,
employee information could be given to the wrong
hands and it can destroy the company. A good
accounting department has way too much to lose
and they will not want to risk a horrible reputation
in the field.
Another response
People bring all their financial information to an
accountant who in turn looks through all of it with a
fine tooth comb. People need to know that they can
trust this person with all of their personal
information. Most licensed professionals swear to a
code of ethics, whether they follow them or not is up to
that professional. Unfortunately there are many out
there that do not and they ruin the trust for other
professionals. Accountants really need to have the
trust of their clients being that they work with peoples
taxes and finances and need much information from
their clients.
Another response
Ethics are important in the field of accounting for
several reasons. Ethics mean different things to differnt
depending on the role of the accountant. If an
accountant is hired by an individual or a business, that
accountant is trusted with the finances of the person or
business. The accountant is trusted to give an honest
account of finances and not to defraud or jeopardize
that individuals or companies relationship with the
government, creditors of financiers. Individuals and
businesses also trust the ethics of accountants insofar
that they do not disclose their information to those that
do not have a right to it. Finally, In the accounting
profession, much like many other professional service
professions, an accountants reputation is the
continuing source of employment. If they are knows to
have a bad or even flexible ethical code then they can
develop a bad reputation and experience a loss of
business.