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FIN 571 Final Exam Guide (New)

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

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
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: /
Retrieved 2/13/2010
Thomas, Y. 2005-08-27 Accounting 101 pg. 52

FIN 571 Final Exam Guide Set 2 (NEW)

1. Financial managers should primarily strive to: 2. The
process of planning and managing a firm's long-term
assets is called 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
Principles of Internal How it Works Example
Establishment of Happens when the My job, O
responsibility company assigns one departme
person to be in only one
control of a specific waive a r
job or have authority fee. It all
to make decisions. Sales tea
control o
Segregation of duties This is when the A church-
company has more people w
than one person to offering a
control a task or job have som
writes do
in what w
Documentation Evidence or proof of My job w
procedures all company shingles
transactions customer
make the
prior to le
we make
Proof Of
Physical, mechanical, Allows the company Our job h
and electronic controls to control assets called Cis
through physical or tracks th
electronic based breaks an
systems or programs. Also, mon
long the
been read
would be
guard, th
Independent internal Any information that can My job ha
verification be reviewed , compare, tracking
and reconciliation by a and when
employee says that
shorted o
we can g
track the
and comp
system a
count to
the numb
Other controls Bonding of Our comp
employees, company girl just r
protects against because
abuse of assets. the comp
not work

Principles of How it Works Example

Invest idle cash Occurs when My fathers
any excess company
funds or cash makes wise
needs to be investments
invested, and it turns
around in his
Plan the timing A company During the
of major wants to make recession
expenditures sure that profits
there is money dropped lower
set aside for than expected
major cash so some
needs companies
pulled from
these funds
Delay payment When a Ok, when
of liabilities company pays times are
the bills at an tough at home
appropriate and bills are
time not late due I organize
and not too the bills by
soon. which bills
needs to be
paid the
because if I
pay the bills
too early I will
cut off my
excess funds
that could be
used for
Keep inventory Happens when Sees
levels low a company Chocolate
keeps the factory has to
inventory low make sure
so that it will that they are
continue to not over
bring profit producing or
making too
much or else
the sit and the
company will
lose money
Increase the Money that is When a
speed of owe to the customer
collection on company by places a order
receivables other people for a product
or customers and has not
is money that paid yet, the
can not be company can
counted not count the
towards the money as
companies theirs until it
funds is received.

FIN 571 Week 1 Connect Problems (Math and

Accounting Review)

FIN 571 Week 1 Connect Problems (Math & Accounting
Review) 1. Functions Excel will make your life as a
finance student much easier. 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
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.

asphttp://financial- Retrieved 2/18/2010
nts_the_p_l. Retrieved 2/18/2010

FIN 571 Week 1 Connect Problems (Week 1

Problem Set)

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.
Discussion Question 1: Post your response to the
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.

Discussion Question 2: Post your response to the
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
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.

FIN 571 Week 1 DQ 1

What is ethics? If you follow all applicable rules and
regulations, are you an ethical person? Cost, Volume,
and Profit Formulas


Kamilah Crooms

Due February 28, 2010

Explain the components of cost-volume-profit

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

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.

ts*the_p_l. Retrieved 2/28/2010
// / Retrieved 2/26/2010
Thomas, Y. 2005-08-27 Accounting 101 pg. 52

FIN 571 Week 1 DQ 2

Assume that interest rates have increased substantially. Would this
tend to increase or decrease 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.

FIN 571 Week 1 Individual Assignment Business


Watch the "Your Business Structure" and "Corporate Business
Structures" videos on the Electronics Reserve Readings page.

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

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

Manufacturing An estimated This list all overhead

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

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
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 Connect Problems

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. What is the value of the shareholders' equity
account for this firm 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

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.

Discussion Question 2: Post your response to the
What are some of the different types of
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 DQ 1

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

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
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 DQ 2


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

CAPM, an asset with a beta of 2.0

Capstone Discussion Question: Post your response to the


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 2 Individual Assignment Business

Structure Advice


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

Dear Consultant,

Business Plan


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
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.
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.
// / 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


FIN 571 Week 2 Individual Assignment Ethics and


The Sarbanes-Oxley Act of 2002 (SOX) was passed as
the result of the Enron scandal and other instances of
accounting fraud.

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
3. Cash from operating activity has increased for the
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 2 Individual Assignment Ratio

Analysis Problems


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.

Week 1 DQ 1
Due Tuesday, Day 2

Go to the U.S. Securities and Exchange Commissions Web site

at and the Financial Accounting Standards
Boards Web site at 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
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 and the Financial Accounting Standards
Boards Web site at 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

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.

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
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.

Financial Accounting Standards Board. (n.d.). Facts about FASB.
Retrieved July 15, 2010, from Financial Accounting Standards
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

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 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

The law prohibits falsifying information, failing

to notify of material changes, and destruction of

FIN 571 Week 2 Learning Team Reflection


Read the Ethics case, "A Sad Tale: The Demise of Arthur Anderson"
located in the WileyPLUS Week Fundamentals of Corporate Finance
Chapter readings. 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.
Axia College. (2007). Understanding Financial Statements. Retrieved
May 10, 2010 from Axia College, Week 2 Assignment, ACC/230.

FIN 571 Week 3 Connect Problems

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?

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 DQ 1

Why are interest rates on short-term loans not
necessarily comparable to each other? 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).
Investopedia. (2010). Dividend Payout Ratio. Retrieved
August 3, 2010, from

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

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


Investopedia. (2010). Spotting Creative Accounting On

The Balance Sheet. Retrieved

FIN 571 Week 3 DQ 2

Optical Supply Company offers credit terms of 2/10, net
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,
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:
Baker, H. K. (2009). Dividends and Dividend Policy. John
Wiley and Sons.
Kennon, J. (2009). All About Dividends. Retrieved May
31, 2010, from
Mladjenovic, P. (2009). Stock Investing for Dummies.

FIN 571 Week 3 Individual Assignment

Interpreting Financial Results


Resource: Financial Statements for the company assigned by your

instructor in Week 2.

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

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 3 Learning Team Reflection


Watch the "Concept Review Video: Working Capital Management"

video located in theWileyPLUS Assignment: Week 3 Videos Activity.

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.


Weygandt, J.J.,Kimmel, P.D. & Kieso, D.E. (2009). Managerial

Accounting: Tools for Business Decision Making. John Wiley and

FIN 571 Week 3 Team Assignment Financial

Statement Interpretation

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

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
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 4 Connect Problems

FIN 571 Week 4 Connect Problems Q-1 Even though
most corporate bonds in the United States make
coupon payments semiannually, 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
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

FIN 571 Week 4 DQ 1

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.

Candela Corporation
Axia College of University of Phoenix

Candela Corporation
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)
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.
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.
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
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.


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

Retrieved June 14, 2010 from Axia
College, Week Six, ACC 230.

FIN 571 Week 4 DQ 2

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.

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.


2008 2008 2008
LINE 315.5 - (1,079.0)
ACTIVITIES 1,258.7 (684.7) 79.4
INVESTING (1,086. $ $
ACTIVITES 6) (393.3) (2,933.7)
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.

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


2008 2007 2006

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 1293 - -
Financing 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


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. -
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

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


FIN 571 Week 4 Individual Assignment Analyzing

Pro Forma Statements


Decide upon an initiative you want to implement that would increase

sales over the next five years, (for example, market another Case - CheckPoint

ACC 230 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 4 Learning Team Reflection


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

the WileyPLUS Assignment: Week 4 Videos Activity. 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

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

FIN 571 Week 4 Team Assignment Operating

Leverage and Forecasting


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.





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.




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.







23. Reference

24. Axia College. (2007). The Analysis of Financial

Statements. Retrieved June 28, 2010,

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








FIN 571 Week 5 Connect Problems

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. 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 DQ 1

Because the weighted average is always a correct
measure of a required return,

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


2009 2008 2007 2009

Current 2.3X 2.3X 2.2X
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%
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%
Operating profit margin 6.3% 7.2%
8.0% 7.5%
Net profit margin 3.5% 4.0% 4.3%
Return on assets 3.7% 5.0% 5.7%
Return on equity 7.4% 9.9% 11.4%
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.


FIN 571 Week 5 DQ 2

The development of the new issue junk bond market
had important implications for capital structure choice
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

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 5 Individual Assignment DCF and

WACC Problems


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.




5. Evaluating Financial Health 1



8. Evaluating Financial Health

9. Apple Inc. (AAPL)

10. Axia College of University of Phoenix


12. Evaluating Financial Health 2

13. Apple Inc. (AAPL)

14. 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.

15. Managements Strategy

16. 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.


18. Evaluating Financial Health 3

19. Financial returns in Comparison to Industry

20. 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).

21. Financial Risk and Industry

22. 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 (,
2010). On the liquidity


24. Evaluating Financial Health 4

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

27. 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

28. Cash Flow Analysis

29. 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).

30. 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.

31. Apple and its Main Competitor

32. 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


34. Evaluating Financial Health 5


36. 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).

37. Apples Performance and Economy

38. 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

40. 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



44. Evaluating Financial Health 6


46. References

47. Electronista. (2010). Apple only US computer

builder to outgrow industry average. Retrieved

48. July 2, 2010, from


50. Hardware Marketplace. (2010). Computer

Hardware. Retrieved July 2, 2010 from


52. (2010). Apple Inc: Key Ratios.

Retrieved July 2, 2010 from


54. mbol=AAPL

55. OnlyHarwareBlog. (2010). Highest debt to

equity ratio in the computer hardware industry

56. detected in shares of international

business machines. Retrieved July 2, 2010 from











69. FIN 571 Week 5 Learning Team Reflection


Watch the "Concept Review Video: Cost of Capital" video
located in the WileyPLUS Assignment: Week 5 Videos Activity.


75. Financial Analysis

76. 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).

77. 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).

78. 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,

79. 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).

80. 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,

81. 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).

82. 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).
83. 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.

84. 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,

85. 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).

86. 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).

87. 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,

88. 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).

89. 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

90. References

91. Brigham, E.F. & Houston, J.F. (2007). Fundamentals of

Financial Management. (11th ed.). Cengage Learning.

92. 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

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

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

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

2010 from

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

Retrieved May 31, 2010, from

96. Wal-Mart Stores Inc. (WMT) (2010). Retrieved May 31,

2010, from

98. FIN 571 Week 5 Team Assignment Capital

Budgeting Assignment, Part 1 (New Heritage
102. 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. 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

I didn't know that Accounting career actually paid

this much. I might think about changing my
103. -------------------------------------------------------------

105. FIN 571 Week 5 Working Capital
Simulation Managing Growth, Part 1 (New
Heritage Doll)
109. 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. 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?
110. 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
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.
112. Discussion Question 2:

Why are ethics so important in the field of

113. 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.
115. Another response
116. 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.
117. Another response
118. 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.
119. -------------------------------------------------------------

120. FIN 571 Week 6 Individual Assignment

Working Capital Simulation Managing Growth


125. Harvard Business Publishing: Working Capital

Simulation: Managing Growth Assignment

126. 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
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.
127. -------------------------------------------------------------

128. FIN 571 Week 6 Learning Team Reflection


Watch the "Corporate Finance Video: Stable Money Makers"
located in the WileyPLUS Assignment: Week 6 Videos Activity.

133. 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
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

134. -------------------------------------------------------------


136. FIN 571 Week 6 Team Assignment Capital

Budgeting Assignment, Part 2 (New Heritage
140. 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. For Discussion Question 1: Post
your response to the following:
141. When reviewing a financial report, why
should information be reliable, relevant,
consistent, and comparable?
142. In other words, why are these
accounting characteristics important?
143. What kinds of problems could be
created if a financial report is not reliable,
relevant, consistent, or comparable?
144. 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
147. Another response
148. 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
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.
152. DQ2
153. For Discussion Question 2: Post your
response to the following:
154. How does information from financial
reports influence business decisions?
155. Why is it important for business
managers to understand the information found on
financial reports?
157. 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

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.

159. Another response
160. 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.
161. -------------------------------------------------------------

162. FIN 571 Week 6 Working Capital

Simulation Managing Growth, Part 2 (New
Heritage Doll)
165. 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.
167. Financial Statements
171. 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.
172. Balance Sheet
173. 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.
174. Income Statement
175. 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.
176. Retained Earnings Statements
177. 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.
179. Statement of Cash Flow
180. 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.
182. 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.
188. Reference
/ Retrieved 1/28/10
192. Thomas, Y. 2005-08-27 Accounting 101 pg. 52