(1) Enumerated and Discuss financial The balance sheet is a report of a company's

statements and how it is used in valuation financial worth in terms of book value. It is broken
of business into three parts to include a company’s
assets, liabilities, and shareholders' equity. Short-
term assets such as cash and accounts receivable
Financial Statement Analysis can tell a lot about a company’s operational
efficiency. Liabilities include its expense
Analyzing Financial Statements
arrangements and the debt capital it is paying off.
The financial statements of a company record
Shareholder’s equity includes details on equity
important financial data on every aspect of a
capital investments and retained earnings from
business’s activities. As such they can be evaluated
periodic net income. The balance sheet must
on the basis of past, current, and projected
balance with assets minus liabilities equaling
performance.
shareholder’s equity. The resulting shareholder’s
equity is considered a company’s book value. This
In general, financial statements are centered around
value is an important performance metric that
generally accepted accounting principles (GAAP) in
increases or decreases with the financial activities of
the U.S. These principles require a company to
a company.
create and maintain three main financial statements:
the balance sheet, the income statement, and the
Income Statement
cash flow statement. Public companies have stricter
standards for financial statement reporting. Public
The income statement breaks down the revenue a
companies must follow GAAP standards which
company earns against the expenses involved in its
requires accrual accounting. Private companies have
business to provide a bottom line, net income profit
greater flexibility in their financial statement
or loss. The income statement is broken into three
preparation and also have the option to use either
parts which help to analyze business efficiency at
accrual or cash accounting.
three different points. It begins with revenue and the
direct costs associated with revenue to identify
Several techniques are commonly used as part of
gross profit. It then moves to operating profit which
financial statement analysis. Three of the most
subtracts indirect expenses such as marketing costs,
important techniques include horizontal
general costs, and depreciation. Finally it ends with
analysis, vertical analysis, and ratio analysis.
net profit which deducts interest and taxes.
Horizontal analysis compares data horizontally, by
analysing values of line items across two or more
Basic analysis of the income statement usually
years. Vertical analysis looks at the vertical affects
involves the calculation of gross profit margin,
line items have on other parts of the business and
operating profit margin, and net profit margin which
also the business’s proportions. Ratio analysis uses
each divide profit by revenue. Profit margin helps to
important ratio metrics to calculate statistical
show where company costs are low or high at
relationships.
different points of the operations.
Financial Statements
Cash Flow Statement
As mentioned, there are three main financial
statements that every company creates and
The cash flow statement provides an overview of
monitors: the balance sheet, income statement, and
the company's cash flows from operating activities,
cash flow statement. Companies use these financial
investing activities, and financing activities. Net
statements to manage the operations of their
income is carried over to the cash flow statement
business and also to provide reporting transparency
where it is included as the top line item for
to their stakeholders. All three statements are
operating activities. Like its title, investing activities
interconnected and create different views of a
include cash flows involved with firmwide
company’s activities and performance.
investments. The financing activities section
includes cash flow from both debt and equity
Balance Sheet
financing. The bottom line shows how much cash a
company has available.
Free Cash Flow and Other Valuation Statements
Companies and analysts also use free cash flow
statements and other valuation statements to analyze
the value of a company. Free cash flow statements
arrive at a net present value by discounting the free
cash flow a company is estimated to generate over
time. Private companies may keep a valuation
statement as they progress toward potentially going
public.
KEY TAKEAWAYS
 Financial statement analysis is used by
internal and external stakeholders to
evaluate business performance and value.
 Financial accounting calls for all companies
to create a balance sheet, income statement,
and cash flow statement which form the
basis for financial statement analysis.
 Horizontal, vertical, and ratio analysis are
three techniques analysts use when
analyzing financial statements.
Financial Performance
Financial statements are maintained by companies
daily and used internally for business management.
In general both internal and external stakeholders
use the same corporate finance methodologies for
maintaining business activities and evaluating
overall financial performance.
When doing comprehensive financial statement
analysis, analysts typically use multiple years of
data to facilitate horizontal analysis. Each financial
statement is also analyzed with vertical analysis to
understand how different categories of the statement
are influencing results. Finally ratio analysis can be
used to isolate some performance metrics in each
statement and also bring together data points across
statements collectively.
Below is a breakdown of some of the most common
ratio metrics:
Balance sheet: asset turnover, quick ratio,
receivables turnover, days to sales, debt to assets,
and debt to equity
Income statement: gross profit margin, operating
profit margin, net profit margin, tax ratio efficiency,
and interest coverage
Cash Flow: Cash and earnings before interest, taxes,
depreciation, and amortization (EBITDA). These
metrics may be shown on a per share basis.
(2) What are the criteria for determining the
stability of an organization in terms of
financial management
Financial stability in business terminology refers to
making enough money from your operations to pay
for your regular business expenses and feeling that
the long-term financial success of your business is
secure. Having financial stability is important since
it ensures you can continue to pay your business
expenses and handle potential downturns in the
market as well as take advantage of opportunities to
expand.
You can take a look at your business's financial
statements to determine your current financial
position and then take actions to improve financial
stability.
Business Definition of Financial Stability
The definition of financial stability in business goes
beyond just making good money through sales. It
indicates that your business continues to grow more
profitable while your expenses stay mostly the same
or see little increase.
A financially stable business will not rely too
heavily on debt, will use its assets efficiently and
will have a healthy profit margin on its sales. Such a
business will usually have an emergency fund on
which to rely in times of difficulty so that there's
less of a risk of having to shut down based on
economic factors. In addition, the business has a
healthy number of repeat customers that helps bring
in steady revenue and allows for lower customer
acquisition costs.
Importance of Financial Stability
While you'll always want your business to be
financially stable, it especially comes in handy
when the economy or market conditions deteriorate.
If sales were to slow down in a recession, you
should be able to tap into the emergency fund to pay
your bills until sales can improve.
Financial stability is also important since it provides
opportunities for business expansion and growth.
When your company continually sees increasing
profitability, you can afford to add to your product
line or even open up an additional shop in a
desirable location.
Financial stability is also important to lenders,
business partners and investors. If your company
ever needs to borrow money through a small
business loan, for example, lenders usually want to
see a statement of financial stability that shows that
your business has sufficient cash flow and isn't
heavily indebted already. General investors and
business partners will also want to see proof of
financial stability to decide whether it's a good
move to work with you or put money into your
business.
Assessing Financial Stability in Business
o get an idea of your company's financial stability, it
helps to take a look at a few key financial
statements, starting with your profit and loss
statements. Looking at quarterly or year-to-date
profit and loss statements for several periods or the
last few years will give you a picture of how your
operating revenues and expenses have changed over
time. This can show you whether you're becoming
more profitable while not having a large increase in
expenses.
You can use your past income statements to
determine your profit margin and changes in net
income to verify increasing profitability and growth.
Your balance sheet will give you a clear picture of
your liabilities and assets so that you can verify
your emergency cash funds and determine whether
you should pay down some of your debts.
You can also gather information from your financial
statements to calculate some key ratios that indicate
your business's efficiency, profitability and reliance
on debt. For example, your debt to total assets ratio
— your total liabilities divided by total assets —
shows you how leveraged your company is. Your
net profit margin — your net income divided by
total revenue — helps you assess profitability after
expenses.
Improving Financial Stability
When your small business is new, it will usually
take time to achieve financial stability. A few key
steps you can take to help with the process include
paying close attention to your expenses and
focusing on building relationships with customers to
generate more recurring revenue. It is much cheaper
to keep old customers than it is to acquire new ones.
When considering growth opportunities or making
nonessential purchases, first ensure that your
company has a healthy emergency fund so that you
don't risk immediate business failure if something
goes wrong.
(3) What are risks and what strategies can top
management used in minimizing it (identify
strategies) site and example.
From large corporations to small sole-proprietorship
businesses, every single one of them carries with it
many kinds of risks. Risks such as consumer market
transitions, legal issues and personnel safety. For
every potential risk, a system of controls needs to be
implemented to reduce the amount of risk.In small
business, how capable are you of supporting
outcomes of potential crisis so that you are able to
continue your business operations after an event?
This is the reason why small businesses in particular
must work towards reducing the risks to ensure that
they obtain continued success and make use of
every new opportunity that comes their way.
All businesses need to assess the risks within their
firms and in their industries to come up with the
best ways to reduce the chances of risk. Small
businesses face a large number of risks which are
indeed preventable.
In this article, we’ll take a look at some of the ways
in which business owners can minimise their risks:
1. Obtain insurance.
Although insurance doesn’t completely reduce risk,
but it helps the small businesses by supporting them
from taking the entire financial burden that is
associated with either defective inventory or an
employee that has been injured, and thus reduces
the risk of the business folding. We need to
seriously consider insuring our inventory, the
company property, business equipment and vehicles
and also maintain a workers compensation policy.
What about insuring the business owner’s life, or
disability and sickness insurance? There is digital
insurance (in case you are hacked), there is
management insurance (in case one of your staff
makes a mistake), there is professional indemnity
insurance. Talk to your insurance broker to
ascertain what you need or if you’re on a budget
what is most critical?
2. Expand the offerings of the business.
Whether the business is involved in deals with
services or tangible goods, the more the number of
offerings provided, the lesser the amount of risk
because of the availability of backup sources of
funding. If a business depends on just one single
product, there is a higher probability that it may
shutdown once the public loses interest in their
product or alternatively a large competitor takes
over the marketplace or there is government or
legislative change which hugely affects that
business. You know the expression – don’t have ‘all
your eggs in one basket’.
3. Stick to short-term commitments.
Until and unless a small business is a strongly
established, long-term commitment which includes
mortgages or car lease payments needs to be
avoided. Private automobile usage can help to
reduce the business costs and also the initial risks
because the upfront investment of cash is not
required. Be realistic, if the business doesn’t take
off as expected, are you locked into long-term
commitments you cannot afford?
4. Practice safety at all times.
Ensure that you take all safety measures when it
comes to your employees. Safety precautions are
also important for your inventory protections such
as installing security cameras, burglar alarms,
sprinkler systems and smoke detectors. This needs
to be taken care of mainly because small businesses
face the biggest risks when it comes to employee
injuries and major loss of inventory based on
preventable disasters.
5. Review the existing system of the internal
controls.
Internal controls provide regular checks and
balances for every single aspect of the company.
Internal controls can be as simple as having a
checklist of precautions before one enters the work
area. This is especially with regards to safety issues
for the employees. With regards to finances, it could
be, for instance, placing different employees in
charge of factors such as approving payments or
signing cheques, or authoring supplier contracts.
Small businesses face the biggest risks when it
comes to theft and fraud; due to often lax or no
systems or accountability in respect of money.
Limit the number of users who can use the internet.
In this way, you can reduce the operational risk of
having way too many employees conducting
personal business during work hours. Don’t
underestimate the value of staff training when it
comes to risk reduction.
6. Create a management risk plan.
Having sufficient insurance is not enough to secure
your business. Proactive steps need to be taken to
cross-train in order to avoid risk. For instance, you
can have two people working on the same job.
Thus, in any case, if one of the employees leaves
without notice, the other employee can always take
over and look after his or her job. Thus, the job
wouldn’t suffer or worse, clients leave due to lack
of service. In small business this is hard as often
only one person fulfils many roles. If you cannot
handle having double coverage, you can have an
extra weekly staff meet up to keep the employees
up-to-date on what is happening and ensure
documented processes or systems are kept up to
date.
7. Work with an internal control consultant.
This usually refers to a professional outside your
business that will review your systems and
investigate the weaknesses, if any, with your
company’s processes. An outsider, with a fresh set
of eyes, will be able to give the right judgement
when it comes to viewing the operations of the
business and will also provide unbiased opinions
that will help the higher officials to look after and
identify the areas of improvement more effectively.
I often perform this role as part of my duties as a
business coach. I encourage all my clients to work
with me to perform a SWOT analysis which focuses
heavily on the weaknesses and threats, with
strategies to address and combat them as much as
possible.
8. Finances
One of the biggest issues that most small business
owners face is financial risk, not just in day to day
operations but also in growth. Many business
owners feel that marketing and sales is the most
important aspect of business (and I’m not
diminishing its importance), however, the money
side of things is equally, if not more so, important.
You can minimise risk through strong and well
worded (legally-reviewed) client contracts or Terms
& Conditions and Staff Agreements. Having cash-
flow forecasts and budgets in place reduces risk.
Knowing your margins and break evens and
tracking budget versus actual reduces risk. Having
short-term trading terms (7 days versus 30 days)
reduces risk. Great collection processes reduce risk.
I could talk all day on the financial aspects of a
business which when done well will reduce risks
within that business.
9. Planning
Having a solid business plan and marketing plan
also reduces risk. If you know what you’re doing,
have a strategy and plan (not just a dream where
you wander aimlessly), this will give you a better
chance of success. Having expert advice and a
documented action blueprint has been proven time
and time again (statistically) to give a business a
better chance of success and reduce the risk of
failure.
It may sound like running a small business may be
daunting because of the added risks that come with
it. We often lack the resources and knowledge of
our big business counterparts, but that does not
mean we should ignore risk. Faced and addressed,
small business risk can be less intimidating. If you
are concerned about risks in your business, I’d be
happy to talk with you. I offer complimentary
business analysis reviews – simply contact me to
find out more or have an analysis completed.
 (4) What is bond and stock valuation? Choose
one which you think better. Site an example
and discuss it.
When deciding which valuation method to use to
value a stock for the first time, it's easy to become
overwhelmed by the number of valuation
techniques available to investors. There are
valuation methods that are fairly straightforward
while others are more involved and complicated.
Unfortunately, there's no one method that's best
suited for every situation. Each stock is different,
and each industry or sector has unique
characteristics that may require multiple valuation
methods.
Stock valuation is the process of determining the
intrinsic value of a share of common stock of a
company. There are two approaches to value a share
of common stock: (a) absolute valuation i.e. the
discounted cashflow method and (b) relative
valuation (also called the comparables approach).
The purpose of stock valuation is to find the value
of a common share which is justified by the
company earnings and growth potential, identify
undervalued and overvalued stocks, overweight or
underweight them in an investment portfolio and
generate alpha i.e. excess return.
What Is Bond Valuation?
Bond valuation is a technique for determining the
theoretical fair value of a particular bond. Bond
valuation includes calculating the present value of a
bond's future interest payments, also known as its
cash flow, and the bond's value upon maturity, also
known as its face value or par value. Because a
bond's par value and interest payments are fixed, an
investor uses bond valuation to determine what rate
of return is required for a bond investment to be
worthwhile.
KEY TAKEAWAYS
Bond valuation is a way to determine the theoretical
fair value (or par value) of a particular bond.
It involves calculating the present value of a bond's
expected future coupon payments, or cash flow, and
the bond's value upon maturity, or face value.
As a bond's par value and interest payments are set,
bond valuation helps investors figure out what rate
of return would make a bond investment worth the
cost.
Understanding Bond Valuation
A bond is a debt instrument that provides a steady
income stream to the investor in the form of coupon
payments. At the maturity date, the full face value
of the bond is repaid to the bondholder. The
characteristics of a regular bond include:
Coupon rate: Some bonds have an interest rate, also
known as the coupon rate, which is paid to
bondholders semi-annually. The coupon rate is the
fixed return that an investor earns periodically until
it matures.
Maturity date: All bonds have maturity dates, some
short-term, others long-term. When a bond matures,
the bond issuer repays the investor the full face
value of the bond. For corporate bonds, the face
value of a bond is usually $1,000 and for
government bonds, the face value is $10,000. The
face value is not necessarily the invested principal
or purchase price of the bond.
Current Price: Depending on the level of interest
rate in the environment, the investor may purchase a
bond at par, below par, or above par. For example,
if interest rates increase, the value of a bond will
decrease since the coupon rate will be lower than
the interest rate in the economy. When this occurs,
the bond will trade at a discount, that is, below par.
However, the bondholder will be paid the full face
value of the bond at maturity even though he
purchased it for less than the par value.
 (5) What are the techniques and practice of
capital budgeting and what is the relation of
it in the operation of the business, site
example.
What Is Capital Budgeting?
Capital budgeting is the process a business
undertakes to evaluate potential major
projects or investments. Construction of a
new plant or a big investment in an outside
venture are examples of projects that would
require capital budgeting before they are
approved or rejected.
As part of capital budgeting, a company
might assess a prospective project's
lifetime cash inflows and outflows to
determine whether the potential returns that
would be generated meet a sufficient target
benchmark. The process is also known as
investment appraisal.
Understanding Capital Budgeting
Ideally, businesses would pursue any and all
projects and opportunities that enhance shareholder
value. However, because the amount of capital any
business has available for new projects is limited,
management uses capital budgeting techniques to
determine which projects will yield the best return
over an applicable period.
Some methods of capital budgeting companies use
to determine which projects to pursue include
throughput analysis, net present value (NPV),
internal rate of return, discounted cash flow, and
payback period.
KEY TAKEAWAYS
Capital budgeting is used by companies to evaluate
major projects and investments, such as new plants
or equipment.
The process involves analyzing a project’s cash
inflows and outflows to determine whether the
expected return meets a set benchmark.
The major methods of capital budgeting include
throughput, discounted cash flow, and payback
analyses.
Types of Capital Budgeting
Throughput Analysis
Throughput analysis is the most complicated form
of capital budgeting analysis but also the most
accurate in helping managers decide which projects
to pursue. Under this method, the entire company is
considered as a single profit-generating system.
Throughput is measured as an amount of material
passing through that system.
The analysis assumes that nearly all costs are
operating expenses, that a company needs to
maximize the throughput of the entire system to pay
for expenses, and that the way to maximize profits
is to maximize the throughput passing through a
bottleneck operation. A bottleneck is the resource in
the system that requires the longest time in
operations.
This means that managers should always place a
higher priority on capital budgeting projects that
will increase throughput passing through the
bottleneck.
DCF Analysis
Discounted cash flow (DCF) analysis looks at the
initial cash outflow needed to fund a project, the
mix of cash inflows in the form of revenue, and
other future outflows in the form of maintenance
and other costs.
These costs, except for the initial outflow, are
discounted back to the present date. The resulting
number from the DCF analysis is the net present
value (NPV). Projects with the highest NPV should
rank over others unless one or more are mutually
exclusive.

Payback Analysis

Payback analysis is the simplest form of capital

budgeting analysis but it's also the least accurate.
It's still widely used because it's quick and can give
managers a "back of the envelope" understanding of
the real value of a proposed project.

This analysis calculates how long it will take to

recoup the costs of an investment. The payback
period is identified by dividing the initial
investment in the project by the average yearly cash
inflow that the project will generate.