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FIN 571 Final Exam Guide (New)
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1.A proxy fight occurs when: the board of directors
disagree on the members of the management team. 2.
A stakeholder is any person or entity: 3.Which one of
the following is least apt to help convince managers to
work in the best interest of the stockholders? Axia
College Material
Appendix B
Cash Management Matrix
Directions: Using the matrix, list how each of the

principles of internal control works, and give an
example for each. Next, list how each of the principles
of cash management works, and give an example for
each.
Principles of Internal How it Works Example

Control
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
customer
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
customer
Proof Of
form
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
working.
Physical
would be
guard, th
identifica
entry.
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
numbers
system a
count to
the numb
incorrect
Other controls Bonding of Our comp
employees, company girl just r
protects against because
abuse of assets. the comp
business
personal
not work
Principles of Cash How it Works Example

Management
Invest idle cash Occurs when any My father
excess funds or cash makes wi
needs to be invested, investme
turns aro
favor
Plan the timing of A company wants to During th
major expenditures make sure that there profits dr
is money set aside for than expe
major cash needs some com
pulled fro
funds
Delay payment of When a company pays Ok, when
liabilities the bills at an tough at
appropriate time not bills are d
late and not too soon. organize
which bill
be paid th
because i
bills too e
cut off my
funds tha
used for s
else
Keep inventory levels Happens when a Sees Cho
low company keeps the factory ha
inventory low so that sure that
it will continue to over prod
bring profit making to
else the s
company
money
Increase the speed of Money that is owe to When a c
collection on the company by other places a o
receivables people or customers product a
is money that can not paid yet,
be counted towards can not c
the companies funds money as
it is recei
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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: 3 Income statement is a financial
statement that shows how much money is coming from
product sales and services prior to any expenses being
taken out. Both internal and external users such as
managers and investors are able to access this. For
example, if a investor wanted to see if the company
made money or lost money they would use this
financial statement report.
Balance sheet shows what condition the company is
currently in. whereas the other financial statements
only came monthly or annually. For example, what if
the management planning team wanted to see the
company's current assets, ownership equity and
liabilities? All they have to do is run the balance sheet
report.
CVP income statement or Cost Volume statement
reports or monitors the effects of the changes in cost
and volume when it comes to the company profits. For
example, I work at a manufacturing plant for roofing
shingles. The CVP analyst studies the cost which
includes but not limited too, manufacturing, material,
labor cost. This financial statement report would help
the management team budget the cost of
manufacturing goods.
Statement of cash flow tracks the movement of cash
coming in or out of the business. This financial
statement will show if the company made cash or not,
or if the net income increased or decreased. For
example, the owner or the management department
will use this to determine if the company has earned
enough money to be able to for any expenses.
Retained earnings statements is a percentage that is
kept by the company to be reinvested or to be used to
pay debts. For example, if a company was looking to
expand their business by purchasing top of the line
equipment they can use this statement to see how
much money the company has put away.
References:
http://www.investopedia.com/terms/r/retainedearnings.
asphttp://financial- Retrieved 2/18/2010
statements.suite101.com/article.cfm/financial_stateme
nts_the_p_l. Retrieved 2/18/2010
--------------------------------------------------
FIN 571 Week 1 Connect Problems (Math and

Accounting Review)

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

plans, delegate duties, motivate the workers, and
control the atmosphere. Distinguishing features of
managerial accounting are the fact no cpa will audit
the report, and there is no specific frequency of the
report. The reports are done in a need to know basis
and for a specific reason, which is for business
purposes. The reports are detailed and pertain to
specific business decisions. The financial accountant
need only be concerned with the company's finances.
DQ2
Discussion Question 2: Post your response to the
following:
Select a management function (planning,
directing and motivating, or controlling) and explain
how that function relates to business as a whole. Next,
select a different function listed by a classmate.
Discuss with your classmate how the functions you
each selected complement each other.
The management functions that I choose was
controlling. Controlling job is to make sure that
the each department/person is keeping the company's
activities or plans on track and in order to achieve that
they must work closely with Management planning
function. Controlling continually compares the
company's performance to make sure that the planned
standards are being met. In my opinion this is known as
the "dirty work". Controlling operations have to know
what to look for and how to keep track of all the
company's activities. They have to take actions and
quickly correct any errors and make sure that the
company goals are being achieved in a timely matter
or the time that it was planned. If there are errors it is
job of the controlling operations to take quick action.
The controlling operations not only correct errors after
it happens but they also are in charge of foreseeing
any potential errors and act quickly to get that
resolved.
Another response
I chose Controlling as part of the management
function. The controlling function relates to business as
a whole because it helps monitoring the firms
performance to make sure the planned goals are being
met. Managers need to pay attention to costs versus
performance of the organization. let say, if the
company has a goal of increasing sales by 10% over
the next two months, the manager may check the
progress toward the goal at the end of month one. If
they are not reaching the goal the manager must
decide what changes are needed to get back on track.
--------------------------------------------------
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.
Cost, Volume, and Profit Formulas
By
Kamilah Crooms
Due February 28, 2010
Explain the components of cost-volume-profit

analysis.
The components of cost volume-profit analysis consist

of Level or volume of activity, Unit Selling Price,
Variable Cost per unit, total fixed costs, and Sales mix.
What does each of the components mean?
Level or volume of activity is the activity that causes

change or behavior when it comes to the cost. Unit
selling Price is the cost for the product basically how
much each unit is selling for. The Variable Cost per unit
is something that can change depending on the
activity. The total fixed cost does stay the same as
activities change but differ per unit. The Sales mix is
basically what the name says. Its a mixture of sale
items when more than one product sold the sales will
remain the consistent.
Based on the formulas you have reviewed, what

happens to contribution margin per unit when
unit selling prices increase?
Contribution margin is the amount of revenue left over
after subtracting the variable cost. So basically Unit
sales price subtracting or minus variable cost.
Illustrate your explanation with an example from

a fictitious company of how an increase in unit
selling prices might affect contribution margin.
Kellys Sweetheart Flowers
The owner of Kellys Sweetheart Flowers is

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

sales? Illustrate your explanation with an
example from a fictitious company.
Kellys Sweetheart Flowers
When the fixed cost decreases, the contribution margin

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

the components changes?
Shown in the example above, if one or more of the
components changes is will cause the net income to
increase or decrease.
Reference
statements.suite101.com/article.cfm/cost_volume_profi
ts*the_p_l. Retrieved 2/28/2010
//http:yourdictionary.com /CVP.org Retrieved 2/26/2010
Thomas, Y. 2005-08-27 Accounting 101 pg. 52
Statements
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FIN 571 Week 1 DQ 1

What is ethics? If you follow all applicable rules and
regulations, are you an ethical person? 7 How should
mixed costs be classified in CVP analysis? What
approach is used to effect the appropriate
classification?
According to our class materials all mixed cost must be
classified into their fixed and variable and variable
elements. The method that can be used to determine is
called the high/low method. To determine the variable
cost the analysis takes the total cost and divide it with
the low activity level. To get the fixed cost then the
company would have to subtract the total variable with
either the high or low activity level.
9. Cost volume profit CVP analysis is based entirely on
unit costs. Do you agree? Explain.
In my opinion when it comes to making financial
decisions for the company, often times more than one
method is used. Cost volume profit is also based on
Volume or level activities, unit selling prices, variable
cost per unit, total fixed and sales mix.
14. You can find the break point in dollars by drawing a
horizontal line to the vertical axis. I you want to find
the break even point in units it will be a vertical line
from the break even point to the horizontal axis.
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FIN 571 Week 1 DQ 2

Assume that interest rates have increased substantially. Would this

tend to increase or decrease
Axia College Material

Appendix C
Budgets Matrix
Directions: Using the matrix, define each of the budgets listed and
briefly describe its uses.
Budget Definition Describe its uses
Sales budget Estimate of the The sales budget

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

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

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

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

overhead budget expected amount of cost involving cash
manufacturing cost disbursement in a
for the budget quarter
period
Selling and Anticipated selling Shows area of
administrative and administrative budget expenses that
expense budget expenses in the are not listed other
budget period than manufacturing.
Expenses such as
marketing,
promotion cost etc
for the budget period
Budgeted income Estimate of expected Is a very important

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

expected cash flows management keep a
in and out of the tally or total of all
business. cash balances.
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FIN 571 Week 1 Individual Assignment Business

Structures

Watch the "Your Business Structure" and "Corporate Business

Structures" videos on the Electronics Reserve Readings page.
Discussion Question 1: Post your response to the following:

You know how important it is to create budgets for your
household. How does budgeting help management make good
business decisions?
Budgeting is a very important skill that can be applied to everyday
life and also when it comes to making good business decisions. I
really like the way our class resources says about Budgeting.
Budgeting is used as a planning tool used by management to make
good decision for the company. If a company is successful than
more than likely that means that the management team is very good
at managing the company finances. Budgeting helps management
plan ahead, defines what is most important, shows warning signs,
reach a company target without over or under budgeting and etc.
Another response
In a business, a budget helps a business make good decisions
because they are used by the company to plan for future events and
coordinate the events and duties in the company. They also gives
objectives used to evaluate the performance of the company on each
level which can help to make future decisions that will not hurt the
company based on the projected objectives. It can also be used to
alert the company of possible problems or negative trends in the
company that need to be addressed so that there is a clear picture of
the overall health of the company before decisions are made. The
budget helps the company to be able to make an informed decision
when making one. It is there in order to make sure that making a
decision like taking on another company will not hurt the company
and is something that the compnay can sustain based on the budget.
DQ2
Discussion Question 2: Post your response to the following:
What are some of the different types of budgets?
Describe in detail one type of budget covered in the text.
Describe what the budget is used for and what information

it provides a business.
Then, as you respond to your classmates, discuss how the
budget you described relates to the budgets they described.
Discuss how a business benefits from each of the budgets.
There are many different types of budgetting. For example, there

sales budget which allows management to see how many units that
need to be produced, production budget which will allows everyone
to see how many units are going to be produced in or needed to be
produced in order to meet the inventory for that budget period. One
budget that I can describe in detail is called the direct labor budget
and this budget shows how many people, hours is needed in order to
meet the required budget for that period. This will give management
an idea of how much money is needed such as paying the cost of
labor. The company benefits by each of these budgets because it will
help manage just how much money it will cost the company during
this period. Management can also see if there are different ways to
cost the company out of pocket cost down during this period.
Another response
I chose to write about the Production Budget. The Production
Budget shows the cost of each unit needed to produce an item or
manufacture a product. The formula used by the Production Budget
:
Budget sales units + Desired ending finished goods units -

Beginning finished goods units = Required production units.
An example would be, every Easter the bakeries in the Bronx loads
up on Hot Cross Buns. My mother and grandmother would buy
these tasty sweet breads,and eat them for breakfast. I personally
would like to eat them every week but, they are only sold during the
Easter season. Maybe, it has something to do with the glazed cross
on the top.
Every Easter Holiday, there appears these Hot Cross Buns and the
bakeries production department allows for the purchases for items
needed to make the buns. After Easter has gone, Hot Cross Buns
are not included in the budget.
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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 a Flexible budget?
A Flexible budget is a budget that change or is
flexible during different levels or activity. Unlike the
static budget which is a budget based on one activity
level, the flexible budget is based off of more than one
activity level.
The steps to development a flexible budget is :

a) Identify the activity index, and the range of
activity
b) Find out what the variable cost, and determine
the variable cost per unit
c) Find out what the fixed cost and determine the
budgeted amount for each unit
d) Organize the budget for selected additional
activity within the appropriate range
The information found on a flexible budget
cannot begin with the master budget. The flexible
budget uses the same guidelines the original budget.
The budget consists of Sales, Cost of Goods Sold,
Selling Expenses, General and Administrative
Expenses, Income Taxes, and finally the Net Income.
The information on the budget is a great tool to
be used for evaluation performances. The flexible
budget can be used for monthly comparison purposes.
Also during the process that management is identifying
the activity index and the range of activity it will allow
them to see the cost of direct labor hours for that
budget period.
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FIN 571 Week 2 DQ 1

In order to receive proper credit, please reply to this
message when posting your answers to WK2 DQ1.
Capstone Discussion Question: Post your

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

If it wasn't for your pep talk I probably would had
gave up. You are truly a great instructor. I wish you
all the best! God Bless
Another response
Accounting has taken a whole new meaning to me
in my vocabulary. Prior to this course, I just took
accounting as a calculator and crunching numbers.
I now have a new respect for accounting and all
the aspects that are involved. I never once took
into consideration profit, sales, revenue, and
balance sheets also being included with
accounting. There is so much more involved with
accounting, and had I not taken this course I
would have never known. Accounting is a very
important part of running a business. I feel that it
is imperative to all people thinking of opening a
business should take some type of accounting
class to become more aware of how to run the
accounting part of a business.
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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
Business Plan
By
Kamilah T. Crooms
The name of my business is called DestinyWear. DestinyWear is
a urban fashion clothing company for woman, men and youth.
DestinyWear specializes in making clothing for every occasion. My
name is Kamilah Crooms and I am the owner and CEO of
DestinyWear.My goal is to ensure that my company will be
succesfull in all areas and in each department. In order for me to
make sure that the company was going to begin in the right
direction I had to priortize what was most important in establishing
my business plan. The main priority is that I had to first choose the
appropriate business structure, a high demanding product, and
most of all an outstanding accounting team.
Business Structure
Upon establishing DestinyWear I had to decide which business
struture that I felt was best for me to pursue. I decided that as a
Entreprenuer the best choice for me abd the direction of the
company would be for me to be sole proprietorship. Sole
proprietorship allowed me to be the sole owner of DestinyWear.
The first and most important reason that I wanted sole
proprietorship is because it is much easier to start a business as
sole proprietorships. Sole proprietorship takes all the profit that
and doesn't have to split it between any other owners or
corporations. I also want the power to make and change decisions
along the way without having to first consult anyone else.
DestinyWear Products
DestinyWear products will range from jeans, shirts, accessories and
shoes. The company will first start off with its most profitable
product and that will be the DestinyWear designer jeans line. The
jeans line has over twenty different jeans designs
from straight leg, baggy, cargo, overalls, shorts and much more.
The jeans line will provide services within the United States and
Canada and will eventually service International customers. The
DestinyWear jeans line will have its own building. In this building
the bottom floor will consist of the factory and the top floor will
have the different departments such as management, marketing and
most importantly the accounting department.
DestinyWear Accounting Department

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

DestinyWear accounting team of fine employees will all be hired
through the company. There are several requirements that have to
be met in order for myself as the owner and Human Resource
department to even consider the applicant for accounting. We
looked for characteristics, education and work history experience.
The first and far most important qualifying requirements are
education. The applicant has to have a Bachelor BA/BS in
accounting degree a plus if he or she has a masters.
The second requirement is experience. The applicant must have the
minimum of five years of experience working in accounting. He or
She must have knowledge and employment experience of working
with financial statements, cash management and internal control.
Employees must be experienced in Invest idle cash, planning the
timing of major expenditures, delay payment of liabilities keeping
inventory levels low, and increasing the speed of collection on
receivables. In the category of experience we had to hire applicants
according to the position that had to be filled in accounting. For
example, if a position in accounting such as management or
supervisory needed to be filled, then we would look for years of
experience in management or supervisory positions. I personally
prefer that every employee have some type of management
experience.
Last but not least, the employees characteristics. It is a must that
every accounting staff member has and applies professionalism,
great ethic and moral skills, accuracy, and most importantly
punctuality, and reaching company deadlines. These characteristics
are very important to have at DestinyWear.
DestinyWear Accounting Management Team
The DestinyWear accounting management team will be
reporting to me and to the other head staff each week to report
updates and any new changes. The management team is responsible
to have all the different types of budgeting reports that includes
Sales, Labor, etc. Management must follow the responsibility
reporting system for each department. The managers will use the
companys financial information to predict outcomes of the
business. I require a report from each responsibility center, cost
center, profit center and investment center to be reported each
month. Management is responsible to ensure that the company does
not over or under budget and if any changes it must be reported
immediately.
Conclusion
DestinyWear will be a very successful team not only because of
the products that we produce but because of having a great
accounting team. With the help of accounting team I DestinyWear
products will be in every wardrobe in America.
REFERENCES
//http:yourdictionary.com /CVP.org Retrieved 3/20/2010
Thomas, Y. 2005-08-27 Accounting 101 pg. 52 Statements.
March 19, 2010
Drucker, P. Managing in the next society 2002. retrieved march
19,2010
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FIN 571 Week 2 Individual Assignment Business

Structure Advice
Write a 350 to 700 word response to the following e-mail:
Dear Consultant,
Costco Wholesale Corporation

If we look at the financial statements of the company we can find that
the company is financially strong. Its strength are:
1. It has enough amount of current asset to repay its current
liability. The current ratio of the company 8.18 indicates that
the company has $8.18 liquid asset to repay its $1 of current
liability.
2. The operating cost of the company is increasing because the
company is able to reduce its expenses.
3. Cash from operating activity has increased for the company.
Apart from this strength the company also has some weakness in its
financial statement:
(i) Increasing inventory indicates that the company inventory
conversion period is increasing.
(ii) The cash from investing activity shows that the company cash
outflow is more in the short term investment i.e. in non
operating activity.
(iii) The overall has for the year 2008 has declined for the
company.
Net Income:
If we look at the trend in net income of the company we can find that
the company net income looks fluctuating but it has improved it net
income in 2008 as compared to 2007.
Debt ratio as a percentage of total assets:
If we look at the debt ratio as percent of total asset we can find that
the debt ratio is declining in 2008 as compared to 2007 i.e. the
company is increasing equity to finance debt.
Debt as a percentage of total equity:
As we can see that the debt as percent of total equity is declining in
2008 as compared to 2007 i.e. the company is increasing equity in its
capital structure.
As we can see that there is nothing negative in 2008 for the company
and this is the reason it has positive trend as compared to 2007.
Hence there is no need to correct anything for the company.
--------------------------------------------------
FIN 571 Week 2 Individual Assignment Ethics and

Finance

The Sarbanes-Oxley Act of 2002 (SOX) was passed as
the result of the Enron scandal and other instances of
accounting fraud. Week 1 DQ 1
Due Tuesday, Day 2
Go to the U.S. Securities and Exchange Commissions

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

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

the SEC deals with reporting of financial statements for
all industries while the FASB deals mainly with the
private nongovernmental entities. Both are concerned
with the fairness of financial reports and work in the
interest of the public. I believe that the SEC has more
influence over financial statement reporting because
they can bring civil action against companies and
individuals for violations of securities laws. Although
according to the FASB website, the Commissions
policy has been to rely on the private sector for this
function to the extent that the private sector
demonstrates ability to fulfill the responsibility in the
public interest.
Response 2
Go to the U.S. Securities and Exchange Commissions
Web site at http://www.sec.gov and the Financial
Accounting Standards Boards Web site
athttp://www.fasb.org. Identify the mission and main
activities of each organization. Then, analyze the
similarities and differences between the roles of each
entity. Which entity has more influence over financial
statement reporting? Explain your answer.
U.S. Securities and Exchange Commission (SEC)
According to the SECs website The mission of the
U.S. Securities and Exchange Commission is to protect
investors, maintain fair, orderly, and efficient markets,
and facilitate capital formation(U.S. Securities and
Exchange Commission, 2010, Para. 1).
The main activities of the SEC are to interpret
federal securities laws; issue new rules and amend
existing rules; oversee the inspection of securities
firms, brokers, investment advisers, and ratings
agencies; oversee private regulatory organizations in
the securities, accounting, and auditing fields; and
coordinate U.S. securities regulation with federal, state,
and foreign authorities. (U.S. Securities and Exchange
Commission, 2010)
Financial Accounting Standards Board (FASB)
According to the FASBs website The mission of the
FASB is to establish and improve standards of financial
accounting and reporting that foster financial reporting
by nongovernmental entities that provides decision-
useful information to investors and other users of
financial reports. That mission is accomplished through
a comprehensive and independent process that
encourages broad participation, objectively considers
all stakeholder views, and is subject to oversight by the
Financial Accounting Foundations Board of Trustees
(Financial Accounting Standards Board, n.d., Para. 3).
The main activities of the FASB are to identify
financial reporting issues based on
requests/recommendations from stakeholders or
through other means. The FASB Chairman decides
whether to add a project to the technical agenda, after
consultation with FASB Members and others as
appropriate, and subject to oversight by the
Foundation's Board of Trustees. The Board deliberates
at one or more public meetings the various reporting
issues identified and analyzed by the staff. The Board
issues an Exposure Draft to solicit broad stakeholder
input. (In some projects, the Board may issue a
Discussion Paper to obtain input in the early stages of a
project) The Board holds a public roundtable meeting
on the Exposure Draft, if necessary. The staff analyzes
comment letters, public roundtable discussion, and any
other information obtained through due process
activities. The Board redeliberates the proposed
provisions, carefully considering the stakeholder input
received, at one or more public meetings. The Board
issues an Accounting Standards Update describing
amendments to the Accounting Standards Codification
(Financial Accounting Standards Board, n.d.).
Both the SEC and the FASB have the same goals of
fairness, accuracy, and understandability of financial
accounting and reporting. Both agenecys accomplish
these goals in the best interest of the overall public.
The differences between the SEC and the FASB is that
the FASB regulates financial reporting in the private
sector of businesses (but are subject to the rules and
regulations of the SEC) and the SEC deals with
regulating the financial reporting of publicly held
corporations.
I believe that the SEC has the greatest influence over
financial statements reporting because they have the
final approval on all changes of the rules and
regulations. The Sec can also bring civil or
administrative enforcement actions against individuals
and companies in violation of the securities laws.
References
Financial Accounting Standards Board. (n.d.). Facts
about FASB. Retrieved July 15, 2010, from Financial
Accounting Standards
Board:http://www.fasb.org/facts/index.shtml#mission
U.S. Securities and Exchange Commission. (2010, May
3). The Investors Advocate: How the SEC Protects
Investors, Maintains Market Integrity, and Facilitates
Capital Formation. Retrieved July 15, 2010, from U.S.
Securities and Exchange
Commission: http://www.sec.gov/about/whatwedo.shtm
l
Week 1 DQ 2
Due Thursday, Day 4
Search the Internet or the Online Library for
information about the Sarbanes-Oxley Act. A useful
guide to some of these provisions is located
at http://www.soxlaw.com. Summarize at least two
provisions of the law, and discuss your interpretation of
these provisions with your classmates. Do you think
this law will make financial statements more reliable?
Also, discuss how Sarbanes-Oxley establishes
boundaries to ensure ethical practices. What does the
law allow or prohibit, and why?
The Sarbanes-Oxley act has many provisions to give

companies guidelines for responsible, and ethical
financial reporting. One of those provisions is listed in
Section 302 of the act. The provision is that periodic
statutory financial reports be certified that signing
officers have reviewed the reports, the report does not
contain any untrue, or misleading information. The
financial statements fairly present the financial
condition. The signing officers are responsible for
internal controls. A list of all deficiencies in internal
controls, and a list of fraud involving employees, and
anything that could negatively affect the internal
controls.
Another provision pertains to the "management
assessment of internal controls". This provision
ensures that information is published in annual reports
regarding the adequacy of internal controls, structure
and procedures.
The Sarbanes-Oxley act is designed to help companies
promote ethical accounting procedures. The act gives
guidelines as to how financial statements are
reported. The act requires verification that officers
within the company have checked the information in
the reports for accuracy and true. The act also
requires that the companies have internal controls in
place to ensure ethical reporting practices. The main
thing that the Sarbanes-Oxley promotes is
transparency in reporting.
Response 2
Section 802 of the Sarbanes-Oxley Law defines the
penalties that may be assessed against individuals who
failed to comply with the Act. An individual could be
subject to 20 years in jail for altering, destroying,
mutilating, concealing, falsifying records, documents or
tangible objects. Guilt is define by the intent to impede
a legal investigation. This part of the law gets to the
heart of how Arthur Anderson reacted by destroying
documents important to Worldcom. The law further
defines that any accountant who knowingly violates
their ethics by wilfully violates the requirements of
maintenance of all audit or review papers. These
papers are subject to review up to five years.
The second Section that I reviewed was the Section

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

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

of material changes, and destruction of records.
--------------------------------------------------
FIN 571 Week 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.
Lucent Technologies
Axia College of University of Phoenix
Lucent Technologies is a company based on networking for service
providers, government, and enterprises worldwide (Lucent
Technologies, n.d., Para 1). The products and services they work
with are separated into three categories; service and maintenance,
wireless mobility networking, and wire line networking. Lucent
Technologies is backed by Bell Labs, which does research and
development in networking technologies.
During the years of 2001 to 2003 this company has experienced a
decrease in demand because of other companies loss or capital
used toward spending. This is mainly due to a downturn in the
economy. As an investor this information is necessary to know
because it explains the decrease or increase in sections of the
balance sheet. In order to compare the growth or decline of the
companys profit, an investor must change a balance sheet into a
common-size balance sheet. First when looking at the balance sheet
an investor will see that the amount of paid in capital has increased
from the year of 2003 to 2004, the assets have increased, but the
liabilities have decreased. When running a debt/asset ratio it is
noticed that this ratio drops from 1.2 in 2003 to 1.0 in 2004. This
shows the companys risk is low when concerning financial
leverage, usually when the debt ratio is less than one percent it is
financed mainly by company equity, so this company is close to
being debt free from creditors.
After changing the balance sheet to a common-size balance sheet
there are several factors an investor will look at. The current assets
have dropped to .48 from .49 in 2004. This does not show harm to
the company because only the accounts receivable dropped while
the rest of the current assets increased. This means the company is
not in as much danger of default on money owed to it. It does have
a rise in marketable securities. The one concern in the assets is the
increase of prepaid cost of pensions and goodwill. Goodwill can be
used for tax breaks but prepaid pensions cannot benefit the
company.
When looking at the liabilities section an investor will see a drop in
pension and liabilities and an increase in long term debt, both of
these could be affected because of the drop in the economy. Long
term liabilities are often increased to help a company control
interest rate increases so as an investor cutting back on pension
liabilities cuts back cost to the company and watching interest rate
increase show the company is concerned with its earning and
investors. This would be encouraging or an investor. The
stockholders deficit shows a drop in accumulated deficits from -1.43
to -1.22 and total deficits of -.26 to -.08. This shows the company is
working to control any money loss and turning it to the companys
advantage. Overall it shows the company is still earning a profit
although small. With an increase of assets and a drop in liabilities
the company is showing it is working in a low risk capital.
After reviewing this information, a creditor or investor must be able
to compare this company to the industry totals. By comparing how
this company compares to other companies similar to it, a person
can see if it is competitive and worth taking a risk. Running ratios
will also show if the company is capable of paying off any debts it
has or if it can acquire the needed cash in case of emergencies.
Overall as an investor, I would say this company would be worth
investing in.
Reference
Axia College. (2007). Understanding Financial Statements.
Retrieved May 10, 2010 from Axia College, Week 2 Assignment,
ACC/230.
--------------------------------------------------
FIN 571 Week 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
Lucent Technologies is a company based on networking for service
providers, government, and enterprises worldwide (Lucent
Technologies, n.d., Para 1). The products and services they work
with are separated into three categories; service and maintenance,
wireless mobility networking, and wire line networking. Lucent
Technologies is backed by Bell Labs, which does research and
development in networking technologies.
During the years of 2001 to 2003 this company has experienced a
decrease in demand because of other companies loss or capital
used toward spending. This is mainly due to a downturn in the
economy. As an investor this information is necessary to know
because it explains the decrease or increase in sections of the
balance sheet. In order to compare the growth or decline of the
companys profit, an investor must change a balance sheet into a
common-size balance sheet. First when looking at the balance sheet
an investor will see that the amount of paid in capital has increased
from the year of 2003 to 2004, the assets have increased, but the
liabilities have decreased. When running a debt/asset ratio it is
noticed that this ratio drops from 1.2 in 2003 to 1.0 in 2004. This
shows the companys risk is low when concerning financial
leverage, usually when the debt ratio is less than one percent it is
financed mainly by company equity, so this company is close to
being debt free from creditors.
After changing the balance sheet to a common-size balance sheet
there are several factors an investor will look at. The current assets
have dropped to .48 from .49 in 2004. This does not show harm to
the company because only the accounts receivable dropped while
the rest of the current assets increased. This means the company is
not in as much danger of default on money owed to it. It does have
a rise in marketable securities. The one concern in the assets is the
increase of prepaid cost of pensions and goodwill. Goodwill can be
used for tax breaks but prepaid pensions cannot benefit the
company.
When looking at the liabilities section an investor will see a drop in
pension and liabilities and an increase in long term debt, both of
these could be affected because of the drop in the economy. Long
term liabilities are often increased to help a company control
interest rate increases so as an investor cutting back on pension
liabilities cuts back cost to the company and watching interest rate
increase show the company is concerned with its earning and
investors. This would be encouraging or an investor. The
stockholders deficit shows a drop in accumulated deficits from -1.43
to -1.22 and total deficits of -.26 to -.08. This shows the company is
working to control any money loss and turning it to the companys
advantage. Overall it shows the company is still earning a profit
although small. With an increase of assets and a drop in liabilities
the company is showing it is working in a low risk capital.
After reviewing this information, a creditor or investor must be able
to compare this company to the industry totals. By comparing how
this company compares to other companies similar to it, a person
can see if it is competitive and worth taking a risk. Running ratios
will also show if the company is capable of paying off any debts it
has or if it can acquire the needed cash in case of emergencies.
Overall as an investor, I would say this company would be worth
investing in.
Reference
Axia College. (2007). Understanding Financial Statements.
Retrieved May 10, 2010 from Axia College, Week 2 Assignment,
ACC/230.
--------------------------------------------------

FIN 571 Week 3 Connect Problems If the Garnett Corp.
has a 15 percent ROE and a 25 percent payout ratio,
what is its sustainable growth rate? 1.If the Hunter
Corp. has an ROE of 15 and a payout ratio of 18
percent, what is its sustainable growth rate 2.The most
recent financial statements for Williamson, Inc., are
shown here Assets and costs are proportional to sales.
Debt and equity are not. No dividends are paid. Next
years sales are projected to be $8,418. What is the
external financing needed? 3
Preparing an Income Statement

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

with a net profit of $174k. If the company were unable
to be profitable, the company would eventually go out
of business. We would be able to tell if the company
was not profitable by looking at each section
individually. The cost of goods sold is what stands out
for me. If we pay more to make the product then we
are actually selling it for, there is no profit to be made.
So, I think it should all start there.
--------------------------------------------------
FIN 571 Week 3 DQ 1

Why are interest rates on short-term loans not
necessarily comparable to each other? 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 2

Optical Supply Company offers credit terms of 2/10, net
60. Week 3 DQ 1
Due Tuesday, Day 2
Post your answer to Problem 3.5 on p. 109 (Ch. 3). How

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

changes in the equity accounts during the accounting
period more in depth than the balance sheet. The
information found on the statement of stockholders
equity includes retained earnings, common and
preferred stock, and additional paid in capital.
Management uses the statement of stockholders
equity to ensure they are reaching their goal of
maximizing shareholder's equity. The use of market
ratios help with the analysis of the statement of
stockholders equity, such as earnings per share, price-
to-earnings, dividend payout, and dividend yield. These
ratios will help both management and investors in
analyzing the company. For example, if I were looking
to invest in a companys stocks I would utilize all of the
financial ratios, as well as the market ratios. The
earnings per share ratio is calculated before the price
to earnings ratio, P/E, because the earnings per share
ratio is used in the second. If a company pays
dividends, the dividend payout ratio will come in handy.
It tells us The percentage of earnings paid to
shareholders in dividends (Investopedia, 2010, p. 1).
References
Investopedia. (2010). Dividend Payout Ratio. Retrieved
August 3, 2010, from
Investopedia:http://www.investopedia.com/terms/d/divi
dendpayoutratio.asp
Response 2
Explain what can be found on a statement of
stockholders equity.
The major elements of stockholders' equity include
capital stock, paid-in capital, retained earnings,
treasury stock, unrealized loss on long-term
investments, and foreign currency translation gains
and losses.
How might the information contained within the

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

statement retained earnings section to determine if
company should borrow money for capital investments
or finance it through various forms of equity. It may
also be used by the stockholder to evaluate the
compensation paid to the company officers. Investors
may also look at the statement for cumulative net
unrealized gains and losses before purchasing stock in
the company. Investors are also interested in the paid
in capital because they can compare it to the additional
paid in capital and the difference between the two
values will equal the premium paid by investors over
and above the par value of the shares.
DQ 2
Week 3 DQ 2
Due Thursday, Day 4
Provide an example from the text or the Internet that

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

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

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

fake inventory in which its value was overstated and
transferred over to their income statement. When the
banks assessed their financial statements, it was
enough to sway them into lending the loans they
needed.
Reference:
Investopedia. (2010). Spotting Creative Accounting On

The Balance Sheet. Retrieved
fromhttp://www.investopedia.com/search/searchresults.
aspx?
q=Spotting+Creative+Accounting+On+The+Balance+
Sheet&submit=Search
--------------------------------------------------
FIN 571 Week 3 Individual Assignment

Interpreting Financial Results
Resource: Financial Statements for the company assigned by your

instructor in Week 2.
Review the assigned company's financial statements

from the past three years.
STOCK DIVIDEND
Stock Split
University of Phoenix
Stock Dividend
In the present time, the stock dividend has
become important concept. When dividend is
given in form of stock, it is called stock dividend.
In this form of dividend, the cash does not use. It
is important, when the corporation declares
stock dividend, the market value of the share
decreases because the number of stock
increases. The many companies prefer stock
dividend due to the tax benefit. If the individual
gets stock dividend, he does not pay any tax on
stock dividend. Thus the stock dividend reduces
tax burden. On the other hand, the ownership of
investors also spurs up in the company because
the number of holding share increases. There is
also disadvantage of stock dividend. The market
value of the share decreases, so the market
value of holding also decreases (Kennon, 2009).
The ABC Company is leading company in its
industry. The number of outstanding share of the
company is one million. On the other hand, the
number of investors is five millions. The value of
market capitalization is $100 million. The
management declares 20% stock dividend. Thus
the 200000 shares will be distributed as a stock
dividend. The number of outstanding share will
be increased by 200000 and the new total
number of outstanding stock will be 1.2 million.
On the other hand, the new value per share in
the market will be $83.33 (100 million/1.2
million). This example is taken from below
mentioned link:
Stock Split
The stock split is also an important concept.
When the management wants to increases
number of shares, the management follows this
method. In this method, the face value of the
share is split and number of share gets
increased. Due to increment in number of
outstanding share, the market value of per share
also gets affected but the total market
capitalization of the company does not affect.
Both stock split and stock dividend increase
number of outstanding shares but both are
different due to the accounting treatment. In the
stock split, the investors do not get any real
benefit. It is also known as non-cash distribution
of dividend. The motto behind stock split is to
increase trading of the shares in the market
(Baker, 2009)
For example, the face value of per share is
$100 and the total outstanding shares are 100
million. If the management of the company
announces stock split in ratio of 1:2, the total
outstanding shares will be increased by 100
million, thus the new total number of the share
will be 200 million. On the other hand, the face
value of the share will reduce by 50%. So the
new face value of the share will be $50. Due to
effect of stock split, the holding share of the
investor will also increase in the prorate basis. If
the investor has 10 shares, now he will have 20
shares. It is important thing that the total issued
capital will not be changed. The illustration of
stock split has been got from following link:
Reverse Stock Split
The reverse stock split is just opposite of stock
split. In this process, the management reduces
the number of outstanding shares. The company
increase face value of the share. In this method
corporation decides a ratio such as 2:1. Thus the
company accumulates two shares in one share.
In this method, the total market value of
company does not change. Due to reverse stock
split, the earning per share and face value of per
share rises. Thus the reverse stock split provides
just opposite result from stock split. It is
important question, why company selects this
method. When the management seems that the
face value of the share is less as compared to
competitors then the company goes for this
method to make its share value to equal to
competitors shares face value. It is also a
sound strategy to increase treading of shares. If
the face value of share is too cheap in
comparison to competitors, the investors will be
discouraged for investment. For increasing the
confidence of investors, the management uses
this method (Mladjenovic, 2009).
For example, an investor holds 100 shares of XYZ
Company and the face value per share is $50. If
the management go for reverse stock split
option and declares one share for 10 shares then
the holding of the individual will reduce 9 shares
for every 10 shares. Thus the new holding of the
investor will be 10 (100/10) shares but the face
value per share will be $500. It is also important
that the total market capitalization will remain
as same as before reverse split. The example of
the reverse split is take form below mentioned
link:
http://www.sec.gov/answers/reversesplit.htm.
References
Baker, H. K. (2009). Dividends and Dividend
Policy. John Wiley and Sons.
Kennon, J. (2009). All About Dividends. Retrieved
May 31, 2010, from
http://beginnersinvest.about.com/od/dividendsdr
ips1/a/aa040904_2.htm
Mladjenovic, P. (2009). Stock Investing for
Dummies. Dummies.
--------------------------------------------------
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.
Reference
Weygandt, J.J.,Kimmel, P.D. & Kieso, D.E. (2009). Managerial

Accounting: Tools for Business Decision Making. John Wiley and
Sons.
--------------------------------------------------
FIN 571 Week 3 Team Assignment Financial

Statement Interpretation

Select three publicly traded companies. Choose one
each from the following sectors: manufacturing,
service, and retail. At least one of the three companies
should be foreign. If possible, choose from among the
team members' places of business or similar industries.
Calculate the following:
Analyzing an Income Statement
The net income of Kodak has decreased a bit; it
appears that the company is more profitable. By
conducting a side by side analysis from 2004 to 2003
the company has increased in current assets and
decreased in total assets. It appears that the company
went down in property, plant and equipment net as well
as discontinued operations. So, despite the decrease in
total assets it looks like the company has made a good
decision.
The company has also decreased its total liabilities by

about 4%. I believe this to be good because the short
term borrowings and long term debt has decreased. To
me, this means that the company is tightening their
belt and paying off old debt.
Total shareholders equity has down a little bit in

dollars, but on the percentage level the companys
percentage has gone up. I believe this is because the
company issued $104k more shares in 2004 than in
2003. The company has the same amount of shares
outstanding in 2004 that it did in 2003 as well.
Retained earnings on the stock have gone up in 2004
as well. I believe this is contributed by the more shares
that have been issued.
I believe the profitability of the company is under good

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

FIN 571 Week 4 Connect Problems Q-1 Even though
most corporate bonds in the United States make
coupon payments semiannually, bonds issued
elsewhere often have annual coupon payments.
Week 5 DQ 1
Due Tuesday, Day 2
In what ways does the statement of cash flows relate to

the balance sheet and income statement?
It is important to understand what we are doing with

the numbers and the results these numbers give us
because the result is the information that will be
available to us from financial statements. Although
some want to see the income statement and ignore the
other statements we need to use them together to see
the total picture of what is happening to our business.
The relationship between the numbers on the financial
statements shows us everything we need to know
about the business.
The income statement shows income and expenses for
a period of time and if we are making or loosing money.
The balance sheet compares the assets to liabilities
and shows how much money the business would have
if everything is sold today.
The statement of cash flow might be the most critical
statement because there is plenty of information we
can gain form it. This statement relates with the
income statement on operating activities to see if they
are generating cash or not. It is related to the balance
sheet on how much cash is used in investing activities.
In relationship with the balance sheet the cash flow
statement shows what cash is provided or used by
financing activities. It will tell us how much debt has
been paid and will indicated if we are using more debt
or have paid down the credit line.
When the business makes a sale or receives payment
for a sale on credit that is an inflow. A sale shows up as
income on the profit and loss statement and as an
inflow on the cash flow statement. It also shows up
either as cash or accounts receivable on the balance
sheet. Also, how quickly we can collect on accounts
receivable will play a big role in the cash flow. When
the business spends money, it shows up as an expense
in the profit and loss statement and as an outflow on
the cash flow statement. It also shows up on the
balance sheet as a decrease in cash, or an increase or
decrease in liabilities, depending on what the expense
represents.
Response 2
In what ways does the statement of cash flows
relate to the balance sheet and income statement?
The cash flow statement relates to the income
statement and balance sheet. The net income from the
income statement is listed on the statement of cash
flows. Operating activities are analyzed on the
statement of cash flows; this section of the statement
reconciles the net income to the actual cash the
company received from or used during operations. The
second section of the statement of cash Flows is the
cash flow from investing activities which include
purchase or sale of assets. The last section in the
Statement of Cash Flows is the cash flows from
financing activities that includes raising cash by selling
stocks/bonds or borrowing from backs; or cash out
flows from paying back loans. The balance sheet shows
the different account balances at the end of the
accounting period. The statement of cash flows reflects
changes in the accounts listed on the balance sheet
between accounting periods. The net cash from
operating, financing, and investing activities are added
up to calculate the net change in cash.
Week 5 DQ 2
Due Thursday, Day 4
Discuss how the statement of cash flows is utilized by

investors. If you were an investor reviewing a
statement of cash flows, what section might interest
you most? Why? Discuss the circumstances in which
other sections of the statement might be important to
an investor.
Prior to making an investment in a company, one would

want to understand the decisions the owners are
making to fund the operations of the company daily.
Maintaining sufficient cash to acquire new product, pay
overhead, and satisfy generated sales would be the
predominant need of the company. Second need would
be for the company to have sufficient cash to remain
competitive. This may require cash to invest in
research and development, increase inventory as new
product introduction, improve efficiency in plant and
equipment, or cash to satisfy prior borrowing
obligations. By reviewing the statement of cash flow,
the investor can determine if the company is
generating sufficient cash internally to fund operations
or are they requiring outside injection of cash to
finance the short fall in cash needed to operate the
company. Last, the investor can review the statement
of cash flow to better understand the leverage of the
company and the requirement for repayment of debt,
or dividends to reward prior investments.
Response 2
Discuss how the statement of cash flows is utilized by
investors. If you were an investor reviewing a
statement of cash flows, what section might interest
you most? Why? Discuss the circumstances in which
other sections of the statement might be important to
an investor.
The statement of cash flow is utilized by investors

because it has all information integrated from the
balance sheet and the income statement. The
statement of cash flow is used by an investor to see if
the operating activities are greater than the net income
to have earnings that are called high quality. If
operating activities are less, then a red flag will be
raised as to why the net income is not becoming
cash. Another reason would be investors believe cash is
the best. The statement shows all cash coming and
going from the business. If the company generates
additional cash than what is being used, then the
company can reduce their debt, acquire another
business, or buy some of the stock back. The last
reason why would be that financial models are based
upon the statement of cash flow.
If I was an investor reviewing a statement of cash flows
the section that might interest me the most would be
the operating activities. I would like to know how the
company was doing and what areas need to be
improved to have more cash generated in the
business. All the sections are important to an investor
so they can see the complete big picture of their
investment.
--------------------------------------------------
FIN 571 Week 4 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
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
steadily.
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.
Reference
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 Findwhat.com Case - CheckPoint
ACC 230
Findwhat.com has recorded the 135 percent increase in
the revenue which is mainly due to the business
acquired of Espotting during the year. The different
accounting policies are present for the acquiring firm
and the acquired firm. The company has recorded
certain premature revenues for the amount which
advertisers had made only the advance deposit. As
result, the company is recognizing the vendor financing
as revenue. In some places, the gross revenue has
been recognized while in another, the net revenue has
been recognized. The network click revenue is
recognized at gross level while the private level
revenue is taken at net level. Some of the revenue
expenditures have been recognized as the capital
expenditures.
Revenue for set up network fee is treated as deferred
revenue and is recognized over a period of time. The
company is very inconsistent with regards to its
accounting policies in terms of recognition of revenue.
The provision and treatment of amount for doubtful
debt is also not satisfactory. When a customer clicks on
a sponsored advertisement, the whole of the revenue
due to him is recognized. The company is having a very
high amount of doubtful debt balance at the end of the
year ending December 31, 2004.
--------------------------------------------------
FIN 571 Week 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 product,
corporate expansion, and so on). Analyzing Statements of Cash Flows
4.8. Research Problem
Choose five companies from different industries and locate their

statements of cash flows
for the most recent year.

(a) Create a table to compare the dollars provided or used by
operating, investing, and financing activities, as well as the overall
increase or decrease in cash.
(b) Create a second table for each company comparing this same
information for each of the three years presented in that companys
statement of cash flows. Include an additional column that looks at
the combined cash flows for all three years.
(c) Write a short analysis of the information gathered. Your

discussion should address, among other things, whether cash flow
from operating activities is large enough to cover investing and
financing activities, and if not, how the company is financing its
activities. Discuss differences and similarities between the companies
you have chosen.
(a) Create a table to compare the dollars provided or used by

operating, investing, and financing activities, as well as the overall
increase or decrease in cash.
STATEMENT OF CASH FLOW ANALYSIS
STARBUCK HARELY
S DAVIDSON RITE AID
2008 2008 2008
NET INCOME / $ $ $
STARTING LINE 315.5 - (1,079.0)
OPERATING $ $ $
ACTIVITIES 1,258.7 (684.7) 79.4
INVESTING $ $ $
ACTIVITES (1,086.6) (393.3) (2,933.7)
FINANCING $ $ $
ACTIVITIES (184.5) 1,293.4 2,904.0
$ $ $
CASH (11.5) 190.7 49.9
(b) Create a second table for each company comparing this same
information for each of the three years presented in that companys
statement of cash flows. Include an additional column that looks at
the combined cash flows for all three years.
STARBUCKS
2008 2007 2006
Net Income/Starting Line 315.5 672.64 564.26
1258.7 1131.6
Cash from Operating Activities 0 1331.22 3
-
1086.6 -
Cash from Investing Activities 0 1201.95 -841.04
Cash from Financing

Activities -184.50 -171.89 -155.33
Net Change in Cash -11.50 -31.35 138.80
Net Cash - Beginning Balance 281.30 312.61 173.81

Net Cash - Ending Balance 269.80 281.26 312.61
HARLEY
DAVIDSON
2008 2007 2006
Net
Income/Starting 1043.1
Line 0 933.84 5
Cash from -
Operating Activities 684.65 798.15 761.78
Cash from -
Investing Activities 393.25 391.21 -35.26
Cash from -
Financing 1293.3 1037.8 -
Activities 9 0 637.02
Net Change in
Cash 190.70 164.46 97.42
Net Cash -
Beginning Balance 402.85 238.40 140.98
Net Cash - Ending

Balance 593.56 402.85 238.4
RITE AID
2008 2007 2006
-
Net Income/Starting 1078.9 1273.0
Line 9 26.83 1
Cash from Operating 309.1

Activities 79.37 5 417.17
- -
Cash from Investing 2933.7 312.7 -
Activities 4 8 231.08
Cash from Financing 2903.9 -

Activities 9 33.72 272.84
Net Change in Cash 49.61 30.08 -86.75
Net Cash -
Beginning Balance 106.15 76.07 162.82
Net Cash - Ending 106.1

Balance 155.76 5 76.07
(c) Write a short analysis of the

Starbucks operating cash flow has gone up in 2007 and decreased a little in 20
previously was doing well. The net loss in cash at end of year is decreasing fro
Harley Davidson's operating cash flow has significantly decreased from 2007.
in cash from operating activities is probable from the lack of information suppl
buying at this point could have an effect on why the net income is decreasing.
gain.
Rite Aid's operating cash flow has taken a significant decrease as well from pre
financing, the net change in cash is better than it has been in previous years. R
supplies. This also could reflect the expansion of the company.
--------------------------------------------------

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
CFO's.
Response 2
I believe the impact and importance of this write-off event is a very
big matter. It is obvious how they handled it that it was a scandal
from the start. I think that everyone involved had a big role in how
things played out. To me I think of the investors as a really big hit to
this but also feel that audit committees have to be held responsible as
well. It has been shown over many examples that adit oversights are
happening to financial reporting. Although I do feel they are getting
better and tighter due to conforming tightly with the GAAP requests.
I feel over time the accounts receivable should have been written off
in smaller increments and not all taken by $405 million at once.
Maybe that isn't correct but it would have been easier I would think to
take the receivables over time.
Response 3
Wall Street should have read the footnotes and seen that the write off
was for accounts receivables and should have been reported in the
allowance for doubtful accounts. Every company that allow sales on
credit face doubtful accounts; therefore, the write off may reoccur.
The significance of this transaction is that WorldCom want to cover
up the $405 million dollars that it was unable to collect from its
customers, but WorldCom wrote off a large sum of money rather
recording the write-off as needed and the analyst over looked it.
Depending on how the company policy is for writing off accounts,
from 1998 to the 3rd quarter in 2000 is 11 quarters. If the company
wrote off bad accounts quarterly it should have wrote off
36,818,181.82 per quarter. Investors would not want to continue to
invest into a company that has poor collection skills, or poor
management. Unusual items are simply for those items that are not
recurring operating expenses. Bad debts do not fall under this
category. Since the Enron and WorldCom scandals many rules and
regulations have been put in place by the government such as SOX.
More people are being held accountable for their actions and
consequences follow poor quality reporting such as fudging the
books.
--------------------------------------------------
FIN 571 Week 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.
1. Presenting to Stakeholders
2. Axia College of University of Phoenix
3. Presenting to Stakeholders
4. 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?
5. 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.
6.
7.
8.
9. 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.
10. 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.
11. 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.
12. Reference
13. Axia College. (2007). The Analysis of Financial

Statements. Retrieved June 28, 2010,
14. from Axia College, Week Eight, ACC 230.
--------------------------------------------------

1.The difference between the present value of an
investments future cash flows and its initial cost is the:
payback period. internal rate of return. profitability
index. discounted payback period. net present value.
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
problems.
Industry
2009 2008 2007 2009

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

Lunas profitability problems are suggested as under:
a) Net Profit margin of the company has degraded
and this might be due to decrease in the net
income of the company due to increase in
expenses. This needs to be improved upon by cost
control and cost reduction.
b)Return on equity of the company has degraded
further and this also indicates that there is a
decrease in the net income of the company due to
increase in expenses. This needs to be improved
upon by cost control and cost reduction.
c) Fixed charge coverage has fallen, which means
that the debt payment along with interest might
have increased and this will also lead to decrease
in the net income of the company and thus
degrading the profitability position of the company.
d)Operating profit margin has dropped even though
gross profit margin has remained constant. It
means that the operating expenses are higher and
need to e controlled to improve the profitability of
the company.
e) The fixed assets turnover and the return on assets
have also degraded; this also indicates decrease in
the net income of the company.
--------------------------------------------------
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
does.
Response 2
I have learned that it takes someone that has the
patience, tenacity, and motivation to truly analyze the
statements. If you go about it not wanting to do the
work you wont give a good analysis. I found that you
have to be willing to dig deeper than most would to get
a full picture of the company. I found that it is not an
easy task to complete. For me the process is a tedious
one. I don't think I would want to go into that type of
accounting where I have to analyze the statements of a
company. I think for me I would be better in specialized
accounting like A/P or A/R. I am better at figuring out
problems and figuring out ways to make them better. I
am better at specific tasks so for me I wouldn't want to
analyze the statements. I am glad to have learned how,
because at some point I am sure it will come in handy.
Response 3
All financial statements are essential documents
because they tell what has happened to a business
over a period of time but most users of financial
statement are more concerned about what will happen
in the future. Stockholders and creditors are
concerned with future earnings and dividends and
company's future ability to repay its debts.
Management is concerned with the company's ability
to finance future expansion.
Working as a bookkeeper I do all the steps in monthly
cycles consisting of entering transactions into the
journals, working with A/R, A/P, payroll and preparing
the reports, but I have not been able to analyze the
reports the way I learned in this class. I learned how
important is to monitor and interpret the results. I
learned how to compare financial statements of a
company with a company from the same industry and
point out the differences and similarities. This class
taught me the importance of analyzing the Income
Statement, Balance Sheet, Cash Flow Statement and
Stockholders Equity each one individually. I learned
how essential is the quality reporting and how useful
this quality is in business decision making. I learned
about key financial ratios: liquidity ratios, activity
ratios, leverage ratios, and profitability ratios. All these
ratios are valuable as analytical tools and will help me
indicate the areas of strength and weakness in a
business. Even though I learned the information step
by step in this class I tent to go over every single
chapter all over again to better absorb the material.
This class taught us the potential of some management
manipulations of financial statements, thus following
the general accounting rules, being honest, ethical and
professional are the ways on leading to safe and
profitable decisions.
--------------------------------------------------
FIN 571 Week 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.
1.
2. Evaluating Financial Health 1
3.
4.
5. Evaluating Financial Health
6. Apple Inc. (AAPL)
7. Axia College of University of Phoenix
8.
10. Apple Inc. (AAPL)
11. 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.
12. Managements Strategy
13. 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.
14.

16. Financial returns in Comparison to Industry
17. 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).
18. Financial Risk and Industry
19. At this stage of our analysis we extend our

findings to assessment of risk associated with the
investment opportunities in APPLE Inc. Analyzing
the liquidity we observed that Apple has a sound
ability to meet its short term obligation. It is
revealed by the healthy current ratio of 2.74 for
the year 2009; it is improved from 2.46 of the last
year 2008. If we had a glace on the industry it
reflects a standard of 2.5. In the computer
equipment industry a very low inventory has been
observed. That is why the acid test ratio fall lightly
below the current ratio i.e. acid test ratio is 2.70
for the year 209 in comparison to 2008, which
were 2.43. If we compare the acid test of 2009 i.e.
2.70 with industry average, which is 2.5 (msn.com,
2010). On the liquidity
20.
22.
23. situation it is stated that the risk avoider will

be glad to look at the satisfactory liquidity position.
24. As far as the solvency risk is concern in

the long run the debt equity ratio is 0.11 for the
year 2009, which is increased from 0.08 of 2008.
Here it is important to refer to the industry
average of 0.07 (OnlyHardwareBlog, 2010). Hence
it is apparent that though the APPLE Inc. is more
risky in the long run, but it does not sound like the
alarm.
25. Cash Flow Analysis
26. 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).
27. 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.
28. Apple and its Main Competitor
29. 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
30.
32.
33. 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).
34. Apples Performance and Economy
35. Global economic recession is on the way to

recovery, although Europe and America needs
some more time to normalize. However,
reasonable growth is observed in emerging market
like Brazil, Malaysia, India and China. Triad block
recorded a poor growth. What is going to be with
the world economic outlook is the global economy
is going to revive with the V shape pattern or its
recovery would be like expanded U as some
economist say growth will be slow. I am of the view
that Apple Inc. should more focus on the emerging
market like India, China, South Pacific region
countries. So Apple needs to exploit more and
more opportunities outside the USA. I am
optimistic that the idea of direct marketing will
work out side the USA as well. Hence Apple needs
to introduce maximum retail store outside the
USA.
36.
37. It is important to look at trend analysis and

industry comparisons as a means of determining if
it is the best time to expand or stay put and to see
how its future products will be accepted by the
public.
38.
39.
40. valuating Financial Health 6
41.
42. References
43. Electronista. (2010). Apple only US computer

builder to outgrow industry average. Retrieved
44. July 2, 2010, from
45.
http://www.electronista.com/articles/10/06/04/isup
pli.sees.apple.at.34pc.world.market.share/
46. Hardware Marketplace. (2010). Computer

Hardware. Retrieved July 2, 2010 from
47.
http://www.hardwaremarketplace.com/computer-
hardware/
48. msn.com. (2010). Apple Inc: Key Ratios.
Retrieved July 2, 2010 from
49.
http://moneycentral.msn.com/investor/invsub/resul
ts/compare.asp?Page=PriceRatios&Sy
50. mbol=AAPL
51. OnlyHarwareBlog. (2010). Highest debt to

equity ratio in the computer hardware industry
52. detected in shares of international

business machines. Retrieved July 2, 2010 from
53. http://onlyhardwareblog.com/?p=2107
--------------------------------------------------

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

the WileyPLUS Assignment: Week 5 Videos Activity.
Financial Analysis
Wal-Mart Stores Incorporated operates chain of retail stores in USA

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

the USA as their business was affected by opening Wal-Mart stores.
The company also opened its first store outside the USA in South
America in 1995. Wal-Mart wanted to spread itself not only to the
USA, but in other countries as well. In 2006, the company was
having 3800 stores in USA and more than 2980 stores outside USA
making it one of the largest retail chains in the world. This
corporation was also having a vision to establish itself in to a global
entity. Wal-Mart was one of the first companies to operate in the
organized retail sector (Fishman, 2006). The modes of entry used
by the company were different for different countries. Wal-Mart
used the mode of entry in to various countries according to the rules
and regulations prevailing in to that country (Wal-Mart Stores Inc:
Financial Statement, 2010).
The sales of the company for the financial year ending in January
2010 are 413.8 billion dollars and income for the same period is
14.7 billion dollars. The quarterly sales growth for the company has
been 5.90%, while the industry average is 6.80 %. The five-year
annual growth in the sales of the company has been recorded at
7.50 % while five year annual growth of income is 6.58 %. By
analyzing the financial statements of WalMart Incorporated, we
find that debt equity ratio of Wal-Mart is 0.71 on 31st January 2010,
which is 0.68 for the industry. It means the proportion of debt of
the company in its capital structure is lesser than the equity. The
company is less leveraged so the interest burden on the company is
minimal. Wal-Mart has capacity to borrow from the market for its
CAPEX in the future. The interest coverage ratio is 13 times in
January 2010, which is 21.9 for the industry. Wal-Mart needs to
improve profitability to improve interest coverage ratio for the
reduction of risk of the lenders of the company (Wal-Mart Stores
Inc: Financial Statement, 2010).
The total revenues received by the organization in the year ending

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

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

which is a good sign for the shareholders of the company. It was
19.9% in January 2008, which increased to 20.3 % in 2009 and
then again marginally increased to 20.4 % in 2010. The return on
asset has also shown the same trends in the last three years. In 2008
the return on asset was 7.9 %. It increased to 8.1 % in 2009 and
then further increased to 8.4 % in 2010. It shows the increase in the
efficiency in the utilization of the assets of the company. The net
profit margins have been almost the same in the last three years in
the company. It was 3.4 % in 2008, 3.3 % in 2009 and 3.5 % in 2010
(Wal-Mart Stores Inc: Financial Statement, 2010).
The price to sales ratio and price to book value ratio have shown
negative trends in the last three years, which shows that the stock of
the company is available at cheap price as compare to the price it
was carrying three years back. The price to sales ratio, which was
0.55 in 2008, was decreased to 0.46 in 2009 and then improved to
0.51 in 2010. Similarly, price to book value ratio reduced from 3.12
in 2008 to 2.83 in 2009 and then improved marginally to 2.86 in
2010. This represents the better opportunity available for the
shareholders to invest in to the stock of the company. The book
value per share of the company has also increased in the last three
years. It was 16.26 dollars per share in 2008, which increased to
16.63 dollars per share in 2009 and further improved to 18.69
dollars per share in 2010. This represents the increase in the
retained earnings of the shareholders in the company (Shim &
Siegel, 2007).
Wal-Marts current assets level has shown stability in the last three
years for the company, which shows the lesser investment in current
assets for the company even with the increased sales. In 2008 the
cash and marketable securities available with the company was
48020 million dollars, which increased to 48949 million dollars in
2009 and then decreased to 48331 million dollars in 2010.
Quantitative Analysis holds huge significance while evaluating the

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

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

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

solvency. By using current ratio, one can analyze the effectiveness
of the liquidity position of the organization. Profitability of the
organization is also analyzed through profitability ratios, common-
size analysis, as it helps to know the organizations profits earned by
the company as compared to others. Trend analysis and ratio
analysis with the help of different asset turnover ratios and trends
could easily analyze that assets are effectively used or not (Brigham
& Houston, 2007).
Wal-Marts current stock price is 50.56 dollars. The stock has gone
up as high as 56.27 dollars, and as low as 47.35 dollars in the last
year. The earnings per share of the company which was 3.16 dollars
per share in 2008, was increased to 3.35 dollars in 2009. Earnings
per share further increased to 3.76 dollars in 2010. The analysis
shows the improvement in the earnings of the company in the last
three year. The current price earnings ratio of the company is 13.2
which is less than the industry average of P/E ratio of 15 times
(Wal-Mart Stores Inc (WMT), 2010).
Analyzing the stock of the company from the investment point of

view, we can estimates that the fundamentals of the company are
very strong. The stock has return on equity, return on assets better
than the industry average of 22.9 % and 9.1 % respectively. The
company has given a better annual average return on asset and
return on equity in the last five years as compared to the industry.
The company has a debt equity ratio and net profit margin, which is
less than the industry. However, Wal-Mart is improving on the
efficiency front. As a result, Wal-Mart stock is recommended for
investment.
References
Brigham, E.F. & Houston, J.F. (2007). Fundamentals of Financial

Management. (11th ed.). Cengage Learning.
Fishman, C. (2006). The Wal-Mart Effect: How the World Most

Powerful Company Really Works-- and How it's Transforming the
American Economy. Penguin Group
Shim, J.K. & Siegel, J.G. (2007). Schaum's Outline of Financial

Management. (3rd ed.). McGraw-Hill Professional.
Wal-Mart Corporate. (2010). History. Retrieved July 25, 2010 from
http://walmartstores.com/AboutUs/297.aspx
Wal-Mart Stores Inc: Financial Statement (2010). Retrieved May

31, 2010, from
http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?
Symbol=WMT
Wal-Mart Stores Inc. (WMT) (2010). Retrieved May 31, 2010, from
http://finance.yahoo.com/q/co?s=WMT+Competitors
--------------------------------------------------
FIN 571 Week 5 Team Assignment Capital

Budgeting Assignment, Part 1 (New Heritage
Doll)

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 benefits.
I didn't know that Accounting career actually paid this

much. I might think about changing my careers.
--------------------------------------------------
FIN 571 Week 5 Working Capital Simulation

Managing Growth, Part 1 (New Heritage Doll)

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?
Accounting plays many important roles especially when
it comes to business operations. Accounting is mainly
responsible for almost all of the financial needs of the
business. It keeps track of all spending, profit and loss
that the company inquires.
The business is very dependent on it accounting
department. Accounting department is responsible for
monitoring more than the cash flow, it also works
closely with IRS, government to make sure that
everything is being done correctly (payroll, taxes, etc).
The accounting side of the business can be considered
to be the lungs of the company next to the heart.
Discussion Question 2:
Why are ethics so important in the field of accounting?

Wow where should I start? First of all the when dealing
with accounting there must be consistent clear
communication between the business and the
accounting department. Honesty is always the best
policy. Good ethnics keeps the business running at its
top level. The company's personal information,
employee information could be given to the wrong
hands and it can destroy the company. A good
accounting department has way too much to lose
and they will not want to risk a horrible reputation
in the field.
Another response
People bring all their financial information to an
accountant who in turn looks through all of it with a
fine tooth comb. People need to know that they can
trust this person with all of their personal
information. Most licensed professionals swear to a
code of ethics, whether they follow them or not is up to
that professional. Unfortunately there are many out
there that do not and they ruin the trust for other
professionals. Accountants really need to have the
trust of their clients being that they work with peoples
taxes and finances and need much information from
their clients.
Another response
Ethics are important in the field of accounting for
several reasons. Ethics mean different things to differnt
depending on the role of the accountant. If an
accountant is hired by an individual or a business, that
accountant is trusted with the finances of the person or
business. The accountant is trusted to give an honest
account of finances and not to defraud or jeopardize
that individuals or companies relationship with the
government, creditors of financiers. Individuals and
businesses also trust the ethics of accountants insofar
that they do not disclose their information to those that
do not have a right to it. Finally, In the accounting
profession, much like many other professional service
professions, an accountants reputation is the
continuing source of employment. If they are knows to
have a bad or even flexible ethical code then they can
develop a bad reputation and experience a loss of
business.scholarly references. Format your assignment
consistent with APA guidelines.
--------------------------------------------------
FIN 571 Week 6 Individual Assignment Working

Capital Simulation Managing Growth Assignment

Resources:
Harvard Business Publishing: Working Capital Simulation:

Managing Growth Assignment
Compare and contrast sole proprietorships, partnerships, and

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

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

in the WileyPLUS Assignment: Week 6 Videos Activity.
Current assets
When it comes to a company's classified balance sheets you will
find current assets sheet. Current assets is cash or cash equilivants
that the company will use. What you will find on a current asset
sheet is Cash and equilvants, Short term investments, Accounts
receivables, and other assets.
Long-term investments
Long-term investments when it comes to balance sheet are
investments that the company intends to hold onto. The investments
that are listed are as follows, bonds, stocks and cash. You will also
find short-term investments in the company. The difference between
short-term and long-term investments is that the short-term
investments will be sold and the long-term investments normally the
company will choose to keep it.
Property, plant, and equipment
Property, plant, and equipment are what the company calls "fixed
assets". Property, plant and equipment are assets that can not be
easily converted into cash. These are basically items such as
company car (used to deliver products), computers and copier
machine, and freezer used for restaurants.
Intangible assets
Intangible assets are non-monetary items that can not be seen or
touched. For example, trademarks, copywriters, patents and
goodwill. Intangible assets are normally listed in the separate assets.
references
http://www.investopedia.com/terms/i/intangibleasset.asp
--------------------------------------------------
FIN 571 Week 6 Team Assignment Capital

Budgeting Assignment, Part 2 (New Heritage
Doll)

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:
When reviewing a financial report, why should
information be reliable, relevant, consistent, and
comparable?
In other words, why are these accounting
characteristics important?
What kinds of problems could be created if a
financial report is not reliable, relevant, consistent, or
comparable?
It is extremely vital that the company has accurate
financial reporting. This information determines
whether or not to invest in your company's stock. This
information will help them decide if it is profitable to
invest or not to invest in your company based what is
in your financial history. The information must be
relevant because it will help the company, investors
and lenders make decisions. It helps answer questions
like, "how stable is your company", or "what future
does this company have". The information should be
reliable. In other words the information that is reported
must be able to be verified, backed up with truthful
information. Comparable occurs when different
companies use the same accounting principles. This
makes it much easier to compare results between
company's. Consistency happens when the company
uses the same accounting method every year. When
the financial statements are reported each year, it
paints a financial picture of where the company is
headed now and in the future.
What kinds of problems will occur if the information

does not include these things?
Falsified or manipulated statements doesn't only effect
the company but it also to name a few effects the
lenders, creditors, investor's, etc. This will result in the
company not having a faithful representation.
Another response
The main objective of generating financial information
is providing useful information that can be used in
decision-making... only if this information is relevant,
reliable, comparable, and consistent, can it be useful
for decision makers. (Kieso, 2003).
Relevance gives a basis for making decisions that will
impact the future of a business, and it confirms and
corrects expectations from the past. If the information
makes a difference in making decisions, it is relevant.
Reliability means that the information can be depended
on and it can be proven to be free of error, and the
information is factual. The information cannot favor
one set of users over another. CPAs audit financial
statements to ensure reliability.
Comparability is also an important characteristic of
financial reporting... this happens when different
businesses use similar accounting principles, making it
much easier for one to compare companies, and the
method used in a business must be disclosed to the
users of the information to enable the users to convert
the information as accurately as possible.
Consistency simply means that the business uses the
same accounting principles on a yearly basis...
consistently. This helps decision makers analyze a
company's trends. A company can change the
methods used if they can justify the change, showing
that the new method is more useful for analysis. If the
method is changed, it must be disclosed in the notes
that go with the statements to show users a lack of
consistency.
These characteristics are very important to a
business... decisions cannot be made based on
incorrect information, and everyone involved in a
business venture of any kind, whether they be
management, owners, or investors and creditors, as
well as consumers, etc. must be able to rely on the
financial information provided in order to make any
type of decision. Without this information, it is difficult
to imagine any business succeeding, even for a short
time.
Examples of problems that could occur without reliable,
relevant, consistent, or comparable information
includes not being able to get loans or investments;
management could make decisions that cause
irreparable damage to entire operations, consumers
could easily lose faith and cut their ties... the
possibilities are endless for companies that lack these
qualities in their financial reporting.
DQ2
For Discussion Question 2: Post your response to
the following:
How does information from financial reports
influence business decisions?
Why is it important for business managers to
understand the information found on financial reports?
How does information from financial reports influence

business decisions?
Once the information from the financial reports have

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

understand the information found on financial reports?
IT is extremely important for he business managers to

understand the information found on the financial
reports. The business managers are going to be the
people that are going to make decisions for the
company. They need to know how to interpret the
financial reports and come up with different strategies
that will continue to make the company money.
Another response
The information from financial reports influences
business decisions because it shows where the
company stands. The managers use the information
from the financial report compared to the current year
from the previous year, whether the company growths
or losses. It is very important for business managers to
understand the information found on financial reports
because the information from the financial reports
enables business managers to see how to improve and
keep the business afloat. It also gives business
managers an insight what came in and went out and
the total operating cost of the company as well as
cutting cost in a certain areas. The information from
the financial reports helps the manager manages the
business accurately.
--------------------------------------------------
FIN 571 Week 6 Working Capital Simulation

Managing Growth, Part 2 (New Heritage Doll)

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. Financial
Statements
Today, I will be describing a balance sheet, income

statement, retained earnings statement, and statement
of cash flows and how a company uses these financial
statements as a tool to make future decisions for the
company.
Balance Sheet
A balance sheet a statement sheet that reports the
companys financial balances of the business. This
sheet includes the companys total of assets and
liabilities. It is used for all three types of business sole
proprietorship, business partnership and corporate
business companys. Creditors rely on this financial
sheet to determine if the company will be able to
repay.
Income Statement
An Income Statement is a financial statement that
shows the companys profit and losses. It basically
shows all the companys gains and losses that were
made during a period of time. After the company
deducts the expenses from the revenue then you will
get a total net income. This is a great statement to use
especially because this will show investors how much
net income is the company bringing in, or how
financially stable the company truly is.
Retained Earnings Statements
Retained Earnings Statements reports the changes to
the retained earnings (net income in a corporation)
during a certain time period. This financial statement
shows dividends, profits and loses. Investors and
Lenders monitor the retained Earning Statements
especially when it comes to monitoring dividends.
Some invest use this tool to see if the company is
paying high/low dividends. Retained Earnings
Statement is part of the balance sheet under
Stockholders equity.
Statement of Cash Flow

Statement of Cash Flows provides information
regarding the companys cash receipts. This statement
gives a detailed account of the operating, investing and
financial activities of the company. It also allows
investors a chance to observe how financially stable
the company is so that they can make a choice if they
want to take a risk on investing into the company. Also
the accounting department needs this statement in
order to see if the company has enough money for
payroll uses.
All four of these financial statements are all extremely

important tools to use in the business. Another
statement that was not listed but is often used is called
comparative statements. Comparative statement gives
a side by side comparison of the financial statements
above.
Reference
http:yourdictionary.com /accounting_statements.org
Retrieved 1/28/10
Thomas, Y. 2005-08-27 Accounting 101 pg. 52
Statement
--------------------------------------------------

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