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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.
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.
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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: 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.
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FIN 571 Week 1 Connect Problems (Math and
Accounting Review)

FIN 571 Week 1 Connect Problems (Math & Accounting
Review)
Financial Statements
Today, I will be describing a balance sheet, income
statement, retained earnings statement, and statement
of cash flows and how a company uses these financial
statements as a tool to make future decisions for the
company.
Balance Sheet
A balance sheet a statement sheet that reports the
companys financial balances of the business. This
sheet includes the companys total of assets and
liabilities. It is used for all three types of business sole
proprietorship, business partnership and corporate
business companys. Creditors rely on this financial
sheet to determine if the company will be able to
repay.
Income Statement
An Income Statement is a financial statement that
shows the companys profit and losses. It basically
shows all the companys gains and losses that were
made during a period of time. After the company
deducts the expenses from the revenue then you will
get a total net income. This is a great statement to use
especially because this will show investors how much
net income is the company bringing in, or how
financially stable the company truly is.
Retained Earnings Statements
Retained Earnings Statements reports the changes to
the retained earnings (net income in a corporation)
during a certain time period. This financial statement
shows dividends, profits and loses. Investors and
Lenders monitor the retained Earning Statements
especially when it comes to monitoring dividends.
Some invest use this tool to see if the company is
paying high/low dividends. Retained Earnings
Statement is part of the balance sheet under
Stockholders equity.
Statement of Cash Flow

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

important tools to use in the business. Another
statement that was not listed but is often used is called
comparative statements. Comparative statement gives
a side by side comparison of the financial statements
above.
Reference
http:yourdictionary.com /accounting_statements.org
Retrieved 1/28/10
Thomas, Y. 2005-08-27 Accounting 101 pg. 52
Statements
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FIN 571 Week 1 Connect Problems (Week 1
Problem Set)

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

What is ethics? If you follow all applicable rules and
regulations, Current assets
When it comes to a company's classified balance
sheets you will find current assets sheet. Current
assets is cash or cash equilivants that the company will
use. What you will find on a current asset sheet is Cash
and equilvants, Short term investments, Accounts
receivables, and other assets.
Long-term investments
Long-term investments when it comes to balance sheet
are investments that the company intends to hold onto.
The investments that are listed are as follows, bonds,
stocks and cash. You will also find short-term
investments in the company. The difference between
short-term and long-term investments is that the short-
term investments will be sold and the long-term
investments normally the company will choose to keep
it.
Property, plant, and equipment
Property, plant, and equipment are what the company
calls "fixed assets". Property, plant and equipment are
assets that can not be easily converted into cash.
These are basically items such as company car (used to
deliver products), computers and copier machine, and
freezer used for restaurants.
Intangible assets
Intangible assets are non-monetary items that can not
be seen or touched. For example, trademarks,
copywriters, patents and goodwill. Intangible assets are
normally listed in the separate assets.
references
http://www.investopedia.com/terms/i/intangibleasset.as
p
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FIN 571 Week 1 DQ 2

Assume that interest rates have increased substantially. Would this
tend to increase or decrease For Discussion Question 1: Post your
response to the following:
When reviewing a financial report, why should information

be reliable, relevant, consistent, and comparable?
In other words, why are these accounting characteristics

important?
What kinds of problems could be created if a financial report

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

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

information found on financial reports?
How does information from financial reports influence business

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

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

information found on the financial reports. The business managers
are going to be the people that are going to make decisions for the
company. They need to know how to interpret the financial reports
and come up with different strategies that will continue to make the
company money.
Another response
The information from financial reports influences business decisions
because it shows where the company stands. The managers use the
information from the financial report compared to the current year
from the previous year, whether the company growths or losses. It is
very important for business managers to understand the information
found on financial reports because the information from the financial
reports enables business managers to see how to improve and keep
the business afloat. It also gives business managers an insight what
came in and went out and the total operating cost of the company as
well as cutting cost in a certain areas. The information from the
financial reports helps the manager manages the business accurately.
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FIN 571 Week 1 Individual Assignment Business
Structures

Watch the "Your Business Structure" and "Corporate Business

Structures" videos on the Electronics Reserve Readings page.
Internal Cash Control

By
Kamilah Crooms
Accounting 220
Jess Stern
Internal Cash Control
The accounting department receives from sales invoices once a

month. Most of the information is missing on the invoices.
The accounting department relies on each department within the

company and all the information has to be submitted completely
and in a timely matter. In this scenario most of the information that
has been turned in has information that is missing on the invoices. I
would say that the internal controls that are not being followed are
Documentation procedures. Company documentation is very
important and must be turned in complete. These documents show
proof of delivery or proof of services to the customer. Any
incomplete documents can be very costly and can cause a delay in
the company being paid for any services rendered. For example,
one of the requirements in a transportation department is to make
sure that the drivers verify the load and sign for the load prior to
leaving the yard, these documents says that the load left in good
condition. Well, it so happened that we allowed a driver to leave
without signing the paperwork. This caused a delay in accounting
because we had to get signatures from the driver and the customer
which took a month later to complete.
Rob, Sue, and Bob use the same cash register at the donut shop.
Rob, Sue, and Bob all use one register has often turned into not the
best decision ideally for the company. It can increase the risk for the
drawer being short and it will be hard for the company to find out
which employee or employees had shorted the register. The internal
controls that are not being followed are Establishment of
responsibility. Happens when the company assigns one person to be
in control of a specific job or have authority to make decisions (pg
161 Internal Control and Cash). When the company signs one
person to be responsible over the register it will allow the company
to hold that one person responsible for any shortages.
Sam does the ordering of materials at the beginning of every month
and pays the bill.
In this case Sam is ordering materials and paying all the bills. This
process is actually known as related activities (pg 162 Internal
Control and Cash). This occurs when one person is doing two
different responsibilities just like Sam. The internal Control that is
not being applied is Segregation of Duties. It is better for the two to
be a separate responsibility because it will minimize the billing
errors.
Bank reconciliations are done by the person who is responsible for

all cash responsibilities.
The problem with this scenario is that the same person is

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

controls that are not being used in this case. I would say in my
opinion that the first internal control that comes to my mind that is
not being applied is bonding of employees who handle cash.
Every employee that works near or with expensive equipment
should be held reliable or responsible for the companys assets.
Bonding of employees who handle cash protects the company by
insuring that the employee is or isnt a risky applicant (background
checks) or reassuring that the employee that they will be prosecuted
to the fullest extinct if they are found guilty of thief. For example, I
had worked at Mc Donalds and
there were my shift managers and one employee that were caught
with stealing money from the company. This situation had happen
very differently. The armor truck dropped off a deposit that
belonged to another company (armors mistake) but they signed it.
Those employees thought that nothing was going to be traced back
to them but the little did they know, all evidence traced back to
them. They each received jail time, and felony records.
Everyone has access to the computer system and the last audit was
seven years ago by the former accountant
This scenario has two things that are going on at the same time. I
will first start off with the computer system and how everyone has
access to the computer. The internal control that is not being
applied is Physical, Mechanical, and Electronic Controls. This
allows the company to control assets through physical or electronic
based systems or programs. It is extremely important for a company
to invest in computer or informational protection for the company
and for their employees. Todays technology age most companies
are investing in a computerized program. This will help protect
from internal errors and external protection. For example, all
companies invest in a virus protection this will ensure that the
companys information is protected and not in the wrong hands.
Invest idle cash
Invest idle cash occurs when any excess funds or cash needs to be
invested. The money should be highly invest and risk free. For
example, a major company should make investments with their
assets into profitably investments and risk free.
Plan the timing of major expenditures
This is when a company sets aside money for major cash needs. We
live in a world that things happen daily. A good company would set
aside emergency funds. For example, during a terrible
thunderstorm, the winds practically ripped off the roofing shingles
off a commercial business. The company will be able to use the
money for emergency.
Delay payment of liabilities
Delay payment of liabilities is when a company pays bills not too
soon and not late. This allows the company to have money available
for bills that that really need to be paid allowing excess funds to be
free for other uses.
Keep inventory levels low
This occurs when the company keeps the inventory low so that it
will bring in more profits. For example, if the managers at a fast-
food over plan and fix too many hamburgers and the customers
dont buy it, then the food will go bad and the company will lose
profit.
Increase the speed of collection on receivables
This occurs when money is owed to the company, the company
cannot claim these until the funds have been received. Some
companies offer incentives to encourage customers to pay early or
on time. For example, my job encourages their customers by letting
them know that there will be a price increase on or after a certain
date and this really works because the customers want to pay at a
lower price.
eferences:
http:yourdictionary.com /accounting_statements.org Retrieved
2/13/2010
Thomas, Y. 2005-08-27 Accounting 101 pg. 52 Statements
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FIN 571 Week 2 Connect Problems

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

stable plans, delegate duties, motivate the
workers, and control the atmosphere.
Distinguishing features of managerial accounting
are the fact no cpa will audit the report, and there
is no specific frequency of the report. The reports
are done in a need to know basis and for a specific
reason, which is for business purposes. The reports
are detailed and pertain to specific business
decisions. The financial accountant need only be
concerned with the company's finances.
DQ2
Discussion Question 2: Post your response to
the following:
Select a management function (planning,
directing and motivating, or controlling) and
explain how that function relates to business as a
whole. Next, select a different function listed by a
classmate. Discuss with your classmate how the
functions you each selected complement each
other.
The management functions that I choose was
controlling. Controlling job is to make sure that
the each department/person is keeping the
company's activities or plans on track and in order
to achieve that they must work closely with
Management planning function. Controlling
continually compares the company's performance
to make sure that the planned standards are being
met. In my opinion this is known as the "dirty
work". Controlling operations have to know what to
look for and how to keep track of all the company's
activities. They have to take actions and quickly
correct any errors and make sure that the
company goals are being achieved in a timely
matter or the time that it was planned. If there are
errors it is job of the controlling operations to take
quick action. The controlling operations not only
correct errors after it happens but they also are in
charge of foreseeing any potential errors and act
quickly to get that resolved.
Another response
I chose Controlling as part of the management
function. The controlling function relates to
business as a whole because it helps monitoring
the firms performance to make sure the planned
goals are being met. Managers need to pay
attention to costs versus performance of the
organization. let say, if the company has a goal of
increasing sales by 10% over the next two months,
the manager may check the progress toward the
goal at the end of month one. If they are not
reaching the goal the manager must decide what
changes are needed to get back on track.
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FIN 571 Week 2 DQ 2
Suppose rf is 5% and rM is 10%. According to the SML and the

CAPM, an asset with a beta of 2.0
Cost, Volume, and Profit Formulas
By
Kamilah Crooms
Due February 28, 2010
Explain the components of cost-volume-profit analysis.
The components of cost volume-profit analysis consist of Level or

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

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

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

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

of flowers for $10 per unit. The Variable Cost per unit is $4.00.
The contribution margin will be ($10-$4) = $6. If the sells price
increases to say $15, then the contribution margin will be ($15-
$6) = $9 per unit.
When fixed costs decrease, what does this do for sales? Illustrate
your explanation with an example from a fictitious company.
Kellys Sweetheart Flowers
When the fixed cost decreases, the contribution margin ratio the net
income and sales will increase.
For example,
The flowers are $10 per unit. The variable cost per unit is $4.00.
The contribution margin will be ($10-$4) = $6. The fixed cost is
$3. We subtract Contribution margin Fixed Cost= Net income.
The net income is $3.00.
Define contribution ratios
The contribution margin ratio is the contribution margin per unit
margin divided by the unit selling price.
What happens to contribution ratios as one of the components

changes?
Shown in the example above, if one or more of the components

changes is will cause the net income to increase or decrease.
Reference
statements.suite101.com/article.cfm/cost_volume_profits*the_p_l.
Retrieved 2/28/2010
//http:yourdictionary.com /CVP.org Retrieved 2/26/2010
Thomas, Y. 2005-08-27 Accounting 101 pg. 52 Statements
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FIN 571 Week 2 Individual Assignment Business
Structure Advice

Write a 350 to 700 word response to the following e-mail:
Dear Consultant,
7 How should mixed costs be classified in CVP analysis? What

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

Sales budget Estimate of the The sales
expected sales for the shows dol
period. All of the units. This
other budgets depend managem
on the sales budget. how many
This is where all the produced
other budgets will period
start from
Production budget A production of units Shows ma
needed to be how many
produced in order to produced
meet the projected budget pe
sales what amo
needed to
inventory
Direct materials Is the estimated Shows ma
budget quantity or cost of the how much
raw materials that is materials
needed in order to already on
produce the units or that ne
required to fulfill ordered to
inventory inventory
Direct labor budget A estimate of cost and Shows how
quantity of direct hours, how
labor needed in order laborers n
to meet production produce t
that budg
Managem
decide wh
the right a
laborers n
the compa
able to me
budget
Manufacturing An estimated This list a
overhead budget expected amount of cost invol
manufacturing cost disbursem
for the budget period quarter
Selling and Anticipated selling Shows are
administrative and administrative expenses
expense budget expenses in the listed othe
budget period manufactu
Expenses
marketing
cost etc fo
period
Budgeted income Estimate of expected Is a very i
statement profitability of tool becau
operations in a the compa
budget period estimated
the budge
Cash budget A projection of Cash budg
expected cash flows managem
in and out of the tally or to
business. cash balan
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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.
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 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.
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 3 Connect Problems If the Garnett Corp.
has a 15 percent ROE and a 25 percent payout ratio,
what is its sustainable growth rate? 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 3 DQ 1

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

Optical Supply Company offers credit terms of 2/10, net
60.
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.
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FIN 571 Week 3 Individual Assignment
Interpreting Financial Results

Resource: Financial Statements for the company assigned by your

instructor in Week 2.
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.shtml
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.
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Watch the "Concept Review Video: Working Capital Management"

video located in theWileyPLUS Assignment: Week 3 Videos Activity.
Lucent Technologies
Axia C 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.
ollege of University of Phoenix
Lucent Technologies is a company based on networking
for service providers, government, and enterprises
worldwide (Lucent Technologies, n.d., Para 1). The
products and services they work with are separated
into three categories; service and maintenance,
wireless mobility networking, and wire line networking.
Lucent Technologies is backed by Bell Labs, which does
research and development in networking technologies.
During the years of 2001 to 2003 this company has
experienced a decrease in demand because of other
companies loss or capital used toward spending. This
is mainly due to a downturn in the economy. As an
investor this information is necessary to know because
it explains the decrease or increase in sections of the
balance sheet. In order to compare the growth or
decline of the companys profit, an investor must
change a balance sheet into a common-size balance
sheet. First when looking at the balance sheet an
investor will see that the amount of paid in capital has
increased from the year of 2003 to 2004, the assets
have increased, but the liabilities have decreased.
When running a debt/asset ratio it is noticed that this
ratio drops from 1.2 in 2003 to 1.0 in 2004. This shows
the companys risk is low when concerning financial
leverage, usually when the debt ratio is less than one
percent it is financed mainly by company equity, so this
company is close to being debt free from creditors.
After changing the balance sheet to a common-size
balance sheet there are several factors an investor will
look at. The current assets have dropped to .48 from .
49 in 2004. This does not show harm to the company
because only the accounts receivable dropped while
the rest of the current assets increased. This means the
company is not in as much danger of default on money
owed to it. It does have a rise in marketable securities.
The one concern in the assets is the increase of prepaid
cost of pensions and goodwill. Goodwill can be used for
tax breaks but prepaid pensions cannot benefit the
company.
When looking at the liabilities section an investor will
see a drop in pension and liabilities and an increase in
long term debt, both of these could be affected
because of the drop in the economy. Long term
liabilities are often increased to help a company control
interest rate increases so as an investor cutting back on
pension liabilities cuts back cost to the company and
watching interest rate increase show the company is
concerned with its earning and investors. This would be
encouraging or an investor. The stockholders deficit
shows a drop in accumulated deficits from -1.43 to
-1.22 and total deficits of -.26 to -.08. This shows the
company is working to control any money loss and
turning it to the companys advantage. Overall it shows
the company is still earning a profit although small.
With an increase of assets and a drop in liabilities the
company is showing it is working in a low risk capital.
After reviewing this information, a creditor or investor
must be able to compare this company to the industry
totals. By comparing how this company compares to
other companies similar to it, a person can see if it is
competitive and worth taking a risk. Running ratios will
also show if the company is capable of paying off any
debts it has or if it can acquire the needed cash in case
of emergencies. Overall as an investor, I would say this
company would be worth investing in.
Reference
Axia College. (2007). Understanding Financial
Statements. Retrieved May 10, 2010 from Axia College,
Week 2 Assignment, ACC/230.
---------------------------------------------------
FIN 571 Week 3 Team Assignment Financial
Statement Interpretation

Select three publicly traded companies. Choose one
each from the following sectors: manufacturing,
service, and retail
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
rem
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.
ainder 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 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.
STOCK DIVIDEND
Stock Split
University of Phoenix
Stock Dividend
In the present time, the stock dividend has become important
concept. When dividend is given in form of stock, it is called stock
dividend. In this form of dividend, the cash does not use. It is important,
when the corporation declares stock dividend, the market value of the
share decreases because the number of stock increases. The many
companies prefer stock dividend due to the tax benefit. If the individual
gets stock dividend, he does not pay any tax on stock dividend. Thus the
stock dividend reduces tax burden. On the other hand, the ownership of
investors also spurs up in the company because the number of holding
share increases. There is also disadvantage of stock dividend. The market
value of the share decreases, so the market value of holding also
decreases (Kennon, 2009).
The ABC Company is leading company in its industry. The number of
outstanding share of the company is one million. On the other hand, the
number of investors is five millions. The value of market capitalization is
$100 million. The management declares 20% stock dividend. Thus the
200000 shares will be distributed as a stock dividend. The number of
outstanding share will be increased by 200000 and the new total number
of outstanding stock will be 1.2 million. On the other hand, the new value
per share in the market will be $83.33 (100 million/1.2 million). This
example is taken from below mentioned link:
Stock Split
The stock split is also an important concept. When the management
wants to increases number of shares, the management follows this
method. In this method, the face value of the share is split and number of
share gets increased. Due to increment in number of outstanding share,
the market value of per share also gets affected but the total market
capitalization of the company does not affect. Both stock split and stock
dividend increase number of outstanding shares but both are different due
to the accounting treatment. In the stock split, the investors do not get
any real benefit. It is also known as non-cash distribution of dividend.

The motto behind stock split is to increase trading of the shares in the
market (Baker, 2009)
For example, the face value of per share is $100 and the total
outstanding shares are 100 million. If the management of the company
announces stock split in ratio of 1:2, the total outstanding shares will be
increased by 100 million, thus the new total number of the share will be
200 million. On the other hand, the face value of the share will reduce by
50%. So the new face value of the share will be $50. Due to effect of stock
split, the holding share of the investor will also increase in the prorate
basis. If the investor has 10 shares, now he will have 20 shares. It is
important thing that the total issued capital will not be changed. The
illustration of stock split has been got from following link:
Reverse Stock Split
The reverse stock split is just opposite of stock split. In this process,
the management reduces the number of outstanding shares. The
company increase face value of the share. In this method corporation
decides a ratio such as 2:1. Thus the company accumulates two shares in
one share. In this method, the total market value of company does not
change. Due to reverse stock split, the earning per share and face value of
per share rises. Thus the reverse stock split provides just opposite result
from stock split. It is important question, why company selects this
method. When the management seems that the face value of the share is
less as compared to competitors then the company goes for this method
to make its share value to equal to competitors shares face value. It is

also a sound strategy to increase treading of shares. If the face value of
share is too cheap in comparison to competitors, the investors will be
discouraged for investment. For increasing the confidence of investors,
the management uses this method (Mladjenovic, 2009).
For example, an investor holds 100 shares of XYZ Company and the
face value per share is $50. If the management go for reverse stock split
option and declares one share for 10 shares then the holding of the
individual will reduce 9 shares for every 10 shares. Thus the new holding
of the investor will be 10 (100/10) shares but the face value per share will
be $500. It is also important that the total market capitalization will
remain as same as before reverse split. The example of the reverse split is
take form below mentioned link:
http://www.sec.gov/answers/reversesplit.htm.
References
Baker, H. K. (2009). Dividends and Dividend Policy. John Wiley and Sons.
Kennon, J. (2009). All About Dividends. Retrieved May 31, 2010, from
http://beginnersinvest.about.com/od/dividendsdrips1/a/aa040904_2.
htm
Mladjenovic, P. (2009). Stock Investing for Dummies. Dummies.
---------------------------------------------------
FIN 571 Week 4 DQ 1

A firm uses a single discount rate to compute the NPV
of all its potential capital budgeting projects, 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/dividendpayoutratio.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=Se
arch
---------------------------------------------------
FIN 571 Week 4 DQ 2

Phyllis believes that the firm should use straight-line
depreciation for a capital project because it results in
higher net income during the early years of the
projects life.
Analyzing 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 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 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.
eference
Weygandt, J.J.,Kimmel, P.D. & Kieso, D.E. (2009). Managerial Accounting: Tools for
Business Decision Making. John Wiley and Sons.
---------------------------------------------------
Watch the "Concept Review Video: Stock Valuation"

video located in the WileyPLUS Assignment: Week 5 DQ 1
Due Tuesday, Day 2
In what ways does the statement of cash flows relate to the balance sheet
and income statement?
It is important to understand what we are doing with the numbers

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

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

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

information integrated from the balance sheet and the income
statement. The statement of cash flow is used by an investor to see if the
operating activities are greater than the net income to have earnings that
are called high quality. If operating activities are less, then a red flag will
be raised as to why the net income is not becoming cash. Another reason
would be investors believe cash is the best. The statement shows all cash
coming and going from the business. If the company generates additional
cash than what is being used, then the company can reduce their debt,
acquire another business, or buy some of the stock back. The last reason
why would be that financial models are based upon the statement of cash
flow.
If I was an investor reviewing a statement of cash flows the section that
might interest me the most would be the operating activities. I would like
to know how the company was doing and what areas need to be improved
to have more cash generated in the business. All the sections are
important to an investor so they can see the complete big picture of their
investment.
---------------------------------------------------
FIN 571 Week 4 Team Assignment Operating
Leverage and Forecasting
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.
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.
---------------------------------------------------

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
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.
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FIN 571 Week 5 DQ 1

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

Cash from Operating Activities 1258.70 1331.22 1131.63
Cash from Investing Activities -1086.60 -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 Line 0 933.84 1043.15

Cash from Operating
Activities -684.65 798.15 761.78
Cash from Investing
Activities -393.25 391.21 -35.26
Cash from Financing
Activities 1293.39 -1037.80 -637.02
Net Change in Cash 190.70 164.46 97.42
Net Cash - Beginning
Balance 402.85 238.40 140.98
RITE AID
2008 2007 2006
Net Income/Starting Line -1078.99 26.83 1273.01

Cash from Operating Activities 79.37 309.15 417.17
Cash from Investing Activities -2933.74 -312.78 -231.08
Cash from Financing Activities 2903.99 33.72 -272.84
Net Change in Cash 49.61 30.08 -86.75
Net Cash - Beginning Balance 106.15 76.07 162.82
(c) Write a short analysis of the

information gathered. Your discussion
should address, among other things,
whether cash flow from operating
activities is large enough to cover
investing and financing activities, and
if not, how the company is financing
its activities. Discuss differences and
similarities between the companies
you have chosen.
Starbucks operating cash flow has gone up in 2007 and decreased a little in 2008. The net c
The net loss in cash at end of year is decreasing from the previous year. This could mean th
Harley Davidson's operating cash flow has significantly decreased from 2007. It appears the
activities is probable from the lack of information supplied for net income. With the econom
the net income is decreasing. With a bounced back economy in the coming year could refle
Rite Aid's operating cash flow has taken a significant decrease as well from previous years.
in cash is better than it has been in previous years. Rite Aids net gain in cash could be from
the company.
-------------------------------
--------------------
FIN 571 Week 5 DQ 2

The development of the new issue junk bond market had important
implications for capital structure choice. Findwhat.com Case - CheckPoint
ACC 230
Findwhat.com has recorded the 135 percent increase in the revenue which is mainly
due to the business acquired of Espotting during the year. The different accounting policies
are present for the acquiring firm and the acquired firm. The company has recorded certain
premature revenues for the amount which advertisers had made only the advance deposit. As
result, the company is recognizing the vendor financing as revenue. In some places, the gross
revenue has been recognized while in another, the net revenue has been recognized. The
network click revenue is recognized at gross level while the private level revenue is taken at
net level. Some of the revenue expenditures have been recognized as the capital expenditures.
Revenue for set up network fee is treated as deferred revenue and is recognized over
a period of time. The company is very inconsistent with regards to its accounting policies in
terms of recognition of revenue. The provision and treatment of amount for doubtful debt is
also not satisfactory. When a customer clicks on a sponsored advertisement, the whole of the
revenue due to him is recognized. The company is having a very high amount of doubtful
debt balance at the end of the year ending December 31, 2004.
---------------------------------------------------
FIN 571 Week 5 Individual Assignment DCF and
WACC Problems

Discounted Cash Flows and WACC Homework Problems
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.
---------------------------------------------------

Watch the "Concept Review Video: Cost of Capital"

video located in the WileyPLUS Assignment:
Presenting to Stakeholders
Presenting to Stakeholders
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?

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.
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.

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.

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.
Reference
Axia College. (2007). The Analysis of Financial Statements. Retrieved June 28,
2010,
from Axia College, Week Eight, ACC 230.
---------------------------------------------------
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.
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 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
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 6 Individual Assignment Working
Capital Simulation Managing Growth Assignment

Resources:
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.
---------------------------------------------------

Watch the "Corporate Finance Video: Stable Money

Makers" located in the WileyPLUS Assignment
Evaluating Financial Health 1
Evaluating Financial Health

Apple Inc. (AAPL)

Apple Inc. (AAPL)
Apple is one of the strong market participants of computer industry. It also
involve in manufacturing of telecom devices, software and other peripherals. It
enjoys full advantage of USA as home country, as it has a strong retail network of
273 physical stores whose majority is in USA, beside the E-retail outlet around
the globe. The diversified product portfolio empowers the apple to strive in tough
competition against Dell, HP & Compaq (Electronista, 2010). Amongst its
competitor Apples outclass profitability is witnessed of its effective
diversification efficient reach of product to customer and state of an art Research
and Development.
Managements Strategy
It is clear from the financial and the strategic analysis of the Apple Inc.
that the management of the company believes in continued research, innovation
and product development. It may be the sole reason that why the firm avoids the
cash dividend and rely over the stock options. Besides the hardware business of
computer the apple is also focus on developing application software operating
system, and all such software application which added the value of its product.
The management is of the view that R&D, integrated marketing channels and its
product diversification is the source of competitive edge against rivals of its
industry. Management is aware of the need of the investment in the promotion
and advertisement activities; it increases the brand equity, brand loyalty and
awareness about the products. Management also considers focusing on the retail
store as it is the source to remain in contact with customer and a way to market
the product directly; it is also a way to cross sell the market to customer.

Financial returns in Comparison to Industry
An investor is always keen to know about the profitability. Hence we start
with the assessment of profitability. Apple Inc. has shown a tremendous

improvement in net sales and profitability since 2005 to 2009. In 2008 the net
income increases 75.07% and in 2009 increases 34.58% shown that Apple cop. is
continuously enhancing its profit. Company earning P\S is also at increasing
trend. In 2009 basic EPS is 9.22 from 6.94 last year, and it was 4.04 in 2007. It
should be noted that no cash dividend is announced since 2005, although stock
base benefit and compensation is given. An increase in return on asset has been
observed in 2009 i.e.26.96% against 19.33% last year while industries average is
19.8. Hence Apple is leading the Industry from this angle. Return on equity is
18.92% into 2009 lower than 33.40% of industry benchmark, meaning apple is at
lower leverage with a roe increase of 4.03% this year (Hardware Marketplace,
2010).
Financial Risk and Industry
At this stage of our analysis we extend our findings to assessment of risk
associated with the investment opportunities in APPLE Inc. Analyzing the liquidity
we observed that Apple has a sound ability to meet its short term obligation. It is
revealed by the healthy current ratio of 2.74 for the year 2009; it is improved
from 2.46 of the last year 2008. If we had a glace on the industry it reflects a
standard of 2.5. In the computer equipment industry a very low inventory has
been observed. That is why the acid test ratio fall lightly below the current ratio
i.e. acid test ratio is 2.70 for the year 209 in comparison to 2008, which were
2.43. If we compare the acid test of 2009 i.e. 2.70 with industry average, which
is 2.5 (msn.com, 2010). On the liquidity
situation it is stated that the risk avoider will be glad to look at the
satisfactory liquidity position.

As far as the solvency risk is concern in the long run the debt equity ratio
is 0.11 for the year 2009, which is increased from 0.08 of 2008. Here it is
important to refer to the industry average of 0.07 (OnlyHardwareBlog, 2010).

Hence it is apparent that though the APPLE Inc. is more risky in the long run, but
it does not sound like the alarm.

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

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

Apple and its Main Competitor
When comparing the Apple with its major competitor like Dell & HP, Apple
marks higher price earning ratio of 19.10 times that is greater than Dell and HP,
which is 16 times and
18.3 times respectively. We analyze the share price to book value it is 5.71 times;
again higher than 4.1 times of Dell and 1.38 times of HP. Cause of higher market
price is the retention of profit and stock base benefits. Apple also has high
capitalization; the date is $ 250.0 billion (Electronista, 2010).

Apples Performance and Economy
Global economic recession is on the way to recovery, although Europe and
America needs some more time to normalize. However, reasonable growth is
observed in emerging market like Brazil, Malaysia, India and China. Triad block
recorded a poor growth. What is going to be with the world economic outlook is
the global economy is going to revive with the V shape pattern or its recovery
would be like expanded U as some economist say growth will be slow. I am of
the view that Apple Inc. should more focus on the emerging market like India,
China, South Pacific region countries. So Apple needs to exploit more and more
opportunities outside the USA. I am optimistic that the idea of direct marketing
will work out side the USA as well. Hence Apple needs to introduce maximum
retail store outside the USA.
It is important to look at trend analysis and industry comparisons as a
means of determining if it is the best time to expand or stay put and to see how
its future products will be accepted by the public.

References
Electronista. (2010). Apple only US computer builder to outgrow industry
average. Retrieved
July 2, 2010, from
http://www.electronista.com/articles/10/06/04/isuppli.sees.apple.at.34pc.world.m
arket.share/
Hardware Marketplace. (2010). Computer Hardware. Retrieved July 2, 2010 from
http://www.hardwaremarketplace.com/computer-hardware/
msn.com. (2010). Apple Inc: Key Ratios. Retrieved July 2, 2010 from
http://moneycentral.msn.com/investor/invsub/results/compare.asp?
Page=PriceRatios&Sy
mbol=AAPL
OnlyHarwareBlog. (2010). Highest debt to equity ratio in the computer hardware
industry
detected in shares of international business machines. Retrieved July 2,
2010 from
http://onlyhardwareblog.com/?p=2107
---------------------------------------------------
FIN 571 Week 6 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.
Financial Analysis
Wal-Mart Stores Incorporated operates chain of retail stores in USA as well
as outside the USA. The first Wal-Mart store was opened by Sam Walton in
Arkansas in USA in 1962. Within a span of five years; he opened more stores and
he number increased to 24 stores across Arkansas. The incorporation of Wal-Mart
Stores Incorporated was done in 1969. Wal-Mart grew in the United States of
America by opening of more stores in to the country. The company not only
opened the stores across Arkansas but also across the United States of America
(Wal-Mart Corporate, 2010).
Wal-Mart was opposed by the unorganized retail business holders in the
USA as their business was affected by opening Wal-Mart stores. The company
also opened its first store outside the USA in South America in 1995. Wal-Mart
wanted to spread itself not only to the USA, but in other countries as well. In
2006, the company was having 3800 stores in USA and more than 2980 stores
outside USA making it one of the largest retail chains in the world. This
corporation was also having a vision to establish itself in to a global entity. Wal-
Mart was one of the first companies to operate in the organized retail sector
(Fishman, 2006). The modes of entry used by the company were different for
different countries. Wal-Mart used the mode of entry in to various countries
according to the rules and regulations prevailing in to that country (Wal-Mart
Stores Inc: Financial Statement, 2010).

The sales of the company for the financial year ending in January 2010 are
413.8 billion dollars and income for the same period is 14.7 billion dollars. The
quarterly sales growth for the company has been 5.90%, while the industry
average is 6.80 %. The five-year annual growth in the sales of the company has
been recorded at 7.50 % while five year annual growth of income is 6.58 %. By
analyzing the financial statements of WalMart Incorporated, we find that debt
equity ratio of Wal-Mart is 0.71 on 31st January 2010, which is 0.68 for the
industry. It means the proportion of debt of the company in its capital structure
is lesser than the equity. The company is less leveraged so the interest burden
on the company is minimal. Wal-Mart has capacity to borrow from the market for
its CAPEX in the future. The interest coverage ratio is 13 times in January 2010,
which is 21.9 for the industry. Wal-Mart needs to improve profitability to improve
interest coverage ratio for the reduction of risk of the lenders of the company
(Wal-Mart Stores Inc: Financial Statement, 2010).
The total revenues received by the organization in the year ending January
2010 were $408.2 billion whereas revenues in the year ending January 2009
were $404.3 billion dollars. The revenues in the year ending January 2008 stood
at $377 billion dollars. Thus, it can be easily analyzed that the total revenues of
the organization has grown over the years steadily. This has also impacted the
net income of the organization and thus, increments could also be seen in the
net income of the organization. Net Income, which stood in the year ending 2008
at $12.7 billion, increased to $13.4 billion for the year ending 2009 and again
increased to $14.3 billion in the year ending 2010 (Wal-Mart Stores Inc: Financial
Statement, 2010).
Again if cash flow statement of the organization is analyzed it can easily
be viewed that the cash flow from operating activities have always increased
from the last three years. The cash flow from operating activities stood at $20.6
billion in the year ending 2008 has increased to $23.1 billion for the year ending
2009 and too further increased to $26.2 billion for the year ending 2010. But the
cash flow from investing and financing activities has seen positive and negative
fluctuations both. Here where net cash outflow from investing activities has
decreased first and increased later again. For the year ending 2008, it stood at
$15.6 billion which decreased to $10.7 billion but again increased to $11.6
billion. Again the net cash outflow from financing activities increased constantly
since at the end of year 2008, it stood at $7.4 billion which further for the year
ending 2009 increased to $9.9 billion and further increased to $14.1 billion for
the year ending 2010 (Wal-Mart Stores Inc: Financial Statement, 2010).
Wal-Marts return on equity has improved in the last three years, which is
a good sign for the shareholders of the company. It was 19.9% in January 2008,
which increased to 20.3 % in 2009 and then again marginally increased to 20.4
% in 2010. The return on asset has also shown the same trends in the last three
years. In 2008 the return on asset was 7.9 %. It increased to 8.1 % in 2009 and
then further increased to 8.4 % in 2010. It shows the increase in the efficiency in
the utilization of the assets of the company. The net profit margins have been
almost the same in the last three years in the company. It was 3.4 % in 2008, 3.3
% in 2009 and 3.5 % in 2010 (Wal-Mart Stores Inc: Financial Statement, 2010).
The price to sales ratio and price to book value ratio have shown negative
trends in the last three years, which shows that the stock of the company is
available at cheap price as compare to the price it was carrying three years back.
The price to sales ratio, which was 0.55 in 2008, was decreased to 0.46 in 2009
and then improved to 0.51 in 2010. Similarly, price to book value ratio reduced
from 3.12 in 2008 to 2.83 in 2009 and then improved marginally to 2.86 in 2010.
This represents the better opportunity available for the shareholders to invest in
to the stock of the company. The book value per share of the company has also
increased in the last three years. It was 16.26 dollars per share in 2008, which
increased to 16.63 dollars per share in 2009 and further improved to 18.69
dollars per share in 2010. This represents the increase in the retained earnings of
the shareholders in the company (Shim & Siegel, 2007).
Wal-Marts current assets level has shown stability in the last three years
for the company, which shows the lesser investment in current assets for the
company even with the increased sales. In 2008 the cash and marketable
securities available with the company was 48020 million dollars, which increased
to 48949 million dollars in 2009 and then decreased to 48331 million dollars in
2010.
Quantitative Analysis holds huge significance while evaluating the
financial health of the organization. Three types of techniques are used for
quantitative analysis. The three techniques are trend analysis, common-size
analysis and ratio analysis. Trend analysis is one of the significant quantitative
analysis tools that assist in analyzing the financial health of the company as
compared to its previous years. The year on year trends in the financial
statements are studied to analyze whether organization is improving upon its
past performance or it is further going down (Brigham & Houston, 2007).
Common-Size analysis is another quantitive analysis tool again one of
another tool that helps in making evaluation of the financial health of the
company as against its competitors. The financial statements of the company
and its industry competitors are compared by taking a common base and then
performance is analyzed as against the competitors. It helps in knowing whether
the organization is performing better than its competitors or not. Ratio analysis is
also used to evaluate the financial statements of an organization. This analysis is
used to interpret the performance shown in the financial statements of the

organization. The ratio analysis helps the organization compare performance
over the years or in the same year (Brigham & Houston, 2007).
Quantitative Analysis is used by the company and its stakeholders to
analyze the financial performance of the organization. Trend analysis is used by
the company, the shareholders and the investors to analyze the performance of
the company over the years. Common-Size analysis is used by the competitors,
management, and investors to evaluate the organization that is performing
better whereas ratio analysis is used specifically by all the stakeholders to
interpret clear and well defined results shown in the financial statements of the
company (Brigham & Houston, 2007).
These techniques help to evaluate the liquidity or short-term solvency. By
using current ratio, one can analyze the effectiveness of the liquidity position of
the organization. Profitability of the organization is also analyzed through
profitability ratios, common-size analysis, as it helps to know the organizations
profits earned by the company as compared to others. Trend analysis and ratio
analysis with the help of different asset turnover ratios and trends could easily
analyze that assets are effectively used or not (Brigham & Houston, 2007).
Wal-Marts current stock price is 50.56 dollars. The stock has gone up as
high as 56.27 dollars, and as low as 47.35 dollars in the last year. The earnings
per share of the company which was 3.16 dollars per share in 2008, was
increased to 3.35 dollars in 2009. Earnings per share further increased to 3.76
dollars in 2010. The analysis shows the improvement in the earnings of the
company in the last three year. The current price earnings ratio of the company
is 13.2 which is less than the industry average of P/E ratio of 15 times (Wal-Mart
Stores Inc (WMT), 2010).

Analyzing the stock of the company from the investment point of view, we
can estimates that the fundamentals of the company are very strong. The stock
has return on equity, return on assets better than the industry average of 22.9 %
and 9.1 % respectively. The company has given a better annual average return
on asset and return on equity in the last five years as compared to the industry.
The company has a debt equity ratio and net profit margin, which is less than the
industry. However, Wal-Mart is improving on the efficiency front. As a result, Wal-
Mart stock is recommended for investment.
References
Brigham, E.F. & Houston, J.F. (2007). Fundamentals of Financial Management.
(11th ed.). Cengage Learning.
Fishman, C. (2006). The Wal-Mart Effect: How the World Most Powerful Company
Really Works-- and How it's Transforming the American Economy. Penguin
Group
Shim, J.K. & Siegel, J.G. (2007). Schaum's Outline of Financial Management. (3rd
ed.). McGraw-Hill Professional.
Wal-Mart Corporate. (2010). History. Retrieved July 25, 2010 from
http://walmartstores.com/AboutUs/297.aspx
Wal-Mart Stores Inc: Financial Statement (2010). Retrieved May 31, 2010, from
http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?
Symbol=WMT
Wal-Mart Stores Inc. (WMT) (2010). Retrieved May 31, 2010, from
http://finance.yahoo.com/q/co?s=WMT+Competitors
---------------------------------------------------
FIN 571 Week 6 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.
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:
f) 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.
g) 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.
h) 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.
i) 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.
j) The fixed assets turnover and the return on assets have also degraded;
this also indicates decrease in the net income of the company.

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