Assignment: Discussion-Understanding Financial Statements
Introduction
Managerial finance deals with decisions made in a firm that are associated with revenue and profits. Many of these decisions are concerned with financing (also termed cash inflows) and investing (also termed cash outflows). The overall focus is maximizing shareholder wealth. To do this, a manager needs to focus on a variety of factors including financial and nonfinancial considerations.
Management faces various challenges to make decisions such as the following:
• Purchasing new equipment
• Establishing a selling price of a product
• Eliminating a division
The outcomes of these decisions can have long-term effects on a company. In some instances, wrong decisions could be devastating for the company, leading to bankruptcy. Management should have a good understanding of the techniques involved in the decision-making process to make appropriate financial and nonfinancial decisions.
In this course, you will explore various concepts and techniques used in the decision-making process. The readings, assignments, and lectures in each module provide a glimpse of various financial tools that organizations use to capture and evaluate complex costs associated with business actions. You will also review how management within an organization uses internally- and externally-reported information to make important operating decisions.
Module Overview
Analysis and Interpretation of Financial Statements
The ability to make effective and efficient decisions-in the area of human resources, operations, or finance-is one of the fundamental skills of an efficient manager. Managers use a variety of tools to make decisions. In the initial steps of making effective decisions, managers identify the company's individual performance and industry performance by seeking answers to specific questions.
Questions to analyze a company's individual performance are as follows:
• What is the bottom line?
• Are revenues exceeding expenses?
• Is there sufficient cash flow or working capital to achieve short- and long-term objectives?
• Are resources being used efficiently?
Questions to analyze the company's industry performance are as follows:
• What is the company's market share?
• Are the industry standards being met?
• Is the company one of the best in the industry?
A financial-statement analysis can answer most of these questions. In this module, you will discuss the use of financial statements in the decision-making process. You will also discuss the techniques applicable to this analysis.
Module Readings
Complete the following readings early in the module:
• Module overview
• From your course textbook, The portable MBA in finance and accounting, 4th , read the following chapters:
o Understanding Financial Statements
o Analyzing Financial Statements
o Analyzing Business Earnings
• From the Internet, read:
o McGladrey & Pullen, LLP. (2010). Reading & understanding financial statements: A guide to financial reporting.
o Elevator Pitch
In this assignment, you will learn to read and interpret financial statements. Understanding the four financial statements provided in the lectures and reading for this week and dealing with a company's financial performance is critical to making decisions about its management and its relation to the global economy and financial markets.
Tasks:
• Put the following income statement and balance sheet terms (general ledger accounts) in the proper order for properly prepared financial statements:
Taxes, interest, gross profit, selling, general and administrative expenses, sales, depreciation, net income, cost of goods sold, EBITDA.
• Put the following balance sheet terms (general ledger accounts) in the appropriate category as either short-term assets, long-term assets, short-term liabilities, long-term liabilities, and/or owner's equity for properly prepared financial statements:
• Cash, accounts payable, accruals, property, plant and equipment, inventory, accounts receivables, paid in capital, retained earnings, notes payable, mortgage, accounts payable.
• In terms of McGladrey and Pullen's Reading & understanding financial statements: A guide to financial reporting, explain the balance sheet equation in 300 words or less. Incorporate this explanation into your complete initial post.
Do the following when responding:
Read your answers .
Provide substantive comments
• contributing new, relevant information from course readings, Web sites, or other sources;
• building on the remarks or questions; or
• sharing practical examples of key concepts from your professional or personal experiences
• Respond to feedback on your posting and provide feedback to their ideas.
• Make sure your writing
o is clear, concise, and organized;
o demonstrates ethical scholarship in accurate representation and attribution of sources; and
o displays accurate spelling, grammar, and punctuation.
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also include a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also Include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.