Assignment: Understanding The Numbers For Better Decisions
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
Assignment: Understanding the Numbers for Better Decisions
Instructions:
It is the management's responsibility to maximize shareholder wealth as it is based on the organization's future cash flows. To accomplish this, managers have to understand how to use financial statements for analysis.
In this assignment, you will explain the importance of the statements to the financial reporting process and management decisions.
Tasks:
• Locate the financial statements of a U.S. publicly-traded company of your choice (the company must have inventory and accounts receivable) by visiting the organization's Web site to locate the investor section. Or you may use one of the following Websites:
o U.S. Securities and Exchange Commission
o Yahoo Finance
o Google Finance
• Review the information presented in the financial statements of the company you selected.
• Using the company you selected, calculate one ratio from each ratio category located at this Financial Ratios resource. Complete a trend analysis of each ratio for a three-year period.
o Describe what the trends you see for your company based on your ratio analysis. What does this mean for the company?
o Compare your company's ratios with those of the industry it is in.
• Analyze the financial reporting information and the financial health of the company with the help of the calculated ratios.
Submission Details:
• Write a 2-3-page research paper explaining each selected ratio, the ratio category, and your individual analysis of the company as compared to the industry and the time sensitive analysis.
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.