...Colorado State University-Global Campus The statement of cash flows is regarded as one of the most important financial statements in regards to determining the liquidity of a company. Cash is how a business pays its bills and operates its business. Lenders and shareholders look to the statement of cash flows to understand how well a company manages its cash and cash equivalents. The statement of cash flows “classifies cash receipts and cash payments into operating, investing, and financing activities.” (Gibson, 2013). Financial ratios have been created in order to compare cash flows to other variables in the statement of cash flows. The cash flow statement can also be utilized to compare the liquidity and profitability of different companies. Net cash provided by operating activities is a calculation derived from the inflows and outflows of cash in the operating section of the statement of cash flows. The operating activities include the effects from cash transactions and other situations that affect net income. Examples of operating cash inflows are money received from interest, sales on goods and services, and return on equity. Cash outflows include payments to employees, taxes, and payments of interest expense. The operating activities section is presented using either the direct or indirect method. In the indirect method, the statement of cash flows begins with the net income or loss for the period. Additions, such as cash received from customers and interest received, are added...
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...Entreprnurship:BUS313 November 26, 2012( December 3, 2012) One of the biggest challenges when managing money that new enterprise face is running out of money. Many potentially good business ideas/ business ventures fail because the business owner did not adequately plan and manage their money carefully. Proper management techniques and keeping track of company’s cash flows is something that cannot be overlooked. Keeping track of the cash flow is important because businesses aren’t realistic when it comes to predicting their income and expenses (they overestimate their income and underestimate their expenses), and companies don’t see a cash shortage coming and they run out of money. Being able to project where your new enterprise is heading financially can help you to prepare for cash shortages and once prepared it allows you to counteract accordingly. Planning financially, understanding and implementing basic accounting principals, operating capital and preparing financial projections and budgets are vital components in any new business. When starting a new business, business owner must have knowledge that a new business needs capital and some kind of funding to run the business, and how to manage and be prepared for financial hardships or turn in events. Jumping into your new business without some level of financial knowledge and planning is only going to cause a new business owner headaches, financial problems, and possibly cause your new business to soon run out of money...
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...business managers need to be aware of the need to manage cash flow in the business. 2. What is cash flow? The flow of money that comes into a business and that a business spends. 3. What are contingencies? Out of a businesses cash flow some money for contingencies need to be set aside. This is an unanticipated event that leads to financial difficulty. Businesses should have money saved for such events. 4. Credit ratings: A well-managed business has a good credit rating. This means lenders will be prepared to end the business money because they it is safe to do so. Credit ratings are determined by financial organizations that access the capacity of the business to repay debt and manage finances. If a business has a good credit rating, creditors will readily provide funds to expand businesses operations. It’s important because it determines weather a business will have funds to expand operations. 5. What is accounting? Accounting is an administrative tool for recording financial transactions, so that a summary of what has happened to the business money can be traced. Every financial transaction should be recorded and entered into accounts that can be summarized into financial reports. Financial reports and statements provide information about the trading period. These statements are set out in a standard format that is easy to read and understand. The main types of financial reports and statements are: * Cash flow statements Provide information about the liquidity...
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...is made up of what five key components: A. fixed assets, current liabilities, long term debt, tangible current assets and shareholders equity B. intangible fixed assets, current liabilities, long term debt, net income and current assets C. fixed assets, long term debt, current assets, current liabilities and shareholders equity D. current assets, fixed assets, long term debt, shareholders equity and retained earnings Difficulty: Medium Learning Objective: 01-01 Ross - Chapter 01 #1 2. In terms of the balance sheet model of the firm, the value of the firm in financial markets is equal to: A. tangible fixed assets plus intangible fixed assets. B. sales minus costs. C. cash inflow minus cash outflow. D. the value of the debt plus the value of the equity. E. the value of the debt minus the value of the equity. Difficulty: Easy Learning Objective: 01-01 Ross - Chapter 01 #2 3. Inventory is a component of: A. current assets. B. current liabilities. C. equity. D. fixed assets. Difficulty: Easy Learning Objective: 01-01 Ross - Chapter 01 #3 4. Using the balance sheet model of the firm, finance may be thought of as analysis of three primary subject areas. Which of the following groups correctly lists these three areas? A. Capital budgeting, capital structure, net working capital. B. Capital budgeting, capital structure, security marketing...
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...Capital Structure Recommendation There are a number of capital structure options available to provide funding for a Canadian expansion. Capital structure strategy should have two main objectives: align with operating strategy and maximize total shareholder returns. Too much debt leverage can lead to credit default and insolvency. Capital financing using bonds has risks because some types of bonds may place responsibility on the company to provide dividends, which could impact shareholder earnings. Capital structure is how operations and growth are financed. Different sources may be used; a combination of long term debt, short term debt, equity and preferred debt. Proper capital structure planning should strengthen the balance sheet, and increase the ability to face loss and change. Based on this strategy, review and analysis of the options presented, the approach of 50% preferred and 50% common stock is recommended. This approach maximizes Earnings Per Share, EPS, or shareholder return. The chart below details the results of using the Canadian Budgeted Earnings, moderate forecast, and calculating a 5 year average Earnings Before Interest and Tax, EBIT, of $112,581. By plugging $112,581 into the Capital Structure Analysis, we see the 50/50 approach maximizes EPS, as detailed in the chart below. The Alternative Capital Resources and EPS chart below presents each option and the expected EPS. For financing using only bonds, the EPS is .045, using 20% bonds EPS is .052,...
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...literacy and why is it important? Financial literacy is the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being. More specifically, it refers to the set of skills and knowledge that allow an individual to make informed and effective decisions through their understanding of finances. Financial literacy involves a number of different areas of understanding. Learning about money and how it works is an important aspect, as well as understanding products like credit, loans, and investments. Competency in managing money appears to be a skill that doesn’t come naturally to everyone. Unless a person is exposed to the practice of money management, he/she is less likely to understand how it works and it long-term benefits. Without a financial education, it is easy to develop poor spending and financial habits resulting in significant negative consequences such as a poor credit rating, denial of credit, rejection for a checking account and bankruptcy, to name a few. Early financial literacy is the best way to prevent such consequences. In essence, personal financial literacy is much more than managing and investing money. It also includes making all the pieces of your financial life fit together. Achieving Financial Success you must understand and determine where your money goes. Here’s how you can start: Analyzing cash flows Taking advantage of opportunity cost. Taking control of your spending. Continued on page 2 ...
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...Following will include an analysis of the issues this corporation is currently facing. A list of recommendations to the company along with an analysis of the cash conversion cycle, the working capital management policies and cash management techniques to reduce the risk associated with capital investment, trade of products in other countries and currency exchange impact will be evaluated. Dependency Reduction Recommendation The Lawrence Sport simulation does emphasize the importance of all the business partners to the cash conversation cycle of the organization. For that reason, keeping a strong business bond between all partners is very much in need. Lawrence Sports has been having issues with cash flow because of late payments from vendors and sometimes a result of no payments. Lawrence Sports should work on improving its cash flow by establishing a system of regularity which can be done by adding competition on both sides of the transaction- the sales as well as the purchases. This will stop its dependency on one vendor. Mayo Stores stands as the only main sales vendor for Lawrence with 95 % of Lawrence production with payment terms of 20% on sales and 80% on the following weeks, which makes Mayo standing as Lawrence’s main cash flow. Lawrence Sports needs to open its production to different stores and retailers so its cash flow would not be...
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... Chapter 1 The Overall Process Capital Expenditures Whenever we make an expenditure that generates a cash flow benefit for more than one year, this is a capital expenditure. Examples include the purchase of new equipment, expansion of production facilities, buying another company, acquiring new technologies, launching a research & development program, etc., etc., etc. Capital expenditures often involve large cash outlays with major implications on the future values of the company. Additionally, once we commit to making a capital expenditure it is sometimes difficult to backout. Therefore, we need to carefully analyze and evaluate proposed capital expenditures. The Three Stages of Capital Budgeting Analysis Capital Budgeting Analysis is a process of evaluating how we invest in capital assets; i.e. assets that provide cash flow benefits for more than one year. We are trying to answer the following question: Will the future benefits of this project be large enough to justify the investment given the risk involved? It has been said that how we spend our money today determines what our value will be tomorrow. Therefore, we will focus much of our attention on present values so that we can understand how expenditures today influence values in the future. A very popular approach to looking at present values of projects is discounted cash flows or...
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...Building 243 University Campus Cranfield Bedford MK43 0AL Tel: +44 (0)1234 750323 Fax: +44 (0)1234 752040 www.scp-uk.co.uk How Supply Chains Create Shareholder Value by Dr. David Lascelles, Supply Chain Planning UK Limited S upply chain management is no longer a boring Cinderella of the business world. Not since the mid-nineties when enterprises as diverse as Amazon, Cemex, Cisco Systems, Dell Computers and Zara started to create dominant competitive positions, build huge market capitalisations and delight their shareholders through the brilliant management of their supply chains. No, supply chain management has become a hot topic in boardrooms worldwide. The case histories of Internet retailer, Amazon; web systems builder, Cisco; PC giant, Dell; and Spanish fashion retailer, Zara are well documented. But Cemex, a Mexican cement supplier? Well, you don’t need to be in hi-tech or high fashion to reap the benefits of supply chain excellence. The effects can be just as dramatic for a commodity supplier. As a result of its supply chain performance improvement efforts, Cemex enjoys the highest value-to-sales ratio of the world’s six largest cement manufacturers. These enterprises represent just the tip of the iceberg. More than one study indicates that superior performing supply chains increase free cash flows – the key driver of shareholder value – by up to 20% on average. Supply chain excellence is a crucial engine of economic growth. And yet, even though it represents...
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...Introduction Liquidity and profitability are two major elements for judging company day to day performance. Company has liquidity means it is able to pay off short term loan, and its cash flow is positive to ensure business running into a profitable future. How much cash that a business hold in stock is crucial for the business, it can indicate whether a company can continue without going concern problem. Working capital is subtractive between current assets and current liabilities, and it is helpful to increase firm’s profitability in the short term but taking a risk of insolvency. Manager of a firm are desired to find a balance between liquidity and profitability to improve cash flow and maximize shareholder’s wealth. As soon as a company starts to run its business, it comes the decision and strategy about how much cash or inventory should be hold, how to financing and investing funds, how much debt to take and how long for the payment periods. Those decisions have serious influences on business cash flow and profitability. The Meaning of Working Capital The way to calculate working capital is: Working capital = Current Assets – Current Liabilities “Current assets may include inventories of raw materials, work-in-progress and finished goods, trade receivables, short-term investments and cash, while current liabilities may include trade payables, overdrafts and short-term loans.” (See table 1) “Working capital is the result of subtracting current liabilities from current...
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...ID 752. Chapter 1 The Overall Process Capital Expenditures Whenever we make an expenditure that generates a cash flow benefit for more than one year, this is a capital expenditure. Examples include the purchase of new equipment, expansion of production facilities, buying another company, acquiring new technologies, launching a research & development program, etc., etc., etc. Capital expenditures often involve large cash outlays with major implications on the future values of the company. Additionally, once we commit to making a capital expenditure it is sometimes difficult to backout. Therefore, we need to carefully analyze and evaluate proposed capital expenditures. The Three Stages of Capital Budgeting Analysis Capital Budgeting Analysis is a process of evaluating how we invest in capital assets; i.e. assets that provide cash flow benefits for more than one year. We are trying to answer the following question: Will the future benefits of this project be large enough to justify the investment given the risk involved? It has been said that how we spend our money today determines what our value will be tomorrow. Therefore, we will focus much of our attention on present values so that we can understand how expenditures today influence values in the future. A very popular approach to looking at present values of projects is discounted cash flows or DCF. However, we will...
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...Advanced Corporate Finance [FN2] Examination Blueprint 2013/2014 Purpose The Advanced Corporate Finance [FN2] examination has been constructed using an examination blueprint. The blueprint, also referred to as the test specifications, outlines the content areas covered on the examination and the weighting allotted to each content area. This document also lists the topics, the level of competence for each topic, and the related learning objectives and competencies. The learning objectives have been designed to ensure that the competencies are met. In addition, information is provided on the proportion of each question type presented in the examination (that is, multiple choice, quantitative problems, and so on). Use Candidates should use the examination blueprint to prepare for the course examination. The blueprint may not include all the topics listed in the course materials; however, candidates are still responsible for acquiring a broad-based knowledge of all topics not listed in the blueprint since these topics will be tested in assignment and review questions. The topics not listed in the blueprint will also provide candidates with a greater depth of understanding of finance concepts. Examination Objectives The objective of the 4-hour comprehensive examination is to test CGA candidates on the prerequisite knowledge required for advancement into PA1 and PA2, so as to ensure that the candidates have the broad-based knowledge in finance needed to function properly in the association’s...
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...Employees: wages • Creditors: interest & principle • Suppliers: pay for goods/services • Government: tax The role of the =inancial manager • A firm generates cash flows by selling goods and services produced by its produc)ve assets and human capital • When the cash flows generated from the produc@ve asset exceed the cash ouQlows (such as opera@ng cash flows) the remaining cash is called residual cash flows • The company can choose to pay any profit to the owners as a cash dividend, or reinvest the cash in the business Cash =low diagram 5 The role of the =inancial manager It is all about cash flows: • A company is unprofitable when it fails to generate sufficient cash inflows to pay opera@ng expenses, creditors and taxes. • Firms that are unprofitable over @me will be forced into bankruptcy by their creditors. • In bankruptcy, the company will either be reorganised, or the company’s assets will be liquidated. The role of the =inancial manager Three fundamental decisions in financial management: 1. The capital budge@ng decision: • Which produc@ve assets should the firm buy? 2. The financing decision: • How should the firm finance or pay for assets? 3. Working capital management decisions: • How should day-to-day financial ma#ers be managed? How =inancial manager’s...
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...Question #6 A. Briefly state how the Income Statement is different from the Cash Flow Statement. Give examples of decisions that can be made from the information provided by each of these statements? -The income statement shows how much revenue a company has earned over a period of time, which is usually for a year. The income statement also reports the costs and expenses associated with earning the revenue. At the bottom of the income statement it shows the net inome, which shows the actual earnings after expenses, taxes, etc are taken out. This can be a net profit or net loss, depending on how the company performed that year. The cash flow statement reports a company’s inflows and outflows of cash. The income statement tells whether or not the company made a profit and the statement of cash flows tells you whether the company generated cash. The statement of cash flows is the more important of the two because with negative cash flows it makes it nearly impossible to pay off your debt. It is possible to have a positive net income, with negative cash flows. -A manager can use the income statement to analyze how much revenue is being lost due to expenses. Expenses are necessary in every business, but there are ways to manage them to save money. It also allows management and investors to decide if the company wants to expand into different markets or create new products. If they see sales are consistently increasing year over year, then it may be a good time...
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...Sage Peachtree Accounting Complete and Microsoft Dynamics GP Software Evaluation Sage Peachtree Accounting Complete and Microsoft Dynamics GP are among the most widely used accounting software. An analysis of these two accounting software packages follows. Sage Peachtree Accounting Complete Peachtree is an accounting software program available to small and large businesses to include specialties for certain industries; is it ranked amongst the top accounting software program in the market. “This is due to the fact that it provides customers with an entirely comprehensive accounting software program that allows business leaders in virtually every sector to track crucial accounting information and thereby record higher profits and experience increased levels of efficiency” (The Accounting, 2013). The reputation Peachtree has built has made it the most trustworthy name in accounting software. The purchase price for Peachtree ranges from varying on the size of the business and its specialty in the industry. For example, Peachtree complete accounting 2012 software for a small business costs $299.99. However, Peachtree Premium Accounting for Distribution 2010 will cost a company $1199.99. This does not include any extras added in; this is just the base price for if a company purchased the software online and no installation costs have been added as well. All Peachtree products can be viewed on websites to include amazon.com, bizrate.com and simply by searching...
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