1-1 col

reply to the student responces to the questions below in 150 words and i reference

 

1. Rational for wealth maximization as a goal for a firm?

A corporation’s primary goal should be to maximize the wealth of the firm, the job of a manager(s) is normally to increase the value of the corporation if the created charter states this is the corporation‘s purpose (Brigham, E. & Ehrhardt, M., 2017, p.11).

2.What are the key financial statements and why?

(a). Balance Sheet- this financial statement provides a snapshot of the company’s financial position on the last day of a given period, or specific point in time.  The balance sheet is made up of liabilities and equity on the right hand side (claims against the assets).  The left hand side of the balance sheet is the assets. (2017, p.59).

(b). Income Statement-this financial statement is key because it reports the performance of the company at a point in time, normally these reports are prepared monthly, quarterly, and annually.  The net sales of the company is listed at the top of this report, then various costs (COGS, depreciation, amortization, other operating expenses, income taxes) are subtracted, this provides the net income available to common stockholders.  The bottoms of the financial statement provides the reporting of earnings and dividends per share (2017, p.62).

(c). Statement of Stockholders-this financial statement shows the beginning stockholder’s equity, reporting any changes due to stock issues/repurchases, the amount of net income that is retained, and the ending stockholder’s equity.  This report coincides with reported accounting period of the balance sheet (2017, p. 65).

(d). Statement of Cash Flows- this financial statement will report the firm’s operating, investing and financing activities, as well as the impact this has had on cash flows during that particular accounting period (2017, p.66).

3. What is the purpose of ratio analysis?

Ratios are designed to take a closer look at how the firm is performing, delving deeper than just examining the financial statements.  This is accomplished by standardizing the comparisons of certain information provided from the financial statement allowing for better comparisons (2017, p.104).

4. What is the concept of time value of money?

Time value of money (TVM) or also called discounted cash flow (DCF) analysis is a concept that is very important as it’s the method of determining today’s value of a cash flow to be received in the future.  The time value of money has a big impact on stock prices, as well as, assets values and rates of return (2017, p.140).

5. Why understanding of time value of money is important?

The value of money today is not the same as it is or will be in the future, the manager or financial officer must find methods to measure the impact of these changes on stockholder’s wealth (lecture 3, slide 9). Changes in the value of money is affected by inflation, deflation and interest rates.

Resources

Brigham, E. & Ehrhardt, M. (2017). Corportate Finance. 6 ed. Cengage Learning. Boston, MA.