Funding and Debt Management

Chapter 6 Ratio Analysis

Chapter Six is focused on various financial statements and measures for analyzing financial results using financial statements.  The most common tool is the use of ratio analysis which has four major categories: liquidity- which measures the ability to pay the bills; solvency, -the financial situation over the long term; activity or sometimes called efficiency ratios- how well the company manages inventor, accounts payable and accounts receivable and profitability ratio- which measures the success or failure of the company to increase owner's wealth.  By converting numbers into ratios, it becomes possible to measure different size companies or the same company overtime and directly compare the information.

1. Of the four categories, how would you use this information to monitor or measure your own company?  (Electrical Contractor) You do not need to use any numbers but make sure you understand the role of the various ratios in each category and what each tells you about the company.   

2. Would the relative importance change as the company grows?

Chapter 7 Operational and Financial Leverage

3. Briefly explain the difference between operational leverage and financial leverage, and the ways they are measured. 

4. Why might either or both leverage be a good strategy for a small business? 

5. What might be some disadvantages?

Chapter 8 Breakeven Analysis

6. Chapter 8 discusses the concept of breakeven which is an important benchmark for any kind of business.  For your own business, how would you use break even in making business decisions?

Chapter 9 Forecasting and Performa Financial Statements

This chapter discusses the role of pro forma statements which are developed from forecasting future financial data.  This is an area of concern to many students as well as business owners as forecasting is a formal word for making the best guess.  Such a process makes many individuals nervous as an emphasis is often placed on finding the right answer.  Forecasting will hopefully provide the best answers based on information available at the time.  Forecasting requires making assumptions in order to arrive at an answer.  The most common comment is "but I do not have enough information".  This is probably true but the time required to do all the research, analysis and reach a conclusion is probably too long to be of much use in trying to determine what the future looks like.  At a certain point an assumption must be made to allow the forecasting process to continue.  Do not be afraid to make such assumptions but keep track of what those assumptions are and as you proceed if new information becomes available go back and change the assumption. 

7. Looking at your owned business dream (Electrical Contractor) what do you see as the biggest challenge or challenges in developing a useful forecasting?

Finance Basics

FINANCE BASICS You might find the video a good overview or review of the role of finance and its key elements. (Finance Basics _ Transcripts) After viewing the Transcripts:

8. What was your main take away and what advice would you give to anyone thinking of or starting a small business?

9. Week two discussion post:  The simple explanation of financial leverage is based on the amount of debt as

Part 2: Financial Break-Even Analysis Need by 7/17/2018

The Worksheet provided contains three different tabs. Each tab should be viewed as a possible variable for a business to choose.

Write a 700- to 1,050-word paper with three separate sections that include the following:

· Debt-Equity: Determine the effects of using debt versus equity to finance a company. Select the preferred method for your proposed business(es), and explain your answer.

· Leverage-Breakeven: Compare and contrast the three tabs on the Breakeven-Leverage Worksheet. Explain how the future year's forecasted financials will be affected in the areas of net income, cash flow, leverage, and breakeven. Explain why the growth stage of a company might be the deciding factor as to which variable is ideal to follow.

· Forecasting: Explain what a Pro Forma statement is and how it is applied in financial forecasting. Discuss the major models of forecasting and how different they are from each other. Describe which model you prefer for financial forecasting, and explain why.

Cite a minimum of three references with in-text citations.

Part 3: Financial Ratios

This assignment helps you to explore financial ratios and compare your business financial health to similar organizations. There are two parts to this assignment.

Assignment Steps

Part I:

Review the assigned Moserk Company's financial statements in the Financial Ratio Worksheet , and calculate the financial ratios for the assigned company's financial statements. 

Show all financial calculations in the Financial Ratio Worksheet included in the Student Materials.

Part II:

Write a 525- to 700-word summary of your Financial Ratio Worksheet analysis.

Explain the possible reasons for any differences between the company's ratios and those of the industry average (cross-sectional).

Compare the calculated financial ratios against industry averages, and state possible reasons for the differences.