F4 DR - FINANCE - 100% ORIGINAL AND A+ QUALITY WORK

F4.1 I think if a senior manager delayed a planned maintenance just to make profits look better I consider that unethical. I think about this the way the military is, they do maintenance all the time. This is to make sure the equipment continues to work the way it needs to. If it doesn't work then people can get hurt or can delay in business production. I can see how this example is questionable just because it isn't as if they completely cancelled the maintenance but just pushed it. I just don't think it would be worth the risk considering how much can go wrong by doing that. Another questionable situation would be not promoting someone because they didn't have the money when in fact they did but didn't want to fork it over. These situations really depend on the details if they are truly unethical or not. If someone was already doing the additional work the promotion would require then I would consider that unethical.

F4.2 It may have an appearance of being somewhat dishonest, but delaying the expense to a later reporting period to provide a higher EPS for stockholders is likely very common. If the expense is accounted for in the next period (when it is incurred), there is no dishonesty displayed. This reminds me of forward contracts, which are also common and expected.

Many years ago, I worked for a defense contractor (one of several at the time). Highly lucrative Government contracts would be bid on by several companies. I remember that the price of the bid would change several times before the ‘best and final’ submission. Each of the defense contractors knew what the others were bidding. I once questioned how the price could change so drastically, and was informed that all of the companies ‘update’ their financial requirements. In the end, these projects always came in significantly over cost (and the Government paid it anyway). I am a strong supporter of our military and national defense, but I have to wonder how things would have changed if the defense companies were held to their bids.

F4.3 The accounting manager is focused on the collection and presentation of financial data. This information would be presented in the financial reporting documents including Income Statement, Profit/Loss, Balance Sheet, etc. The reports are used to support decisions; the accounting manager may be one of the individuals included in the strategic discussions.

The CFO is responsible for both the accounting and finance functions, and plays a key role in making business decisions. The information contained in the financial reports helps to drive business decisions. Multiple roles should be involved in a successful strategic plan; each member of the team comes to the table with unique experience and knowledge. Further, multiple decision makers provides a system of checks and balances.

F4.4 If a firm’s senior manager is delaying a planned maintenance to make profits look better, then I believe that is very unethical. Although, it is unethical I also believe that it is very common amongst numerous businesses now days. In my opinion, it matters what kind of maintenance is being done. If it is some lower level like small time maintenance than it should be no big deal. If this delay in planned maintenance hurts any employees’ career than I believe it is even more unethical. There are several examples of questionable ethical behavior such as: tax ride offs and embellishing sales overall. Some businesses embellish their sales to make their quota and receive certain bonuses and other benefits that come with reaching that quota. A lot of businesses are unethical with what they charge on the company credit card in order to get a tax ride off during tax season. In conclusion, I believe there is a fine line between trying to make something look the way you want it and being completely unethical. Most businesses have to see the difference in ordered to succeed.

F4.5 The financial ratios are performed using information contained in the financial documents including the income statement and balance sheet. They help to provide a clear picture of specific attributes, and may uncover signs of dangers. According to Gitman (2009), the interest in a company’s levels of risk and return (and resulting share value) is present for current and prospective shareholders, company management and employees, and creditors. Individual reports such as the sales reports and P&L provide only a small part of the picture, and do not reflect the whole story.

Other than being informed of my contractual requirements and salary, I am not involved in the financial aspects of my company. The use of ratios to determine the health of the company has been a topic in many of the finance courses I have taken. The alternative to making assumptions based on the numbers provided within the individual financial documents is to use ratio analyses. The extent of their use indicates that they are effective.

F4.6 The first two that I think of are part of the Balance Sheet; the Debt Ratio and the Current Ratio. At the risk of sounding ‘geeky’, these two are used in our household documentation; they are applicable for both personal and business.

The Debt Ratio (Liabilities/Net Worth) shows the relationship between these two categories. A lower number is better, because it indicates that the company is worth more than it owes. It is often wise to finance purchases rather than using cash, even though taking on debt will change this ratio.

The Current Ratio (Liquid Assets/Current Liabilities). For this ratio, a higher number is desired. This is an indication of the level of available cash (or cash equivalents) to pay bills. It is also indicative of the relationship the company has with its suppliers.

The Liquidity Ratio is the liquid assets (from the Balance Sheet) divided by the monthly expenses (from the Cash Flow statement). This ratio provides the number of months that expenses can be paid in case of emergency. The higher the better, because lower numbers indicate that the company may be struggling to survive and could easily go into default.

F4.7 Financial ratios are used to assess a company’s financial performance because it allows you to breakdown and better understand the components of a company’s financial performance. Financial ratios are especially best when assessing a company’s financial performance in depth and in great detail. Financial reports consist of a lot of different things and have numerous stakeholders such as: employees, customers and investors. All the shareholders would like to know that the company is making profit, how the company is doing compared to its competitors, and comparing this years to years past. The sales reports, profits, debts or current liability reports are insufficient because they are just telling a portion of the story and can often times be misleading for example: if you did really well in sales but your product is no longer wanted by any consumers. I believe there are many effective ways to assess financial performance but everything is always subject to change. You never know when the economy might come crashing or when your product is out of style. I believe the best way for a company to assess their financial performance is via financial ratios.

F4 .8 Why are financial ratios used to assess a company’s financial performance? Financial ratios are used by creditors, shareholder and owners of a firm. They help access the financial strength of a firm for investors. Typically the most important statements to access financially are the balance statement, income statement and cash flow statement. The liquidity, stability and profitability can be measured by financial ratios. They also allow comparisons to companies within the same industries. It is important to know the companies weaknesses and opportunities. Why are sales reports, profits, debts, or current liability reports insufficient? A single number or report without comparison or analysis is meaningless. How have financial ratios been used in your company? My company seems to rely on the current ratio, debt ratio and profit margin. The current ratio measures short term debt. This is debt that is less than a year. The debt ratio measures the total debt of the company. The profit margin measures how much profit is generated form sales. Do you think they are an effective assessment of financial performance? Yes it is effective. These three ratios cover short term debt, long-term debt and profit.