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FIN 645 West International University

1st Live Session

Kathy Armstrong

October 5, 2016

Welcome

What are the goals for this class?

No, you will NOT become accountants (although some of you already are!)

Yes, you will be able to read financial statements

Please post to Getting to Know you Forum

Learning Outcomes

Help Documents

Please know that it is my job to help you succeed. To that end I will be posting HELP documents and templates for every assignment.

Please use these for your template. When you see red xxx please fill in the number.

Why should you use these?

Because I’ve filled in some of the numbers for you!!!

Where are the Help Documents?

The help documents can be found in the Class Shared files

Rubrics

Grading Rubrics can also be found in the shared files.

Use these to know exactly how to get the most credit for your work.

Assignments Due

Week 1 – Medium Difficulty – please start early and use my HELP document

Week 3 – Difficult – I tried to make it easier – please follow my HELP document

Week 5 – Paper Due – Write answers to the following statements. Each answer should be approximately 225 words and should use 1-2 sources in addition to the textbook. Use real-life examples to support your reasons.

Demonstrate how a cost of capital estimation is performed

Discuss an IPO valuation

Illustrate the effects of financial leverage on risk and return

Evaluate the implications of new, lower dividend and capital gains rates.

Week 7 – Paper Due. Read 2 articles on ONE recent merger or acquisition. Write a paper that is 1800 words.

What alternatives to the merger or acquisition may have been a better solution?

Which defensive tactics were utilized? Was it effective?

What were the financial side effects of the merger or acquisition?

What mistakes occurred? How could they have been avoided?

Was this merger or acquisition a good decision? Why?

Grading Rubric – Assignment 1

Chapter 1 Case

What are the advantages and disadvantages of changing the company organization from a sole proprietorship to an LLC?

What are the advantages and disadvantages of changing the company organization from a sole proprietorship to a corporation

Ultimately what action would you recommend the company undertake, why?

Chapter 1 Case

Chapter 2 case

Assignment Part II: The Sunset Boards, Inc. Minicase

Read the minicase at end of Chapter 2.

Prepare the financial statements.

Answer the questions. Each answer should be approximately 75 words, or a total of 150 words for all of the answers.

Please know that I am not as concerned that you can Prepare Financial statements as I can that you can READ them! To that end, I have added a lot of the numbers for you on the statements. Please use my help documents to HELP YOU!

Balance sheet

An itemized statement that summarizes a company’s financial condition, with all its assets and liabilities, as of a given date, usually the end of a month, a quarter or a year

Example of a typical homeowner

Assets Liabilities

Home $200,000 Bank $100,000

Owner’s Equity

Equity $100,000

The balance sheet formula says that Assets ALWAYS equal Liabilities + Owner’s Equity

Federal Express 2014

WHAT IS AN INCOME STATEMENT

An accounting of revenue, expenses and profit for a given accounting period, usually a month, a quarter or a year.

Also known as profit and loss (P&L) statement

Statement of income and expenses

Operating statement

Federal Express 2014

Income Statement

Tax rate is given in the problem

Tax rate is figured on EBT (Earnings Before Taxes)

The problem specifically tells us the percentage of NET INCOME that is paid out in dividends

Addition to retained earning: Net Income – dividends = Addition to Retained Earnings

Calculating Dividends and Retained earnings

What happens to Net Income – who “gets” it?

Balance Sheet

OCF

OCF = EBIT + Depreciation – Taxes

Operating Cash Flow – take the EBIT from the income statement and add in the depreciation from the income statement and subtract the taxes from the income statement.

Chapter 2 – Last 2 Questions

Yes, answer the last two questions of the case:

1. How would you describe Sunset Boards’ cash flows for 2011? Write a brief discussion

2. In light of your discussion in the previous question, what do you think about Tad’s expansion plans?

Chapter 3 Case

Question 1: Using the financial statements provided for S&S Air, calculate each of the ratios listed in the table for the light aircraft industry

Assignment Part III: Ratio Analysis at S&S Air, Inc. Minicase

Read the minicase at end of Chapter 3.

Prepare the ratios in question 1.

Ratios

How Liquid is the company (Liquidity Ratios)

Current Ratio

Quick Ratio

Times Interest Earned

How Profitable is the company? (Profitability Ratios)

Gross Margin

Return on Sales (Profit Margin)

Return on Equity

Return on Assets

Earnings Per Share

Ratios

Asset Management

Inventory Turnover

Days Sales Outstanding

Accts Payable Days Outstanding

Asset Turnover Ratio

CURRENT RATIO

Current Ratio - The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations. To gauge this ability, the current ratio considers the current total assets of a company (both liquid and illiquid) relative to that company’s current total liabilities.

Quick Ratio

The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. For this reason, the ratio excludes inventories from current assets, and is calculated as follows:

Cash Ratio

The cash ratio is the ratio of a company's total cash and cash equivalents to its current liabilities. The metric calculates a company's ability to repay its short-term debt; this information is useful to creditors when deciding how much debt, if any, they would be willing to extend to the asking party. The cash ratio is generally a more conservative look at a company's ability to cover its liabilities than many other liquidity ratios because other assets, including accounts receivable, are left out of the equation.

Inventory Turnover

Inventory turnover is a ratio showing how many times a company's inventory is sold and replaced over a period of time. The days in the period can then be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand.

It is calculated as sales divided by average inventory. Read more: Inventory Turnover Definition | Investopedia http://www.investopedia.com/terms/i/inventoryturnover.asp#ixzz4MFuiFs2u Follow us: Investopedia on Facebook

Receivables Turnover

An accounting measure used to quantify a firm's effectiveness in extending credit and in collecting debts on that credit. The receivables turnover ratio is an activity ratio measuring how efficiently a firm uses its assets.

Debt Ratio

The debt ratio compares a company's total debt to its total assets, which is used to gain a general idea as to the amount of leverage being used by a company. A low percentage means that the company is less dependent on leverage, i.e., money borrowed from and/or owed to others. The lower the percentage, the less leverage a company is using and the stronger its equity position. In general, the higher the ratio, the more risk that company is considered to have taken on.

Total Liabilities/Total Assets

Complete the Ratios

More Ratios

Ratio Good Bad

Chapter 4 Case

Assignment Part IV: Planning for Growth at S&S Air Minicase

Read the minicase at end of Chapter 4.

Answer Question #2

Part IV- Chapter 4 Case

Pro Forma Income Statement

Balance Sheet

**Content

14.84

233.04

333.04

418.88

**Assignment Organization

**Assignment Mechanics

Total89.8

Word count

Originality Report

Days Late

Grade for this Assignment

Please see detailed comments within the

paper for more detial

Total

Points

Avail.

Timeliness

Part I - McGee Cake

Company Minicase -

answered 4 questions

correctly

Part II - The Sunset Boards

Inc Minicase - Financial

Statements prepared

correctly (28 red xx)

Part III - Ratio Analysis at

S&S air, Inc. Minicase.

Answered 28 correctly.

Part IV - Planning for Growth

at S&S Air Minicase.

Answered 16 correctly.

FIN 645 - Week 1 - Assignment

Grading Criteria

Student's

ScoreComments