BBA 3301 CSU Income Statement & Spending Habits Project Discussion Note: Unit study guides for each question are attached. Instructions (Unit VI) We have

BBA 3301 CSU Income Statement & Spending Habits Project Discussion Note: Unit study guides for each question are attached.

Instructions (Unit VI)

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We have focused mainly on the financial statements and ratios this week. You decide to practice what you have learned by preparing your own personal balance sheet and income statement as of last month. What do you think you would be able to infer from your completed statements? Do you think you would appear to be liquid? Would your income statement reflect an adequate balance? How can this analysis help you in terms of spending?

Your journal entry must be at least 200 words in length. No references or citations are necessary.

Instructions (Unit VII)

In this unit, we have focused mainly on short-term financing and the use of working capital. Use what you have learned so far, and apply it to your own credit decisions. Describe any part of your spending habits that might indicate an overuse of credit. If you do not have any areas that indicate overuse of credit, how do you use budgeting to accomplish this? How might a daily spending journal provide insight and structure to the way you spend money, especially credit?

Your journal entry must be at least 200 words in length. No references or citations are necessary.

Instructions (Unit VIII)

Identify a skill that you learned in this course, and explain how you can apply it to increase success in your career in a real-world scenario.

Your journal entry must be at least 200 words in length. No references or citations are necessary. UNIT VI STUDY GUIDE
Financial Data and Data Analysis
Course Learning Outcomes for Unit VI
Upon completion of this unit, students should be able to:
5. Prepare preliminary financial statements and ratio analyses.
5.1 Perform an analysis of a firm using various ratios.
5.2 Summarize key areas of an income statement and balance sheet.
6. Evaluate stock and bond valuation.
6.1 Assess the health of a firm using financial data.
6.2
Compare the financial metrics of two companies in the same industry.
Course/Unit
Learning Outcomes
5.1
5.2
6.1
6.2
Learning Activity
Unit Lesson
Chapter 14
Unit VI Scholarly Activity
Unit Lesson
Chapter 13
Unit VI Scholarly Activity
Unit Lesson
Chapter 13
Chapter 14
Unit VI Scholarly Activity
Unit Lesson
Chapter 13
Chapter 14
Unit VI Scholarly Activity
Required Unit Resources
Chapter 13: Business Organization and Financial Data, pp. 381–410
Chapter 14: Financial Analysis and Long-Term Financial Planning, pp. 422–448
Unit Lesson
In this unit, we will study financial data and financial analysis. We will examine the different business
organizations and the basic financial statements. Further, we will gain a better understanding of the ratios and
how they assess a firm’s performance. Finally, we will learn about the link between financial analysis and
long-term financial planning.
BBA 3301, Financial Management
1
Corporations prepare financial statements to inform shareholders, creditors, and
others
about GUIDE
the financial
UNIT
x STUDY
position of the company on the date that the financial statements were prepared.
The financial statements
Title
consist of the following:
?
?
?
The income statement, which is a summary of the revenues and expenses of the business over the
accounting period;
The balance sheet, which is a summary of the assets and liabilities of the company on a specific date;
and
The cash flow statement, which is a summary of the net inflows and outflows of cash during an
accounting period (Needles, Powers & Crosson, 2011).
The statement of retained earnings is also considered an important financial statement; it shows the changes
in retained earnings over the accounting period. The four statements are interrelated with the information on
some statements dependent on the information in other statements (Brigham & Houston, 2015). The following
sections discuss the relationship of the financial statements to the objective of the firm and corporate
governance, financial statement analysis, and the use of financial statements for long-term financial planning.
Objective of the Firm
The general objective of all firms in the private sector is to
maximize profit for the shareholders. The financial
statements provide information about the degree of
success the firm has in increasing profit for shareholders
although the financial statements report only on
accounting profit (Thomas & Maurice, 2016). Investors
can use the information in the financial statements to
determine if their investment in the company is providing
the required amount of return when considering factors
such as the type of industry and the amount of risk
involved in the business. The investors can also use the
financial statements to determine whether managers have
been successful in increasing shareholder value. Because
financial statements in all companies have to use the
same accounting standards such as Generally Accepted
All firms want to increase profits. Financial statements
Accounting Standards (GAAP), the statements enable
help measure this.
(Photoking, 2018)
investors to compare the return on their investment with
other similar companies in the same industry. Creditors
also use financial statements to determine the amount of risk involved with loans to the firm. As a result, the
financial statements can influence the cost of debt capital for the firm, which can affect profitability.
Corporate Governance
Financial statements are useful for providing the board of directors as well as managers with information
about the effect of past financial and operational decisions. The directors of a company can use the financial
statements as a tool to help with the oversight of the company. The board of directors has an audit committee
usually composed of directors who are not managers in the company that helps to ensure that the financial
statements are a full and accurate representation of the financial position of the company (Lee, 2006). The
directors can also use the financial statements to assess the performance of managers for achieving the
basic objective of the firm (increasing shareholder value).
The financial statements contain a substantial amount of information about the company to help managers
assess the strengths and weaknesses of the company and take appropriate corrective action (Brigham &
Houston, 2015). One of the ways that financial statements can help managers with controlling the activities of
the company includes providing information for preparing budgets and determining whether budget objectives
have been met. Financial statements can also assist managers with financial analysis, capital investment
decisions, and cost and revenue estimation (Marsh, 2012). To use financial statements effectively, however,
managers have to be familiar with the methods to analyze the statements.
BBA 3301, Financial Management
2
Financial Statement Analysis
UNIT x STUDY GUIDE
Title
Financial statement analysis determines how important items in the company’s financial statements relate to
the company’s primary objective of increasing shareholder value (Needles et al., 2011). The objective of
increasing shareholder wealth can be divided into different categories to assist with the analysis of the
company’s performance. In addition, ratios can be created from the information in the financial statements;
these ratios can be used to assess the current effect of managerial decisions and to compare changes in the
financial statements over time as well as comparing the financial statements of a company with industry peers
(Brigham & Houston, 2015).
Liquidity ratios: The liquidity ratios are a measure of the ability of a company to pay its liabilities that are due
within one year and to have enough cash to meet unforeseen expenses. Liquidity is based on cash and
assets that can be quickly converted to cash without substantially reducing the value of the asset. The most
important of the liquidity ratios is the current ratio that is found by dividing current assets by current liabilities
(Brigham & Houston, 2015). Current assets are cash and marketable securities while current liabilities are
accounts payable or other bills payable within one year. A company should have a current ratio greater than
one to ensure it can pay its liabilities without borrowing. The ratio should also be similar to industry peers.
The quick ratio is useful for assessing the liquidity of companies that carry inventories. The quick ratio is
calculated by subtracting the value of inventory from current assets then dividing by current liabilities
(Brigham & Houston, 2015). The quick ratio is important for determining how dependent the company is on
the sale of inventory to pay its current liabilities, which could be an important issue during periods of business
slowdown.
Asset management ratios: The asset management ratios are a set of ratios that measure how effective
managers are with using the company’s assets to produce value for shareholders (Brigham & Houston,
2015). The accounts receivable turnover assesses how well the company manages its credit policy and is
found by net credit sales divided by average accounts receivable. The ratio helps managers evaluate the
tradeoff between increasing sales through easy credit policies and the costs of longer periods necessary for
collection (Baker & Powell, 2005). A variation is receivables collection period, which can be found by dividing
365 by the accounts receivable turnover. Changes over time in the receivables collection period can provide
information about the effectiveness of the credit policy.
Additionally, the inventory turnover ratio provides an indication of whether the company is carrying too much
inventory and is found by dividing the cost of goods sold by the average inventory. The total asset turnover
ratio is an indication of the effectiveness of management for using the company’s assets to produce value for
shareholders. The ratio is found by dividing sales by total assets. The ratio varies across industries because
some industries are more capital intensive than other industries.
Financial leverage ratios: The financial leverage ratios evaluate the effectiveness of the company in
managing its debt and are of great interest to creditors. As the level of debt increases, the risk the debt
represents to the company also increases. The debt ratio is found by the total liabilities divided by the total
assets. A ratio less than one suggests the company is at risk of insolvency (Baker & Powell, 2005). The debtto-equity ratio assesses the relationship of debt and equity in the capital structure and is found by total
liabilities divided by total equity. The long-term debt ratio is found by dividing long-term debt by total assets;
this provides a guide as to whether a company is excessively leveraged.
BBA 3301, Financial Management
3
Profitability ratios: Profitability
ratiosGUIDE
are of interest
UNIT x STUDY
to investors and evaluate
Titlehow the company compares
to competitors. Operating margin is found by dividing
operating profit over sales and is a rough indicator of
whether operating costs are too high. The net profit
margin is found by dividing net income by sales and
can be compared to industry averages to determine
the effectiveness of management policies. The return
on assets (ROA) is found by dividing net income by
total assets, and it determines the effectiveness of
management for using assets to produce value (Baker
& Powell, 2005). The return on investment (ROI) is
based on dividing net income by average total equity.
Market value ratios: Market value ratios relate to the
company’s stock price and are theoretically affected
by company earnings and value. The price earnings
(P/E) ratio divides the stock price by the earnings and indicates how much investors are willing to pay for a
share per dollar of earnings (Brigham & Houston, 2015). A high P/E ratio suggests that investors are
optimistic about a company’s future earnings. The market-to-book ratio divides the market value of equity by
the book value of equity with a ratio greater than one indicating that the company has produced excess value
for investors.
Firms use ratios for many different financial aspects.
(Dragon345, 2016)
Long-Term Financial Planning
Past financial statements provide information about trends in the company based on current policies and
operations. As a result, financial statements can be useful for long-term financial planning by providing a
basis for projecting the effect of different scenarios in the future. For example, a company could use proforma financial statements for future accounting periods to determine the effect of a 10% decrease in sales
from a future recession on the ability of the company to meet its long-range debt obligations. The approach
could be useful to support decisions about financing capital expansion with either debt or equity. The
assumption in using past financial statements to make future financial projections is that the past conditions
and trends will remain unchanged in the future except for one critical variable.
In summary, we studied financial data and financial analysis and examined the different business
organizations. We learned about the basic financial statements and gained a better understanding of the
ratios. Finally, we explored the link between financial analysis and long-term financial planning.
References
Baker, H., & Powell, G. (2005). Understanding financial management. Malden, MA: Blackwell Publishers.
Brigham, E., & Houston, J. (2015). Fundamentals of financial management. Mason, OH: Cengage.
Dragon345. (2018). ID 71348428 [Image]. Retrieved from https://www.dreamstime.com/stock-photo-blueballpoint-pen-financial-ratios-analysis-check-lists-antique-clock-two-vintage-brass-keys-businessimage71348428
Lee, T. (2006). Financial reporting and corporate governance. Hoboken, NJ: John Wiley & Sons.
Marsh, C. (2012). Financial management for non-financial managers. Philadelphia, PA: Kogan Page.
Needles, B., Powers, M., & Crosson, S. (2011). Financial and managerial accounting. Mason, OH: SouthWestern Cengage.
BBA 3301, Financial Management
4
Photoking. (2018). ID 131218859 [Image]. Retrieved from https://www.dreamstime.com/profit-word-yellowUNIT x STUDY GUIDE
paper-wooden-steps-arrow-black-grunge-background-profit-word-steps-image131218859
Title
Thomas, C., & Maurice, S. (2016). Managerial economics. New York, NY: McGraw Hill.
Suggested Unit Resources
In order to access the following resources, click the links below.
The video below gives a quick lesson on the fundamentals of financial statements. In about five minutes, you
will have a pretty good basic understanding of this concept.
Costa, C. (2012). 5 minute finance lesson: Financial statement basics [Video file]. Retrieved from

Learning Activities (Nongraded)
Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit
them. If you have questions, contact your instructor for further guidance and information.
How well do you know the unit material? Take the Unit VI Knowledge Check Quiz to find out!
BBA 3301, Financial Management
5
UNIT VII STUDY GUIDE
Working Capital and Short-Term Financing
Course Learning Outcomes for Unit VII
Upon completion of this unit, students should be able to:
1. Explain foundational finance theories.
1.1 Discuss methods of maintaining positive cash flow.
2. Analyze a financial forecast using relevant data.
2.1 Determine investment value of a firm based on its cash position and cash balance.
2.2 Examine the use of short-term financing for a company.
4. Apply measures of risk in financial analysis.
4.1 Discuss whether investing in a specific company is a good financial decision.
5. Prepare preliminary financial statements and ratio analyses.
6. Evaluate stock and bond valuation.
Course/Unit
Learning Outcomes
1.1
2.1
2.2
4.1
5
6
Learning Activity
Unit Lesson
Chapter 15
Unit VII Course Project
Unit Lesson
Chapter 15
Unit VII Course Project
Unit Lesson
Chapter 16
Unit VII Course Project
Unit Lesson
Chapter 15
Chapter 16
Unit VII Course Project
Unit VII Course Project
Unit VII Course Project
Required Unit Resources
Chapter 15: Managing Working Capital
Chapter 16: Short-Term Business Financing
Unit Lesson
In Unit VII, we will examine working capital and short-term financing. We will study the importance of working
capital management, and we will learn about a firm’s operating cycle and cash conversion cycle. Further, we
will evaluate the use of a cash budget and its impact on accounts receivable management and inventory
management. Finally, we will explore different sources of short-term financing, and we will assess strategies
for financing working capital.
BBA 3301, Financial Management
1
Working Capital and Short-Term Financing
UNIT x STUDY GUIDE
Title
Working capital consists of the current assets that are used and replaced in the course of the year to support
the short-term business activities of the company. Net working capital (NWC) consists of the current assets
minus the current liabilities, which can be used to support operations (Brigham & Houston, 2013). Positive net
working capital exists when the current assets exceed the current liabilities. Working capital represents the
portion of the company’s available investment that circulates through different forms during the course of the
year such as cash, inventories, and receivables (Gitman, Juchau, & Flanagan, 2009). The following sections
discuss several aspects of working capital and short-term financing, including the cash conversion cycle, cash
budgets, account receivables management, inventory management, and sources of short-term financing.
Operating and Cash Conversion Cycle
The operating cycle is the term given to the period of time from the purchase or manufacture of a product for
inventory and the collection of money from the sale of the product (Porter & Norton, 2010). The collection of
money can occur either at the time of sale for cash transactions or at some point in the future when the
receivable for the sale is collected for credit transactions. The steps in the operating cycle are the use of
working capital to purchase or manufacture a product, which is followed by the sale of the product. The next
step involves the collection of payment, which creates cash for working capital. The cash can then be used to
again purchase and manufacture inventory.
The cash conversion cycle is the amount of time that a company’s resources are tied up in the operating cycle
(Gitman et al., 2009). The cash conversion cycle includes the average age of inventory (AAI), the average
collection period (ACP), which is the average amount of time necessary to collect receivables, and the
average payment period (APP), which is the average amount of time necessary to pay the accounts payable
to suppliers. The amount of days in the cash conversion
cycle is found by AAI+ ACP-APP. Sometimes, the
measures for the cycle are days inventory outstanding,
AAI + ACP – APP
days sales outstanding, and days payable outstanding.
The measure is useful for determining if the company has
enough working capital to support operations throughout
the cycle or needs to obtain short-term financing to
The amount of days in the cash conversion cycle.
increase working capital.
Cash Budgets
The cash budget assists companies in forecasting cash flows and the possible need for additional working
capital well before the need actually arises (Brigham & Houston, 2013). The cash budget is sometimes called
the cash flow forecast because it helps predict future cash flow needs. The cash budget can be set for any
period of time, but most companies prepare the cash budget on a monthly basis. The budget focuses on cash
flows. It includes information on forecasted sales, receivable receipts, and amounts that are likely to be due to
creditors. When securing a short-term loan, banks or other creditors like to review the cash budget to ensure
the company will have sufficient cash flow to cover the loan.
BBA 3301, Financial Management
2
The cash budget is a pro-forma document that is based on the expected forecasts.
cash budget
UNIT The
x STUDY
GUIDE contains
three sections. The cash receipts shows anticipated cash inflows from all sources
Titleincluding sales of products,
services, and sale of investments. The cash disbursement shows all expenditures including overhead, labor,
and cost of materials. The financing section shows anticipated borrowing and the repayment of borrowing
plus interest (Weygandt, Kimmel, & Kieso, 2010). If the assumptions in the budget forecasts are changed,
however, the budget can be used to predict cash flow needs in different scenarios such as a 10% decrease in
sales or a 10% increase in sales.
Cash
Receipts
Cash
Disbursement
Financing
The three sections of a cash budget.
Accounts Receivables Management
Most companies extend credit to their customers, which is a practice intended as a means of increasing
sales. The amount of sales on credit comprises the accounts receivable of the company. The company has to
manage accounts receivables effectively because it represents the income portion of the cash conversion
cycle. The credit policy of the company is a key factor for managing the accounts receivable because it
establishes the standard terms for payment for customers (Porter & Norton, 2010). An app…
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