Reference no: EM132170169

Course Introduction

Welcome to the course Financial Practices for Managers!

Managerial finance deals with decisions made in a firm that are associated with revenue and profits. Many of these decisions are concerned with financing (also termed cash inflows) and investing (also termed cash outflows). The overall focus is maximizing shareholder wealth. To do this, a manager needs to focus on a variety of factors including financial and nonfinancial considerations.

Management faces various challenges to make decisions such as the following:

Purchasing new equipment

Establishing a selling price of a product

Eliminating a division

The outcomes of these decisions can have long-term effects on a company. In some instances, wrong decisions could be devastating for the company, leading to bankruptcy. Management should have a good understanding of the techniques involved in the decision-making process to make appropriate financial and nonfinancial decisions.

In this course, you will explore various concepts and techniques used in the decision-making process. The readings, assignments, and lectures in each module provide a glimpse of various financial tools that organizations use to capture and evaluate complex costs associated with business actions. You will also review how management within an organization uses internally- and externally-reported information to make important operating decisions.

Module Overview

Analysis and Interpretation of Financial Statements

The ability to make effective and efficient decisions-in the area of human resources, operations, or finance-is one of the fundamental skills of an efficient manager.

Managers use a variety of tools to make decisions. In the initial steps of making effective decisions, managers identify the company's individual performance and industry performance by seeking answers to specific questions.

Questions to analyze a company's individual performance are as follows:

What is the bottom line?

Are revenues exceeding expenses?

Is there sufficient cash flow or working capital to achieve short- and long-term objectives?

Are resources being used efficiently?

Questions to analyze the company's industry performance are as follows:

What is the company's market share?

Are the industry standards being met?

Is the company one of the best in the industry?

A financial-statement analysis can answer most of these questions. In this module, you will discuss the use of financial statements in the decision-making process. You will also discuss the techniques applicable to this analysis.

Module Readings

Complete the following readings early in the module:

Module overview

From your course textbook, The portable MBA in finance and accounting, 4th , read the following chapters:

Understanding Financial Statements

Analyzing Financial Statements

Analyzing Business Earnings

From the Internet, read:

McGladrey & Pullen, LLP. (2010). Reading & understanding financial statements: A guide to financial reporting.

Elevator Pitch

Assignment: Understanding the Numbers for Better Decisions

Instructions:

It is the management's responsibility to maximize shareholder wealth as it is based on the organization's future cash flows. To accomplish this, managers have to understand how to use financial statements for analysis.

In this assignment, you will explain the importance of the statements to the financial reporting process and management decisions.

Tasks:

Locate the financial statements of a U.S. publicly-traded company of your choice (the company must have inventory and accounts receivable) by visiting the organization's Web site to locate the investor section. Or you may use one of the following Websites:

U.S. Securities and Exchange Commission

Yahoo Finance

Google Finance

Review the information presented in the financial statements of the company you selected.

Using the company you selected, calculate one ratio from each ratio category located at this Financial Ratios resource. Complete a trend analysis of each ratio for a three-year period.

Describe what the trends you see for your company based on your ratio analysis. What does this mean for the company?

Compare your company's ratios with those of the industry it is in.

Analyze the financial reporting information and the financial health of the company with the help of the calculated ratios.