Posted On: Nov. 13, 2017
MODULE 8 Financial Statement Analysis This module will focus on the analysis of financial statements in order to measure financial health and forecast future business financial viability. The study includes the careful selection of data to examine trends, the use of key financial ratios and other financial tools necessary to analyze business financial conditions. Objectives: After completing this module, you should be able to understand and use financial ratios to analyze financial statements in order to measure the financial condition of a business entity. You should understand consistent guidelines and methodologies for identifying activities that are sources for business analyses and utilized for organizational and business decision. Specific objectives include being able to: • Analyze financial statements using trending and comparative methods. • Assess financial statements and convey their importance to stockholders and stakeholders. • Use financial ratios to measure assets, debts, stockholder's equity, return of assets and return on equity. • Interpret financial ratios to analyze and implement cost effective material and inventory management. • Explain the need for qualitative as well as quantitative analysis of financial statements. • Formulate financial executive summaries for presentations to senior management and stockholders. Readings: • Brewer, Garrison, Noreen (2005). Introduction to Managerial Accounting 4/e, McGraw-Hill. Chapter 14. Assignments: Please submit ONE MS Word document that contains all of your answers. Please use Excel and copy and paste your answers to the document you will submit for evaluation. Please show your answers step-by-step. Your assignment shall be well organized and formatted. Your paper shall illustrate your clear understanding of both cash inflow and cash outflow because both are important to successful organizational and company operations. Exercises: [10 points each] Chapter 14 1. Exercise 14-7 Selected Financial Ratios for Common Stockholders, p. 609. Please answer parts one and two only. 2. Exercise 14-8 Selected Financial Ratios, p. 609. 3. Problem 14-11A Interpretation of Financial Ratios, p. 610-611. Please answer only part 'a' of this question. Course Evaluation: As your final assignment, you need to complete the online course evaluation. Your responses will remain confidential. The course instructor will receive a report summarizing the responses of all course participants; no names will be associated with specific comments or ratings. Discussion Questions: [10 points each] 1. Discuss the difference between operating profits and the bottom line (profits after revenues and expenses). 2. What do you think it means when Chief Financial Officers (CFOs) talk about financial leverage? Summary: Module 8 explained the objectives and techniques of financial statement evaluation as an important management element, which can also be utilized by the managerial accounting managers for decision-making. It summarized all the ratios presented thus far in the course, using comprehensive financial analyses emphasizing their relative importance to the overall operation of the organization and the firm. Comparison of financial data, understanding ratios such a working capital, current ratio, acid test, inventory turnover, debt to equity, return on equity were presented in order to isolate the well being of a firm. It also addressed information and guidance relevant to the career of managerial accountant.