Business, It Is Vital For Business Owners Essay

Length: 4 pages Sources: 4 Subject: Economics Type: Essay Paper: #86745992 Related Topics: Business Decision Making, Ifrs, Debt Financing, Gaap
Excerpt from Essay :

¶ … business, it is vital for business owners to measure the value of their assets and to evaluate the performance of their business at any point in time. In fact, majority of strategies for popular multinational corporations, such as Samsung, Apple and Starbucks, are formulated based on the financial performance of the company as compared to other companies in a particular industry. Two courses, ACC201 and FIN301, introduce learners to fundamental principles in accounting and finance, which are meant to equip the said learners with the knowledge and skills needed to understand how businesses are valued and how leaders make important financial decisions that affect their companies in the long-run. This text summarizes the readings and assignments we covered in ACC201 and FIN301, the skills learnt and how they will be applicable in future careers.

Module 1 introduced us to the analysis of various financial statements. Using this skill, we went ahead to compare the financial status of four companies: Verizon Communications, Agilent Technologies, The Gap and Facebook, Inc. I was able to understand why companies performed poorly despite having significant amounts of assets and the different methodologies management applied to remain afloat. The Gap, for example, lacked sufficient cash to pay off debts and management resorted to closing a total of 28 stores in North America and shifting its brands to Athletica and Intermix where they were bound to perform better (The Gap, Inc., 2015). Shifting its brands in global markets would identify the most profitable areas, which would significantly increase the revenues earned.

Module 2 focused on the regulation of financial statements. We learned about the Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS) that must be followed by every organization during financial reporting. We also looked at the International Accounting Standards Board (IASB) and the Securities and Exchange Commission (SEC), bodies that ensure efficiency, orderliness and fairness in the financial markets. I was able to learn the financial disclosures that were mandatory as stipulated by the GAAP, IFRS, IASB and SEC. More specifically, I learnt the correct formats for creating the income statement, balance sheet, statement of cash flows and statements of retained earnings. I also understood the components that made up the accounting equation: assets, liabilities and equity.

Module 3, 4 and 5 were very important because they distinguished key concepts in accounting. We learnt differences in valuation between GAAP and IFRS, which is a source of debate for many accountants and financial analysts. Other components compared were: expenses and assets, period and expenses, and current and long-term assets and liabilities. I learnt the different points of revenue recognition and how the matching concept reinforced the accrual basis of accounting. Module 5 made different categories included in the cash flow statement clearer to me, which made it easier to distinguish between its direct and indirect method of reporting. The three modules involved assignments that compared more companies: Apple, Samsung and Nybrostand and the analysis of financial statements to compare their financial wellness. However, the fact that the accounting periods for different companies ended in different months made it quite difficult to make comparisons. For instance, the accounting period for Apple ended in 27th September while that of Samsung ended in 31 December in 2014 (Yahoo! Finance, 2015). The expenses were also reported differently. Explanations of how to compare companies with different reporting standards would have been appreciated.

Module 1 of FIN301 taught the various ways of financing businesses and steps involved in making financing decisions. The assignments involved choosing a company for the session long project, my choice being Starbucks due to its success and wealth of information, and an examination of the traits of successful CEOs. Module 2 looked at shares, options and futures and the present value of money. The assignments reinforced what I learnt as it involved calculations of the present value in different scenarios and determination of the futures price in Starbucks.

The calculation of the Capital Assets Pricing Model taught in Module 3 was very tough for me as I was not conversant with how to calculate the Beta. However, after further research, I was able to identify risks in three corporations: Apple, Google and Starbucks, and find out which company's stocks were better to invest in. Capital Budgeting processes involved in finding viable projects to invest in were introduced...

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I was able to plot graphs that showed the relationship between the net present value (NPV), the discount rate, and also learnt how to identify attractive investment options from these graphs. In addition, I was able to identify a potential project for Starbucks: opening of high end coffee shops in major U.S. cities with great emphasis put on the associated costs and risks.

The different ways of financing a business were explained in detail in module 5. We explored equity and debt financing and the advantages and disadvantages associated with each. In the assignments, I analyzed the capital structure of the American Superconductor Corporation (AMSC) and agreed with their decision to shift to equity financing as it would enable the company to enjoy increased capital without the conditions associated with debt financing. For Starbucks, however, equity financing was the best option for its long-term projects, since it had 2 million worth of stockholders equity while public debts amounted to more than 5 billion.

Achievement of Course Outcomes

The main differences between management and financial accounting were well understood as explained by Weygandt, Kimmel and Kieso (2010). For instance, while management accounting is not required by the law, financial accounting is mandatory. Financial accounting deals with an organization as a whole and provides information to both outsiders and insiders. Management accounting on the other hand, is concerned with the specific points in the organization that earn revenue; hence it is more useful to insiders.

The analysis of the income statement, balance sheet and cash flow statements highlighted the importance of financial accounting, which is to prepare financial statements of an organization that clearly portray its financial performance in a given financial period and to give users a true and fair view of its financial position. The roles of Financial accounting were also well explained in all modules of ACC201 and FIN301, the most important being that it enabled comparison of the financial performance of different companies in accordance with various needs of investors, management, accountants or financial analysts. For example, among the four companies compared in Module 1 of ACC201, the financial statements revealed that Facebook was the most financially healthy due to its diverse investments. Although larger, financial reports revealed Verizon had the largest level of debt with liabilities totaling $194,491,000 million as compared to assets amounting to $6,734,000 (Yahoo! Finance, 2015; Verizon, 2015). Companies such as Apple, Samsung and Nybrostand were also able to find out what they owe to suppliers and what they were owed by debtors. The assessment of CEOs in module 1 of FIN301 also highlighted the importance of financial controls in business, because these controls end up determining how efficient and effective the leaders of a particular organization are. As aforementioned, important concepts such as the matching concept and revenue recognition enable a particular organization to produce accurate financial reports that make it easy to interpret business performance.

Important concepts applicable in a professional setting

Of all the important concepts learnt in ACC201 and FIN30, two will prove more viable to my vision of becoming an entrepreneur and gradually being a CEO of a multinational corporation: capital budgeting and financial statement analysis.

Financial Statement Analysis

Financial statement analysis, learnt in ACC201, will ensure that I get familiarized with the financial status of my company at any given time. This knowledge will be of great value when making economic and business decisions. This is particularly the case when it comes to knowing the situation of assets, liabilities, revenues and expenditures. It also makes it easier to pinpoint the causes of poor performance. Analysis of cash flow statements will also help in identifying the organization's ability to continually generate profitable cash flows. One will be able to weigh the pros and cons of equity and debt financing, and stick to the option that is more suitable to the business.

Capital Budgeting

Capital budgeting will enable me to not only pursue investments that are profitable in the long-run, but also make informed decisions, which will save me a considerable amount of resources. The lessons in FIN301 have equipped me with the skills that will help me identify opportunities and using CAPM, assess the risks associated with each business venture. The cash flows associated with each venture will also be easier to calculate with great emphasis put on the time value of money. More specifically, capital budgeting will help me make smart investment choices in my career, which will help me avoid popular though disastrous pursuits, giving my business a competitive edge.

Conclusion

ACC201 and FIN301 provide very important knowledge and skills for everyone, regardless of their career choice. Financial statements will…

Sources Used in Documents:

References

The Gap, Inc. (2015). Annual reports and proxy. Retrieved January 25, 2015 from http://investors.gapinc.com/phoenix.zhtml?c=111302&p=irol-reportsAnnual

Verizon. (2015). Annual reports. Retrieved January 25, 2015 from http://www.verizon.com/about/investors/

Weygandt, J.J, Kimmel, P. D & Kieso, D.E. (2010) Managerial Accounting: Tools for Business Decision Making. New Aster: John Wiley & Sons, Inc.

Yahoo! Finance. (2015). Apple, Inc. Cash Flow. Retrieved January 25, 2015 from http://finance.yahoo.com/q/cf?s=AAPL+Cash+Flow&annual


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