FIN4060 Week 1 Discussion

Financial Statements

Businesses can be divided into the following organizational categories:

Proprietorships

Partnerships

Corporations

Irrespective of the organizational categories, �nancial statement analysis proves to be an effective

tool that supports decision-making.

You might wonder how �nancial statement analysis is so useful for decision-making. The answer lies in

being able to discern and con�rm the truth about a company's �nances compared to what might be

represented in its �nancial reporting.

The ability to conduct a meaningful �nancial statement analysis has many personal implications as well. Some of these include the issues of career planning, employment, protecting �nancial interests,

investments, and retirement planning. You will observe that these issues relate to concerns that are

both internal as well as external to the involved company.

Financial statement analysis involves using information provided in the balance sheet, income

statement, and statement of cash �ows to judge the performance and risks at a speci�c time or over a

de�ned period. Such an analysis is highly effective in evaluating speci�c operations of the company

such as asset usage and ef�ciency, debt management, and pro�tability.

While conducting �nancial statement analysis, you'll realize that there is continuity in �nancial

information as it �ows from one statement to another.

What is continuity in the �ow of information? It means that a change in a company’s �nancial position

impacts all of its �nancial statements. Each �nancial statement – balance sheet, income statement, and

statement of cash �ows – is interrelated to the others. We need to look at all four statements to see

the complete picture of a company’s �nancial health.

Money Markets

One way that the �nancial market is represented is by the money market and the capital market. The

money market deals with securities with maturities of up to one year, which are referred to as being

short-term. Typically, activity in the money market represents the availability of excess funds, which

are used to pursue a modest return instead of being idle. Money market activity is represented by the purchase and/or sale of short-term marketable securities.

Examples of these short-term securities include:

Negotiable certi�cates of deposit

U.S. Treasury Bills

Commercial paper (unsecured promissory note with �xed maturity)

The opportunity of short-term securities to be traded is provided by large banks and through government securities dealers. The Federal Reserve provides funds to support loans between member

banks. This is a special case of marketable securities in banking, and these funds are called federal

funds, or fed funds.

The capital market deals with long-term securities with maturities of more than a year. With regards to

accessing excess funds, the activity in the capital market is similar to that of the money market.

However, investors in the capital market may also invest in the money market in order to meet liquidity

needs.

The primary forum for capital market activity is through securities exchanges. The securities involved

are stocks and bonds. Derivatives of stocks and bonds may also be the target of investments.

The capital markets in the U.S. are considered the largest. However, there are other robust capital

markets, such as the Eurobond and foreign bond markets, and the international equity market. Market

securities are issued and purchased by entities in need and those with excess funds, respectively.

These entities may be based anywhere in the world.

Financial markets can also be categorized as primary markets and secondary markets.

Primary markets are those where securities are introduced for the �rst time. In this regard, the

issuer of the securities actually receives the net proceeds of the sale of the securities. This is a

unique distinction of the primary markets.

Secondary markets are those where securities are traded after an initial introduction. In this

case, the issuer of the securities in not involved in receiving proceeds. It is in secondary markets that company valuation becomes signi�cant by way of the volatility of the price of a company's

security or a share.

Ratio Analysis

The �rst step for performing an in-depth �nancial statement analysis is ratio analysis. You can use ratio

analysis to ascertain whether the business: is pro�table, has enough money to pay its bills, can pay its

employees higher wages, is paying its share of tax, and is using its assets ef�ciently.

Ratio analysis isn't just about comparing different numbers from the balance sheet, income statement, and cash �ow statement. It is about comparing these numbers against previous years, other

companies, the industry, or even the economy in general. Ratios look at the relationships between

individual values and relate them to how a company has performed in the past and might perform in

the future.

The categories of ratio analysis include liquidity, ef�ciency, debt, and pro�tability ratios.

Liquidity ratios deal with the company's position related to cash—and needed for working capital management. Examples include current ratio, also known as working capital ratio and acid test ratio,

also known as the liquid ratio or quick ratio.

Ef�ciency ratios deal with the company's management effectiveness in using resources. Examples

include accounts receivable turnover, �xed asset turnover, sales to inventory, and accounts payable to

sales

Leverage ratios deal with the company's �nancial position vis-à-vis obligations. Examples include

typically relate to debt, equity, assets, and interest expenses. The commonly used one is the debt-to- equity ratio.

Pro�tability ratios deal with the company's attractiveness to investors and its ability to fund its growth

needs.

The background of a �nancial statement analysis is the �nancial market. A �nancial statement analysis

forms the foundation for sound decision-making throughout the �nancial market. The quality of the

decision-making process depends on the degree to which the related �nancial information is accurate.

The �nancial market may be de�ned as the setting where those who supply funds may interact with

those who need funds. There are four categories of �nancial markets:

Money and capital

Primary and secondary

Foreign exchange and foreign capital

Depository and non-depository

SUO Discussion Rubric (80 Points) – Version 1.2 Course: FIN4060-Financial Statement Analysis SU01

Response No Submission 0 points

Emerging (F-D: 1- 27) 27 points

Satisfactory (C: 28- 31) 31 points

Proficient (B: 32- 35) 35 points

Exemplary (A: 36- 40) 40 points

Criterion Score

Quality of Initial

Posting

/ 40No initial posting exists to evaluate.

The information

provided is

inaccurate, not

focused on the

assignment’s topic,

and/or does not

answer the

question(s) fully.

Response

demonstrates

incomplete

understanding of the

topic and/or

inadequate

preparation.

The information

provided is accurate,

giving a basic

understanding of the

topic(s) covered. A

basic understanding

is when you are able

to describe the

terms and concepts

covered. Despite

this basic

understanding,

initial posting may

not include

complete

development of all

aspects of the

assignment.

The information

provided is accurate,

displaying a good

understanding of the

topic(s) covered. A

good understanding

is when you are able

to explain the terms

and topics covered.

Initial posting

demonstrates

sincere reflection

and addresses most

aspects of the

assignment,

although all

concepts may not be

fully developed.

The information

provided is accurate,

providing an in-

depth, well thought-

out understanding

of the topic(s)

covered. An in-

depth understanding

provides an analysis

of the information,

synthesizing what is

learned from the

course/assigned

readings.

Participation No Submission 0 points

Emerging (F-D: 1- 13) 13 points

Satisfactory (C: 14- 16) 16 points

Proficient (B: 17- 18) 18 points

Exemplary (A: 19- 20) 20 points

Criterion Score

Participation No Submission 0 points

Emerging (F-D: 1- 13) 13 points

Satisfactory (C: 14- 16) 16 points

Proficient (B: 17- 18) 18 points

Exemplary (A: 19- 20) 20 points

Criterion Score

Participation in

Discussion

/ 20No responses to other classmates

were posted in this

discussion forum.

May include one or

more of the

following:

*Comments to only

one other student's

post.

*Comments are not

substantive, such as

just one line or

saying, “Good job”

or “I agree.

*Comments are off

topic.

Comments to two or

more classmates’

initial posts but only

on one day of the

week. Comments

are substantive,

meaning they reflect

and expand on what

the other student

wrote.

Comments to two or

more classmates’

initial posts on more

than one day.

Comments are

substantive,

meaning they reflect

and expand on what

the other student

wrote.

Comments to two or

more classmates’

initial posts and to

the instructor's

comment (if

applicable) on two

or more days.

Responses

demonstrate an

analysis of peers’

comments, building

on previous posts.

Comments extend

and deepen

meaningful

conversation and

may include a

follow-up question.

Writing No Submission 0 points

Emerging (F-D: 1- 13) 13 points

Satisfaction (C: 14- 16) 16 points

Proficient (B: 17- 18) 18 points

Exemplary (A: 19- 20) 20 points

Criterion Score

Writing No Submission 0 points

Emerging (F-D: 1- 13) 13 points

Satisfaction (C: 14- 16) 16 points

Proficient (B: 17- 18) 18 points

Exemplary (A: 19- 20) 20 points

Criterion Score

Writing

Mechanics

(Spelling,

Grammar,

Citation Style)

and Information

Literacy

/ 20No postings for which to evaluate

language and

grammar exist.

Numerous issues in

any of the following:

grammar, mechanics,

spelling, use of

slang, and

incomplete or

missing citations and

references. If

required for the

assignment, did not

use course, text,

and/or outside

readings (where

relevant) to support

work.

Some spelling,

grammatical, and/or

structural errors are

present. Some errors

in formatting

citations and

references are

present. If required

for the assignment,

utilizes sources to

support work for

initial post but not

comments to other

students. Sources

include course/text

readings but outside

sources (when

relevant) include

non-

academic/authoritati

ve, such as Wikis

and .com resources.

Minor errors in

grammar, mechanics,

or spelling in the

initial posting are

present. Minor

errors in formatting

citations and

references may

exist. If required for

the assignment,

utilizes sources to

support work for

both the initial post

and some of the

comments to other

students. Sources

include course and

text readings as well

as outside sources

(when relevant) that

are academic and

authoritative (e.g.,

journal articles,

other text books,

.gov Web sites,

professional

organization Web

sites, cases, statutes,

or administrative

rules).

Minor to no errors

exist in grammar,

mechanics, or

spelling in both the

initial post and

comments to others.

Formatting of

citations and

references is correct.

If required for the

assignment, utilizes

sources to support

work for both the

initial post and the

comments to other

students. Sources

include course and

text readings as well

as outside sources

(when relevant) that

are academic and

authoritative (e.g.,

journal articles,

other text books,

.gov Web sites,

professional

organization Web

sites, cases, statutes,

or administrative

rules).

Total / 80

Overall Score

No Submission 0 points

minimum

There was no

submission for

this assignment.

Emerging (F to D Range) 1 point minimum

Satisfactory progress has not

been met on the competencies

for this assignment.

Satisfactory (C Range) 56 points minimum

Satisfactory progress has been

achieved on the competencies

for this assignment.

Proficient (B Range) 64 points minimum

Proficiency has been

achieved on the

competencies for this

assignment.

Exemplary (A

Range) 72 points minimum

The competencies for

this assignment have

been mastered.

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