BUS 600 - Week 4 Assignment # 2 -> Financial Statements

Week 4 Assignment 2: How to read financial statement

Required: read http://www.sec.gov/investor/pubs/begfinstmtguide.htm
Optional: use the knowledge you have learned from this chapter and the above website, analyze Apple Inc's financial statement from the third quarter of last year at http://images.apple.com/pr/pdf/q308fin_statements.pdf. Then read Apple's own analysis at http://www.apple.com/pr/library/2008/07/21results.html. Do you agree with apple? why or why not.

The three basic financial statements are (1) balance sheet, which shows firm’s assets, liabilities, and net worth on a stated date; (2) income statement (also called profit and loss account), which shows how the net income of the firm is arrived at over a stated period, and (3) cash flow statement, which shows the inflows and outflows of cash caused by the firm’s activities during a stated period.

The statements show the financial status as of June 28, 2008. The numbers are in millions. Apple’s fiscal year starts every October.

Income Statements

The first page is the income statement. From the Net sales minus the Cost of Sales gets the Gross margin ($2600). It’s considered ‘gross’ because there are certain expenses that haven’t been deducted from it yet. Gross margin increases compare with previous year. The total operating expenses ($1208) increases from previous year. The cost of sales and operating expenses includes stock-based compensation expense as described as the bottom part of page 1. After total operating expenses deducted from gross margin, $2600 - $1208 = $1392, this is the operating income.  The Net income which has deducted the income taxes is $1072, this is the net profit. Apple makes more profit in 2008 than previous year. The Earnings per share (EPS) tells you how much money shareholders would receive for each share of stock they own if the company distributed all of its net income for the period. To calculate EPS, take the total net income and divide it by the number of outstanding shares of the company. The diluted EPS is $1.19 which is also better than previous year. Apple makes better profit than previous year.

Balance Sheets

Assets = Liabilities + Shareholder’s equity

This Apple’s balance sheet records as of June 28, 2008; it shows also the beginning of the fiscal year which is September 29, 2007. Assets are things that a company own that have value. All cash, investments and physical properties are assets. The total assets value has increased compares with previous year. Liabilities are amount of money that company owns to others. The shareholder’s equity is sometimes called capital or net worth. It’s the money (belongs to shareholders or the owner) that would be left if a company sold all of its assets and paid off all of its liabilities. The equity has increased over $5000 compares with previous year. This is a very good sign.

Cash Flow Statements

The Apple’s cash flow statements show nine months ended June 28, 2008 and June 30, 2007. Cash flow statements report a company’s inflows and outflows of cash. A cash flow statement can tell you whether the company generated cash. It uses and reorders the information from the balance sheet and income statement. The bottom line of the cash flow statement shows the net increases or decrease in cash for the period. Each part reviews the cash flow from (1) operating activities $5301; (2) investing activities $(6196); and (3) financing activities $916. Cash used in investing activities has almost doubled than previous year which makes the ‘increase in cash and cash equivalents’ to be $21 which is much less than the previous year which is $726. The end of the period cash still higher than previous year since the beginning period cash is much higher than the previous year.

The last page of the statement shows the schedule of deferred revenue from iPhone and Apple TV and AppleCare.

From my above analysis, I do agree with Apple regarding their best quarter for both revenue and earnings in Apple’s history.

 

BUS 600 - Week 4 Assignment #1 -> Chap 3 Accounting

3-6 ideas learn from Chapter 3 Accounting

1) Accounting Rules
Accounting rules set the standards so that financial reports of companies may be compared on an equal basis. Accounting’s governing rules are called ‘Generally Accepted Accounting Principles’ (GAAP). These rules have been developed over the years and are analogous to the precedents in the legal profession.

2) Accounting Concepts
There are seven concepts which is a guiding set of policies that underlie all accounting rules and reporting:
a. The Entity – A reporting entity can be a single grocery store, a production plant, an entire business, or a conglomerate.
b. Cash and Accrual Accounting
Using ‘cash basis’ accounting, transactions are recorded only when cash changes hands; but it doesn’t try to match the cost of conducting business with their related sales.
‘Accrual accounting’ recognizes the financial effect of an activity when the activity takes place without regard to the movement of cash. Accrual accounting raises two related issues, ‘allocation’ and ‘matching’, because activity and cash movement most often do not occur at the same time.
Without established policies for allocation and matching, accountant could easily manipulate financial report by choosing when to record sales or expenses in order to cover up or delay bad results.
c. Objectivity
Accounting records only contain transactions that have been “completed” and that have a “quantifiable” monetary value. Accountants also have an objectivity rule to guide them when in doubt. There must be reasonable and verifiable evidence to support the transaction, or else it does not get recorded.
d. Conservatism
Accounting conservatism governs the preparation of financial statements. Accounting records contain only measurable verifiable properties, debts, sales, and costs.
Conservatism also dictates that transactions be recorded at their ‘historical costs’.
e. Going Concern
Financial statements describe businesses as operating entities. The values assigned to items in the accounting records assume that the business is a going concern. Accountants presume that companies will continue to operate in the foreseeable future; they use historical costs.
f. Consistency
Accounting rules demand that an entity use the same accounting rules year after year. That enables an analyst to compare past with current results. Consistency requires that the same accounting method be used from year to year.
g. Materiality
Financial statements are only materially correct so that a reader can get a fairly stated view of where and entity stands; so that a reasonable person can make informed decisions based on the report.

3) The Financial Statements : Assets = Liabilities + Owner’s Equity
To know a company, you must be able to read and understand three major financial statements:
a) The Balance Sheet
b) The Income Statement
c) The Statement of Cash Flows

4) Ratio Analysis
Ratios are used to compare performances among companies within an industry and against a company’s own historical performance.
For major categories of ratios:
a) Liquidity ratios > 1 shows liquidity
It is to show whether a company is able to pay its bills
Current ratio = Current Assets / Current Liabilities
b) Capitalization measures
(i)Financial Leverage = (Total Liabilities + Owner’s Equity) / Owner’s Equity
Ratio > 2 show an extensive use of debt
(ii)Long-Term Debt to Capital = Long-Term Debt / (Liabilities + Owner’s Equity)
Ratio > 50% shows a high level of debt
c) Activity measures
Assets Turnover per Period = Sales / Total Assets
The ratio tells how actively the firm uses all of its assets. A firm generates more sales in a given set of assets is said have managed its assets efficiently. Ratios are industry-specific.
d) Profitability measures
Return on Equity (ROE) = Net Income / Owner’s Equity
If a company has a high level of debt and a small amount of equity, the return of ROE can be affected. That is called financial leverage. The choice of lower equity level can ‘leverage’ the ROE to extremely high levels.

5) Managerial Accounting
Managerial accounting focuses on operations. Instead of ratios, managerial accounting uses standards, budgets, and variances to run the business and explain operational results.

BUS 600 - Week 5 Assignment #1 -> Chap 4 OB

3 - 6 ideas from Chapter 4 Oranizational Behavior

(1) The Organizational Behavior (OB) Problem-Solving Model
OB provides a three-step technique to solve organizational problems:
a) Problem Definition
The first step to solving an organizational problem is to know the source of the difficulty. The goal of an effective MBA is to find the most important problems and solve those first. Those are called the source problems. Eliminate the source, eliminate the symptoms.
b) Analysis
After defining the gaps and using causal chains, then link the problems to their causes and try to understand the causes. If one problem is insurmountable, different solutions have to be tried.
c) Action Planning
After a thorough analysis, a plan is formulated. The action plan has six important steps:
- Set specific goals.
- Define activities, resources needed and responsibilities.
- Set a timetable for action.
- Forecast outcomes, develop contingencies.
- Formulated a detailed plan of action in time sequence.
- Implement, supervise execution, and evaluate based on goals in step one.

2) Individual and Organizational Level OB Topics
The MBA psychology lesson, the APCFB model – This model attempts to explain the cognitive process of linking external events to employee behavior. Assumptions affect the Perceptions people have. Those perceptions affect the Conclusions. And those conclusions prompt Feelings. Ultimately those feelings drive Behavior that managers observe. By trying to understand this process, MBAs may have a chance to influence positive behavior in themselves as well as in their coworkers.

It is important to have motivation in the organizations. Expectancy theory outlines the factors that produce motivation with individuals.
Motivation = Expectation of Work will lead to performance
X Expectation Performance will lead to Reward
X Value of Reward


Another way to understand and affect employee motivation is to investigate the job design. Each job has certain core job dimensions (example: skills, autonomy) that describes the duties performed. The duties lead to critical psychological states (example: responsibility for outcomes of work) within employees that result in a variety of outcomes (example: high quality work performances).

There are some interpersonal skills that would help us to succeed on the job, for example learn how to be active listening, how to do performance appraisals, how to balance reprimands with praise and how to manage your boss.

3) Organizational Level Topics
Organizations are networks of related parts. Each element works together to support efficient operations. There are six elements define organizations:
(a) Strategy
Strategy describes an explicit or implicit plan for success in the marketplace.

(b) Policies and Procedures
Policies are formal rules that are captured in a handbook while procedures are the ways in which a company conducts business.

(c) Structure
Structures describe the hierarchy of authority and accountability in an organization. These formal relationships are frequently diagrammed in organization charts.

(d) Systems
Each organization develops systems for allocating, controlling, and monitoring money, things, and people. Systems also perform informational activities by gathering information and channeling it to interested users.

(e) Climate
It is an unclear term that refers to the emotional state of an organization’s members.

(f) Culture
Culture is the mix of behaviors, thoughts, beliefs, symbols, and artifacts that are conveyed to people throughout an organization over time.

By using ‘The Human Talent Flow Pyramid’ diagram, it helps to point out graphically the ‘leakages’ and ‘blockages’ of people flows within the organization. We can clearly identify turnover problems, skill deficiencies and entrenched management.

Systems theory is a concept that likens organizations to living organisms. For example, management subsystem that sets goals, adaptive subsystem makes sure products and services are appropriate to ensure survival, boundary spanning in subsystem recruits people and raising money, production subsystem converts inputs into goods and services. Systems theory provides another way of analyzing the health of the organization.

Organizations go through a series of growth (evolution) and crisis (revolution) periods during their lifetimes that is called ‘The evolution and revolution Pattern’.

BUS 600 - Week 5 Assignment #2 -> VCM Model

What kind of leader are you "using VCM Model"?

VCM Leadership Model has three characteristics of leader’s personal profile – vision, commitment and management.

My vision, commitment and management skills are equally important. The company gives us the ‘vision’ of the company every year, everyone in the company has to know about the vision. I am not in the top management position in the company but have to manage junior technical persons; management skills play a role there. Projects due on time, I have to have commitment to do that. From all these characteristics, I would think that OTHER people will characterize me as a ‘Balanced’ VCM leader.

BUS 600 - Week 3 Assignment #1 -> Chap 2 Ethics

3-6 ideas learn from each of Chapter 2 Ethics


Ethics
1) Social Responsibility of Business
A business is responsible for making sure that the community is helped out by its presence as much as the community helps out the business. In most places, local business is a source of income, tax revenues for the city, and a means in which people can make a better life for themselves.

2) Relativism and Its Four Forms
Things are rarely black and white. Relativism proposes that ethics are “relative” to the personal, social, and cultural circumstances in which one finds oneself. Its four forms:
a. Naïve Relativism – every person has his or her own standard that enables him or her to make choices; nobody may morally judge another. E.g. you have your 10-year old to help out with your business; outsiders might not make moral judgment that it is an act of child slavery.
b. Role Relativism – distinguishes between our private selves and our public roles. E.g. if you were a firearm CEO, your role requires you look out for the best firearm even if you personally are against guns.
c. Social Group Relativism – similar to naïve relativism. People refer to social norms to render ethical judgment. “Industry practices”, “professional codes of conduct” are the cop-outs of the social relativist.
d. Cultural Relativism – there isn’t a “universal” moral code by which to judge another society’s moral and ethical standards. There exist countries outside of te US where it is customary to bribe government officials for preferential treatment.

3) Stakeholder Analysis – A framework considering who is affected by a business decision
A stakeholder is any person or organization, who can be positively or negatively impacted by, or cause an impact on the actions of a company, government, or organization. As a first step a list should be made of all potentially affected parties, then evaluate all the “harms and benefits” that an action involved. The next level of analysis is to determine each of the affected parties’ “right and responsibilities”.

BUS 600 - Week 3 Assignment #2 -> ethical dilemma

What could be an ethical dilemma you face in your business?

One of the ethical challenges would be the accuracy of accounting record keeping; my business is required to obey the Sarbanes-Oxley Act. As a result of the corporate scandals of the late 1990s and early 2000s, Congress was forced to legislate ethics in corporate America. This federal law is called the Sarbanes-Oxley Act which has four rules that a business needs to follow:
(1) Financial Accounting Rules
I will have an audit committee to work with our Chief executive officer (CEO) and Chief financial officer (CFO) to certify that the financial statements are fairly present the financial condition and the results of the company.
(2) Internal Control Rules
Our CEO and CFO must certify the working system of internal controls over financial reporting and I will have outside auditors to evaluate of its system of internal controls.
(3) Executive Ethical Conduct Rules
CEO and CFO will require to return compensation if financial statements are restated due to ‘material noncompliance’ with reporting requirements. Of course my company (if it’s public) cannot make loans to executive officers or directors.
(4) Ethical Conduct Rules for Related Parties.
I will have new professional responsibilities for my company lawyer and new conflict-of-interest rules for my financial analysts.

I will have a system to track these internal controls and make regular audit to make sure that people involved in these rules are following the rules. With these controls, it can save my business from fraud and corruption and save the future of my company.

BUS 600 - Week 2 Assignment #1 -> Chap 1

3-6 Ideas from Chapter 1 (The Ten Day MBA)


Marketing plays an important role to let the product sell itself. My direct sale business is to sell air and water purifiers, how to let consumers know the products, feel needs to have the products and finally purchase the products – to make a profit from the business is the goal.
Marketing strategy is a seven-part process:
1. Consumer Analysis
2. Market Analysis
3. Competition Analysis
4. Distribution Channel Reviews & Choice
5. Development of the Marketing Mix
6. Evaluate the Economics
7. Go back and revise the plan

(1) Consumer Analysis:
Who needs the products? The air purifier get rids of allergens, pollens, smoke and odors; it also destroys germs, viruses and bacteria on surfaces in the air. Any household, offices, hospitals will need this product; especially people have breathing problems.
(2) Market Analysis
Find out the product life cycle (PLC) of the product. If a product is still in its ‘introduction’ stage, then education is needed. If possible, a trial is important and high advertising cost involved. Competition is intensified when the product is in ‘growth’ stage. There are many different kinds of air purifiers, my air purifier which is between the stage of introduction and growth; advertising is still a key. And I have to aware of the competitive factors – quality, price, advertising, research & development , and services.
(3) Competition Analysis

SWOT is now playing in this process. SWOT stands for Strengths, Weaknesses, Opportunities and Threats.
Compare your company SWOT to the competitor’s SWOT. Visualizing my product map (commonly used grid is price and quality) versus the competitions may gain an insight into how to market the existing products. ‘Positioning’ the product in the minds of consumers is more important than the physical reality of the product’s attributes. Instead of using the name ‘Apple Mini Mac’, Apple chose the name ‘iPod’.

(4) Distribution Channel

The ‘avenues to the consumer’ is the channels of distribution. A product can reach to the consumer through channel intermediaries, like wholesalers, distributors, sales representatives, sales forces and retailers. Each distribution channel will get their share of ‘profit’, the consumer pays the retail price to purchase the product which is much higher than the original price. The air purifier I get will be more expensive than its original price from the manufacturer as each channel takes their share of ‘margin’. Internet can be a great way to sell product as it provides 24/7 store-front to fit the customer’s schedule to shop.

(5) Development of the Marketing Mix

The marketing mix is commonly referred to as the Four P’s of marketing – product, place, promotion and price. One P affects the others. A product can be differentiated from the competition by creative advertising and promotion, even if competing products are physically identical. One of the features of my air purifier is different from others as it does clean the air and also sanitize it. The five general categories of promotional efforts are advertising, personal selling, sales promotion, public relations and publicity and direct selling. The efforts of personal selling (problem-solving and consultation process) and direct selling (use internet, radio advertising) are applied to home-based business.

(6) Evaluate the Economics

This may be the last step of marketing analysis. To determine whether the plan is both profitable and reasonable, there are issues must be addressed; they are cost, break even and investment payback time. The whole point of marketing is to recover costs and make profits. If the plan does not make profits or it takes too long to break even, the plan needs to be revised.