ACTIVE Participation - Module 3 \"Real-World\" Discussion This discussion forum

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ACTIVE Participation - Module 3 "Real-World" Discussion

This discussion forum counts towards your grade. It will NOT be accessible after the due date for your Module 3 assignments.

The purpose of this discussion forum is to engage the class by sharing with your peers the knowledge you have learned from this course. Therefore, this forum is structured to be similar to a "mini-research presentation forum." Each student shares with the class in their discussion posting the knowledge they have gained from their research.

For your initial post:

Option 1:

View our guest speaker Cristina McCormack's video sharing information about the Leepa Rattner Museum of Art (LRMA) and how GASB (Governmental Accounting Standards Board) prepared financial statements differ from financial statements prepared under FASB (Financial Accounting Standards Board). See attached 2016 Annual Report below. In addition read about upcoming changes to our revenue recognition standard on the top of page 121 of our text titled "Coming Soon" which is part of the convergence initiative with IASB (International Accounting Standards Board).

Click on this link to view her presentation: Guest Speaker Cristina McCormack View before completing your discussion assignment

Leepa-Rattner 2016 Financial Statements

Research and reflect on the similarities/differences between these standards and share what your have learned from your research/reflection. If you have visited the Leepa Rattner Museum of Art (LRMA)please also share with your peers what you have learned from this experience and how it relates to learning about their financial statements. For example, Cameron (a student in our blended class) shared the following:

I got the opportunity to go on an exclusive tour of the vault of the Leepa Rattner Museum of Art with the museum's Curator Christine Carter and the museum's Preparator Larry Fineout . It was a very neat experience, as we got to see where they kept all of the paintings. I was very surprised how many paintings they actually have down there, from many artists from Picasso, Rattner, Leepa, and many more. Most of the Rattner paintings have a very interesting story. Some of them were recovered from Europe, as he had to leave some due the Holocaust, as he was Jewish. The way the others were discovered, I think, is the coolest part of the story. The bulk of Rattner's collection came from Allen Leepa, who kept his step-father's paintings on his property in Tarpon Springs. Allen Leepa stored his step-father's paintings (Rattner) in 6 large sheds where they weren't kept and placed in the best conditions. The amount of hard work and dedication to get these painting in the condition they are today is tremendous. Most of Abraham Rattners painting are quite valuable. One thing that I also find interesting is that Abraham Rattner kept very good financial records. In the museum vault, the have his financial records from the 30's and the 40's. They show all of his purchases and deposits. For anyone who hasn't been, I recommend that you do. It's free for all students, and its a pretty cool experience. It also has so much History.

Option 2:

Find an annual report for a company of interest (perhaps your employer). Publicly held company annual reports (10K) can be located via Edgar Archives on the Security and Exchange website.

To perform the search in the Edgar Archives you can use either the company name or "ticker symbol" for the company. [View instructions on how to access the annual reports]

ACG 2021 Chapter 4 Learning Objective 6 View before completing your discussion assignment

Current Ratio - JBL

Accounting Toolkit - Current Ratio

Click on the link to "Interactive Data" and then the link to the "Financial Statements". Locate and review the Income Statement and Balance Sheet. Title your post with the name of your company and share the following in your post:

What is the name of your company?

What is the web address that leads to your financial reports?

Why are you interested in this company?

Calculate the current ratio.

What have you learned from this analysis?

After you have conducted your research, please share with the class approximately 1-2 paragraphs.

Use proper sentence structure and language.

In order to receive full credit you will need to make a Post ("Start a New Thread") and reply to at least two classmates by the Module due date.

Take a look at the Discussion Forum Grading Rubric in order to understand how you will be evaluated.

The goal of this assignment is to share with your peers "real-world" application of knowledge you have learned from this course.

Replies:

Once you have made your initial post, the other students' posts will appear. Respond to two classmates' posts with substantive responses. A response should not be a simple "Good ideas" or "Nice Job." You need to put some time and effort into your responses. A response should be well thought out and at least 2-3 sentences.

For example, please review your peer's computation and share in your reply comment whether (or not) you agree with their computation. Please share your company's final ratio calculation and compare it to your peer's calculation. Analyze the comparison -- i.e., which company appears to be better/stronger etc.

Explanation / Answer

Financial Statement Analysis is a method of reviewing and analyzing a company’s accounting reports (financial statements) in order to gauge its past, present or projected future performance. This process of reviewing the financial statements allows for better economic decision making.
Globally, publicly listed companies are required by law to file their financial statements with the relevant authorities. For example, publicly listed firms in America are required to submit their financial statements to the Securities and Exchange Commission (SEC). Firms are also obligated to provide their financial statements in the annual report that they share with their stakeholders. As financial statements are prepared in order to meet requirements, the second step in the process is to analyze them effectively so that future profitability and cash flows can be forecasted.
Therefore, the main purpose of financial statement analysis is to utilize information about the past performance of the company in order to predict how it will fare in the future. Another important purpose of the analysis of financial statements is to identify potential problem areas and troubleshoot those.
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Here, we will look at 1) the users of financial statement analysis, 2) the methods of financial statement analysis, 3) key accounting reports (the balance sheet, income statement, and statement of cash flows) and how they are analyzed, 4) other financial statement information, and 5) problems with financial statement analysis.
USERS OF FINANCIAL STATEMENT ANALYSIS
There are different users of financial statement analysis. These can be classified into internal and external users. Internal users refer to the management of the company who analyzes financial statements in order to make decisions related to the operations of the company. On the other hand, external users do not necessarily belong to the company but still hold some sort of financial interest. These include owners, investors, creditors, government, employees, customers, and the general public. These users are elaborated on below:
1. Management
The managers of the company use their financial statement analysis to make intelligent decisions about their performance. For instance, they may gauge cost per distribution channel, or how much cash they have left, from their accounting reports and make decisions from these analysis results.
2. Owners
Small business owners need financial information from their operations to determine whether the business is profitable. It helps in making decisions like whether to continue operating the business, whether to improve business strategies or whether to give up on the business altogether.
3. Investors
People who have purchased stock or shares in a company need financial information to analyze the way the company is performing. They use financial statement analysis to determine what to do with their investments in the company. So depending on how the company is doing, they will either hold onto their stock, sell it or buy more.
4. Creditors
Creditors are interested in knowing if a company will be able to honor its payments as they become due. They use cash flow analysis of the company’s accounting records to measure the company’s liquidity, or its ability to make short-term payments.
5. Government
Governing and regulating bodies of the state look at financial statement analysis to determine how the economy is performing in general so they can plan their financial and industrial policies. Tax authorities also analyze a company’s statements to calculate the tax burden that the company has to pay.
6. Employees
Employees need to know if their employment is secure and if there is a possibility of a pay raise. They want to be abreast of their company’s profitability and stability. Employees may also be interested in knowing the company’s financial position to see whether there may be plans for expansion and hence, career prospects for them
7. Customers
Customers need to know about the ability of the company to service its clients into the future. The need to know about the company’s stability of operations is heightened if the customer (i.e. a distributor or procurer of specialized products) is dependent wholly on the company for its supplies.
8. General Public
Anyone in the general public, like students, analysts and researchers, may be interested in using a company’s financial statement analysis. They may wish to evaluate the effects of the firm on the environment, or the economy or even the local community. For instance, if the company is running corporate social responsibility programs for improving the community, the public may want to be aware of the future operations of the company.
METHODS OF FINANCIAL STATEMENT ANALYSIS
There are two main methods of analyzing financial statements: horizontal or trend analysis, and vertical analysis. These are explained below along with the advantages and disadvantages of each method.
Horizontal Analysis
Horizontal analysis is the comparison of financial information of a company with historical financial information of the same company over a number of reporting periods. It could also be based on the ratios derived from the financial information over the same time span. The main purpose is to see if the numbers are high or low in comparison to past records, which may be used to investigate any causes for concern. For example, certain expenditures that are high currently, but were well under budget in previous years may cause the management to investigate the cause for the rise in costs; it may be due to switching suppliers or using better quality raw material.
This method of analysis is simply grouping together all information, sorting them by time period: weeks, months or years. The numbers in each period can also be shown as a percentage of the numbers expressed in the baseline (earliest/starting) year. The amount given to the baseline year is usually 100%. This analysis is also called dynamic analysis or trend analysis.
Advantages and Disadvantages of Horizontal Analysis
When the analysis is conducted for all financial statements at the same time, the complete impact of operational activities can be seen on the company’s financial condition during the period under review. This is a clear advantage of using horizontal analysis as the company can review its performance in comparison to the previous periods and gauge how it’s doing based on past results.
A disadvantage of horizontal analysis is that the aggregated information expressed in the financial statements may have changed over time and therefore will cause variances to creep up when account balances are compared across periods.
Horizontal analysis can also be used to misrepresent results. It can be manipulated to show comparisons across periods which would make the results appear stellar for the company. For instance, if the profits for this month are only compared with those of last month, they may appear outstanding but that may not be the case if compared with the same month the previous year. Using consistent comparison periods can address this problem.
Vertical Analysis
Vertical analysis is conducted on financial statements for a single time period only. Each item in the statement is shown as a base figure of another item in the statement, for a given time period, usually for year. Typically, this analysis means that every item on an income and loss statement is expressed as a percentage of gross sales, while every item on a balance sheet is expressed as a percentage of total assets held by the firm.
Vertical analysis is also called static analysis because it is carried out for a single time period.

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