Question One
The balance sheet and the income statement are financial statements. However, they differ where the balance sheet shows the assets, liabilities, and shareholder equity while the income statement shows the revenues and expenses of the company. In many cases, the balance sheet is useful in decision making as it provides information on the possibilities of growth. On the other hand, the income statement helps in making informed decisions that aim at controlling the cost of goods sold and operating expenses to maintain the profit margins ( Godwin, 2012) . The two statements are also useful in analyzing the ratios which are compared to the industry averages. The type of financial metrics that are often compared is historical data and the industrial averages.
Question Two
Managing cash flow in a business is vital in ensuring its survival as it helps the manager in planning for any unforeseen eventualities. Some sources of cash in a company include the money that is received from a long-term loan that is used which can be used to buy the asset . Other sources of cash include receivables that can be used in the day to day operations.
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Question Three
Unethical behavior related to the economic crisis of 2008 because the level of greed among bankers to get bonus packages made them take high risks. Other forms of unethical behaviors that are seen in the society today include plagiarism. Plagiarism is considered to be the act of closely imitating or using the thoughts and language of another author without acknowledging the author and without the authorization of the author. It is okay to plagiarize in cases where the author is acknowledged. Quotation marks are vital in indicating that the words are not own work. Not using the quotation marks with a citation means that the work is plagiarized. Paraphrasing is often effective in ensuring that the document is not plagiarized. Paraphrasing is considered to include the information or ideas from the original source to another paper by rephrasing the information or ideas in own words. The applications of data or figures which are not original are still considered to be plagiarized. People can also plagiarize by using their own work without consent in what is known as dovetailing. It is worth noting that even unintentional plagiarism is not okay. UoP has a policy that relates to plagiarism where it is not tolerated and students who are proven guilty expect to get a grade of zero in their performance. The consequences that students face if found guilty include getting a grade of zero and in worst cases, a student can be expelled from the class. However, I am not familiar information in the Plagiarism Tutorial section of the Center for Writing Excellence .
Question Four
Financial management has the goal of helping companies control cost to reduce and manage the expenses. For example, when manufacturing companies are able to identify and evaluate the expenses, managers are able to determine if the costs are affordable and reasonable.
Question Five
The three main areas of concern in corporate finance include capital budgeting, capital structure, and the working capital management.
Question Six
The advantages of conducting business as a corporation include the fact that there is limited liability. For example, if a company is liable, the shareholders’ liability is only up to the amount that they invested in. In addition, they have a wide source of capital because they can get capital through issuing bonds and by selling shares. The disadvantage of the corporation includes double taxation. For example, after making profits, the companies pay tax and also shareholders pay tax on the dividends.
Question Seven
The balance sheet and income statement are vital in making good decisions for the company. More specifically, the balance sheet provides information on the possibilities of growth while the income statement helps in controlling the cost of goods sold and operating expenses to maintain the profit margins.
Question Eight
The average tax rate is the rate that is paid on the taxes while the marginal tax rate is the rate that would be paid on the next dollar of income ( Ehrhardt, 2009) . For example, if the next dollar of an individual’s income falls within the 35% tax bracket then it is the marginal tax rate.
Question Nine
The sources of cash as it is represented in the statement of cash flows include operating activities which are often used in the day-to-day activities. The second source includes investing activities which are used in maintaining assets. The last source of cash includes financing activities such as long-term loans that are used in buying assets.
Question Ten
Short-term liquidity is calculated by dividing the current assets by the current liabilities ( Megginson, 2008) . They are often used in determining the ability of the company to pay its current liabilities. Long-term solvency measures are calculated by dividing the total debt by the total equity and are used in determining the degree of financial leverage that is used in an entity.
Question Eleven
Profitability measures are useful in determining the efficiency of a company by showing the ability of the firm to generate returns for the shareholders. High returns mean that the company is more efficient.
Question Twelve
DuPont ratio is calculated by multiplying the profit margin with the asset turnover and the equity multiplier ( Rao, 2014) . It is used to measure the exact item that helps a company generate returns.
References
Ehrhardt, M. C., & Brigham, E. F. (2009). Corporate finance: A focused approach . Mason, OH: South-Western/Cengage Learning.
Godwin, N. H., & Alderman, C. W. (2012). Financial ACCT . Mason, Ohio: South-Western.
Megginson, W. L., Smart, S. B., & Lucey, B. M. (2008). Introduction to Corporate finance . London: Cengage Learning EMEA.
Rao, R. P., McGuigan, J. R., & Moyer, R. C. (2014). Contemporary financial management . Australia: South-Western .
