Proforma: Generally Accepted Accounting Principles and Judgmental Approach Essay

In addition to forecasting cash flows, managers and investors are also interested in forecasts of the firm’s financial statements. These projected financial statements are called pro forma financial statements. They give both the management and investors an insight into what the financial statements will look like in the future and a signal as to any need to raise long-term funds. The starting point in the creation of the pro forma financial statements is the construction of the pro forma income statement (do you remember why? ). Like the cash budget, it also relies heavily on the sales forecast. Significant errors in the sales forecast will result in errors in the income statement which, in turn, will cause errors on the pro forma balance sheet. Pro Forma Income Statement There are two approaches to creating the pro forma income statement: the percentage of sales method and what I will call the judgmental approach. The percentage of sales approach is simplistic and prone to error (estimating financial statements is tricky enough without compounding the error using an inferior technique). The percentage of sales method assumes that all items on the income statement except interest expense and tax expense vary in direct proportion to the change in sales. This is simply usually not true. Some items will change with sales, but others will not. See the criticism of the percentage of sales approach at the top of page 116 in your text. My illustration will focus on the judgmental approach which allows the analyst to apply judgment to forecast the level of those items that are not expected to vary with sales. My vehicle for illustrating the creation of a pro forma income statement appears below: Assume that sales for the BMX Corporation are expected to be $12 million in 2008 and that sales in 2007 were $10 million. Further assume that cost of goods sold can be divided into two parts: a part that varies with sales and a part that does not (i. e. , cost of goods sold has both fixed and variable components). Further assume that operating expenses can also be divided a fixed portion and a variable portion. Further assume the firm plans to increase its borrowing in 2008 which will increase interest expense on the income statement. The first step in the analysis is to determine the percentage increase in sales: (2008 sales – 2007 sales)/2007 sales = percentage change in sales ($12 million – $10 million)/$10million – 1 = . 2 or 20% The second step in the analysis is to construct the 2008 proforma income statement assuming those items that vary with sales will increase by the percentage change in sales (20%) and that those items that don’t remain fixed. An example of this process is given on the Excel worksheet below. Double click on the worksheet to access it, then scroll up or down as needed. Notice the variable expenses are found by taking the 2007 expense and multiplying by 1 + the percentage change in sales (1. 2). This increases those expenses by 120%. A common error students make is to simply multiply the variable expenses by the percentage change in sales. If we did that here, we would be multiplying the variable expenses by 20%. In other words, we would not be increasing variable expenses by 20%, we would be reducing them by 80%. Notice the pro forma net income for 2008 is $600,000. You may wish to analyze the effect using a strict percentage of sales approach would have had on pro forma net income. Would net income be higher or lower as a result? You would be correct to sense the potential for an exam question here. Finally $200,000 in dividends are deducted from the $600,000 net income giving us a $400,000 addition to retained earnings. The third step is to use the $400,000 pro forma additions to retained earnings in addition to a number of other assumptions to compute the Pro Forma Balance Sheet. I will also use the judgmental approach in this step. The 2007 historical balance sheet and the pro forma balance sheet for BMX Corporation appear in the Excel worksheet below. To access the worksheet, double click on it, then scroll up or down as needed to see view the worksheets. I will make the following assumptions regarding the pro forma balance sheet: 1. The firm wants to continue to maintain a minimum cash balance of $100,000 2. Marketable securities will increase to $75,000 in 2008. 3. Accounts receivable have historically been 36. 5 days of sales. Since sales for 2008 are expected to be $12,000,000, accounts receivable will be $12,000,000 x (36. 5/365) = $1,200,000 (you could also do the following which is algebraically identical: ($12,000,000/365) X 36. 5). 4. Inventories have historically been 20% of cost of goods sold. Since cost of goods sold for 2008 are expected to be $9,000,000, inventories will be $9,000,000 x . 20 = $1,800,000. 5. Vectra will increase fixed assets by $750,000. Depreciation expense for 2008 is estimated to be $200,000. Net fixed assets for 2008 will be: Net fixed assets (2007) + additions to fixed assets – depreciation expense 2008 $5,000,000 + $750,000 – $200,000 = $5,550,000 6. Annual purchases (all on account) have historically averaged 60% of cost of goods sold. The accounts payable balance, in turn, is typically 20% of purchases. Accounts payable will therefore be $9,000,000 X . 60 X . 20 = $1,080,000 7. Taxes payable will be approximately one quarter of the tax expense shown on the 2008 pro forma income statement. Taxes payable will equal $400,000/4 = $100,000. 8. Notes payable will increase to $1,000,000. 9. There will be no change in other current liabilities, long-term debt, or common stock. 10. Retained earnings on the 2008 pro forma balance sheet will change by the additions to retained earnings ($400,000) shown on the pro forma income statement. Since the 2007 retained earnings was $1,000,000, the retained earnings for 2008 are expected to be $1,000,000 + $400,000 = $1,400,000. Notice the 2008 pro forma balance sheet did not initially balance: e. i. , total assets ($8,725,000) did not equal the sum of total liabilities and equity ($8,332,500). In other words, the firm’s need to fund assets of $8,725,000 in 2008 will not be met at anticipated levels of debt and equity. This is the firm’s signal that it will have to raise funds by issuing additional debt or equity in the amount of $392,500.

Secondary Data

Q) What are Secondary Data? Secondary Data Secondary data is information gathered for purposes other than the completion of a research project. Data previously collected by someone else, possibly for some other purpose that can be used later for making decisions if found suitable for the purpose, other than the original one. Secondary data can be acquired from the internal records of the organization, their departments, subsidiaries or sister organizations and also from external sources, such as chambers of commerce, government, professional and commercial consultants subject to the availability of data . e. g. , data in books, journals, newspapers, magazines, etc. †¢ e. g. , data in reports, surveys, etc A variety of secondary information sources is available to the researcher gathering data on an industry, potential product applications and the market place. Secondary data is also used to gain initial insight into the research problem. Secondary data is classified in terms of its source – either internal or external. Internal, or in-house data, is secondary information acquired within the organization where research is being carried out. External secondary data is obtained from outside sources. The secondary information will provide a useful background and will identify key questions and issues that will need to be addressed by the primary research. BENEFITS †¢ Low cost †¢ Less effort †¢ Less time †¢ At times, more accurate †¢ At times, only way to obtain data LIMITATION †¢ Collected for some other purpose †¢ No control over data collection †¢ May not be accurate †¢ May not be in correct form †¢ May be outdated †¢ May not meet data requirements †¢ Assumptions have to be made Q) What are the major problems encountered with Secondary Data? It is necessary that the secondary data are taken from a source which obtained from the original source, and then a secondary source is being used. It is important to avoid the use of secondary sources by using only the original sources for a Secondary Data. The other problems may include: †¢ Secondary information pertinent to the research topic is either not available, or is only available in insufficient quantities. †¢ Some secondary data may be of questionable accuracy and reliability. Even government publications and trade magazines statistics can be misleading. For example, many trade magazines survey their members to derive estimates of market size, market growth rate and purchasing patterns, then average out these results. Often these statistics are merely average opinions based on less than 10% of their members. †¢ Data may be in a different format or units than is required by the researcher. †¢ The methodology used by the party for collecting the secondary data is not explained and the accuracy level may not be verified. Much secondary data is several years old and may not reflect the current market conditions. Trade journals and other publications often accept articles six months before appear in print. The research may have been done months or even years earlier. Q) What are the major sources of Internal Data? Internal Data Internal secondary data is usually an inexpensive information source for the company conducting research, and is the place to start for existing operations. Internally generated sales and pricing data can be used as a research source. The use of this data is to define the competitive position of the firm, an evaluation of a marketing strategy the firm has used in the past, or gaining a better understanding of the company’s best customers. The main sources of internal data may include: 1. Sales and marketing reports. These can include such things as: †¢ Type of product/service purchased †¢ Type of end-user/industry segment †¢ Method of payment †¢ Product or product line †¢ Sales territory †¢ Salesperson †¢ Date of purchase †¢ Amount of purchase †¢ Price †¢ Application by product †¢ Location of end-user 2. Accounting and financial records. These are often an overlooked source of internal secondary information and can be invaluable in the identification, clarification and prediction of certain problems. Accounting records can be used to evaluate the success of various marketing strategies such as revenues from a direct marketing campaign. There are several problems in using accounting and financial data. One is the timeliness factor – it is often several months before accounting statements are available. Another is the structure of the records themselves. Most firms do not adequately setup their accounts to provide the types of answers to research questions that they need. For example, the account systems should capture project/product costs in order to identify the company’s most profitable (and least profitable) activities. Companies should also consider establishing performance indicators based on financial data. These can be industry standards or unique ones designed to measure key performance factors that will enable the firm to monitor its performance over a period of time and compare it to its competitors. Some example may be sales per employee, sales per square foot, expenses per employee (salesperson, etc. ). 3. Miscellaneous reports. These can include such things as inventory reports, service calls, number (qualifications and compensation) of staff, production and R&D reports. Also the company’s business plan and customer calls (complaints) log can be useful sources of information. COMMON SOURCES OF INTERNAL SECONDARY DATA Information originating within the company 1. Sales invoices a. Customer name b. Address c. Class of product/service sold d. Price by unit e. Salesperson f. Term of sales g. Shipment point 2. Accounts receivable reports a. Customer name b. Product purchased c. Total unit and dollar sales d. Customer as percentage of sales . Customer as percentage of regional sales f. Profit margin g. Credit rating h. Items returned i. Reason for return 3. Quarterly sales report a. Total dollar and unit sales by: Customer Geographic segment Customer segment Sales territory Product Sales report Product segment b. Total sales against planned objective c. Total sales against budget d. Total sales against pri or periods e. Actual sales percentage increase/decrease f. Contribution trends 4. Sales activity reports a. Classification of customer account i. e. Mega, Large, Medium and Small b. Available dollar sales potential c. Current sales penetration d. Existing bids/contracts by customer location product Q) What is a computerized Data Base? COMPUTERIZED DATA BASE A database is simply a collection of related information. More specifically a computerized database is a computerized record keeping system. More completely, it is a system involving data, the hardware that physically stores that data, the software that utilizes the hardware's file system in order to 1) store the data and 2) provide a standardized method for retrieving or changing the data, and finally, the users who turn the data into information. For many companies, a computerized database containing information about customers and prospects has become an essential marketing tool. Creating an internal marketing secondary database built upon sales results and customer preferences can be a powerful marketing tool. Databases dealing with published information usually found in libraries, such as books, articles and other types of documents, are commonly called bibliographic databases. Computerized databases published secondary data, the Internet, and internal databases are important parts of an organization’s information system. Intelligent decision making is always predicated on having good information. †¢ When a person uses an automated teller machine to withdraw money from the bank account, he/she is using a computerized database. †¢ When a travel agent makes an airline reservation for the customers, he/she is using a computerized database. †¢ When a telephone operator gives the customer a phone number, he/she is using a computerized database. Any significant collections of information stored on computers are virtually always organized as databases and are known as computerized data base. Computerized Database On-line vendors – purchase (rent) databases from a number of suppliers and sell to the subscribers (e. g. services provided by America Online, DIALOG). ON-LINE DATABASES Provide http: easy and direct access to public information through a computer. There are about 7,000 databases on a variety of topics that one can use. Q) Describe a specialized online data base of marketing manager? An online database which can be used by a marketing manager for Substantial Cost Savings, for Increasing the understanding of the Decision Environment, Upgrading the Decision-Making Effectiveness, Improving the Information Value. This may include: †¢ Internet – World-wide telecommunications network that allows computers to access data, files, pictures and sound throughout the world. †¢ World Wide Web – Component of the Internet designed to make transmission of text and images very easy. †¢ Uniform Reference Locator (URL) – Internet address that identifies a specific location. – A typical Web address looks like the following: http://www. microsoft. com †¢ Search Engines – Internet search directories to aid in locating topics of interest and URLs. – An example is Yahoo at http://www. yahoo. com On-line Databases Consist of: Internet, Direct from Vendors, Direct from Producer, Indirect through Networks Organizations Must Create a Database Management System. Managers must be trained on How to Retrieve Information and How to Manipulate the Data Using Database Management Software. A marketing manager can use a specialized data base to fulfill his/her tasks effectively and efficiently through: †¢ Internet †¢ Website †¢ Emails †¢ Online Subscriptions †¢ Online queries †¢ Online Feed back †¢ Newsgroups on the Internet †¢ Internet sites devoted to a specific topic where people can read and post messages. †¢ Databases on CD ROM A number of companies offer database packages on CD ROM for personal computers that is very useful for manager in decision making and other tasks. †¢ Geographic Information Systems †¢ Computer-based system that uses secondary and/or primary data to generate maps that visually display answers to research questions. †¢ Decision Sup port System – Through Online Data Base an interactive, personalized MIS, designed to be initiated and controlled by individual decision makers. – Managers use decision support systems to conduct sales analyses, forecast sales, evaluate advertising, analyze product lines, and keep tabs n market trends and competitor analysis. Creating Databases from a Web Site -A Marketing Manager’s Dream – Customer’s link to an online store is a two-way electronic link – Allows online merchant to gather information about the customer – Text file place on a user’s computer in order to identify the user when there is a return visit to the Web site. – Helping Managers in creation of a large computerized file of customers’ and potential customers’ profiles and purchase patterns. – It is the fastest-growing use of internal database technology. A manager has to build company’s online Pages on Search Engines. Working online to find out target audiences and provide them information through Internet services performing internet marketing services that are mention above. The services are designed to help the company’s website increase its. Through this Online Database a marketing Manager is able to get, Demographic Dimensions Population growth: actual and projected Population density In-migration and out-migration patterns Population trends by age, race, and ethnic background Employment Characteristics Labor force growth Unemployment levels Percentage of employment by occupation categories Employment by industry Economic Characteristics Personal income levels (per capita and median) Type of manufacturing/service firms Total housing starts Building permits issued Sales tax rates Competitive Characteristics Levels of retail and wholesale sales Number and types of competing retailers Availability of financial institutions International Market Characteristics Transportation and exporting requirements Trade barriers Business philosophies Legal system Social customs Political climate Cultural patterns Religious and moral backgrounds Common Government Documents Used as Secondary Data Sources Statistics of Income Survey of Current Business Through a specialized Online Data Base a marketing manager able to get up-to-date information. A marketing Manager able to, †¢ Evaluate sales territory. †¢ PLC †¢ Identify most profitable and least profitable customers. †¢ Identify most profitable market segments and target efforts with greater efficiency and effectiveness. †¢ Aim marketing efforts to those products, services, and segments that require the most support. †¢ Increase revenue through repackaging and re-pricing products for various market segments. Evaluate opportunities for offering new products or services. †¢ Identify products or services that are best-sellers or most profitable. †¢ Evaluate existing marketing programs. †¢ Database Technologies †¢ Database technologies continue to evolve. For example, Fingerhut, a database firm, uses a Sun Microsystems parallel co mputer, whereas American Express relies on Thinking Machines Corporation’s supercomputers. †¢ Renting Internal Databases †¢ Some companies rent their internal databases to obtain extra income, although this can lead to ethical questions. [pic]

Henrietta's Immortal Cells Essay Example | Topics and Well Written Essays - 250 words

Henrietta's Immortal Cells - Essay Example Sadly, this same rate of cell proliferation killed Henrietta but the cells have lived on to become support pillars of biological researches. â€Å"He-La are the first immortal human cell lineage† (Howard W Jones, Victor A. McKusick; Obstetrics and gynecology, pg-945-949). Dr.Gey distributed the cells worldwide to researchers, to help in research endeavors, because â€Å"He-la cells could be grown by anyone capable of trypsinizing cells† (Fredrick Bang, History of tissue culture), they divided rapidly, synthesized normal proteins, mimicked normal cell signaling, gene regulation and could be infected, and thus they became potential tools for study. He-La cells helped to develop Salk’s vaccine and the cells have also been used for gene mapping, Aids and Cancer studies, gene cloning, immunological studies. Author Rebecca Skloot â€Å"More than 60,000 published science articles have mentioned He-La cell research and the number just keeps on increasing† (Rebecca Skloot, The Immortal life of Henreitta

Give an example of such an ideology and explain why it is an ideology Essay

Give an example of such an ideology and explain why it is an ideology in the above sense. How does it distort our understanding of reality Who benefits from this distortion - Essay Example Sovereignty and heteronomy are in the text of honorable theorists. Additionally, cognitive theories, concentrating more on the assemble of moral judgment, accentuate the advance of autonomy. On the other hand, collective erudition theories and cultural psychology theories give emphasis to heteronomy centering on cultural broadcast. Furthermore, Piaget 1932 and 1965 postulated that expansion goal consists of stirring from heteronomy to autonomy; Kohlberg 1969 postulated alternation linking heteronomy and autonomy inside each stage. At this point, we take the outlook that both processes are concerned in the development of decent thinking, although they are synchronized, parallel, and mutual processes. They are used as the expression of moral thoughts to the popular judgments about correct, erroneous and the justification for such thinking. Moral philosophy is destined to be bigger than proper conclusion, in that, the moral judgment assembles refers more by a whisker to the cognitive edifice of basic epistemological categories; for instance, fair dealing, duty, justifiable establishment, and civil rights. In disparity, moral thinking, as we use the phrase, refers to personal views on such issues like abortion, rights of homosexual persons, creed in public schools, the womens roles, and others. Literary ideology i s a supplementary basic evolution in the configuration of moral judgment and refers to beliefs norms, and principles that subsist separately on a single individual and that are common in a cluster as an element of its mutual customs. Our point is that equally honorable conclusion and cultural principles have a say considerably and exceptionally to moral thoughts. There are two progressions; parallel theory designed for moral thinking, a quantity of what the two-process, corresponding theory by Kintsch, 1978 for book intellectual capacity that is, the construction moral thinking involves two processes taking place

Case Study Analyses Essay Example | Topics and Well Written Essays - 750 words

Case Study Analyses - Essay Example Wal-Mart is a business which over the years has empowered the employees to be able to live a better life, this was especially so in the earlier days when Wal-Mart was in its full glory. To begin with, being a large organisation helped the employees to have job security because it was harder to lose their job in a large organisation such as Wal-Mart. However, it is necessary to note that this seems to have changed since in the recent days, Wal-Mart has had various issues with its employees where many employees complain of being overworked, underpaid and that they don’t have job security anymore. The Wal-Mart Way is the strategy which Wal-Mart uses in doing its retail business. The Wal-Mart way has helped the firms to become a colossal success and this success in turn affects the employees and the associates by empowering them. The absence of Sam has however meant that the employees and the associates are no longer as advantaged as they used to be. Wal-Mart can be seen as the pi oneer in corporate social responsibility. Sam had a genuine sense of responsibility towards the stakeholders and especially the communities in which his business operated. These early stances on corporate social responsibility can indicate that Wal-Mart’s core values are geared towards responsible business which looks at the interests of all the stakeholders. The Buy American stance for instance is a good example because by implementing this idea, Wal-Mart was getting a disadvantage because it had to buy more expensive goods from the local manufacturers while its competitors continued buying cheaper goods from overseas manufacturers. If Wal-Mart was doing this just to entice the customers, it could have given up later but instead of that, it stuck on its policy. The effect of Wal-Mart on the smaller merchants does not neutralise the advantages of the firm’s corporate responsibility because Wal-Mart does not owe anything to these merchant as long as it applies ethical r ules of competition. With regard to the closure of the stores, Wal-Mart, just like any other employer, owes it to the employees to provide safe and secure employment. There is no employee who doesn’t want to know that their jobs are secure and that they will not wake up one day and find that they no longer have any their jobs. In this regard, Wal-Mart owes it to the employees to make sure that their jobs are secured and that they will not suffer trying to look for other jobs. With regard to the loyal customers, Wal-Mart also has a responsibility because these customers were used to getting the services of Wal-Mart. In a modern world, customers’ lives are moulded by the services they get from businesses like Wal-Mart and when they receive these services for long enough, their lives are highly dependent on these services and if these services are removed, the customers are affected. This is why firms like Wal-Mart have the responsibility to do whatever it takes to ensure the continuity of these services and therefore Wal-Mart owes it to these customers to continue offering the services. The competitors in some cities have secretly hired consultants to block Wal-Mart from entering these cities. This is not fair business and it breaks all rules of business competition ethics. This is very

Response to an Article What is for Sale Essay Example | Topics and Well Written Essays - 1000 words

Response to an Article What is for Sale - Essay Example †). THESIS STATEMENT This essay intends to respond to the thesis and one of the main ideas, emphasising the socio-political implications of such a transition in the human society, as presented in Sandel’s article i.e. â€Å"What Isn’t For Sale.† DISCUSSION Sandel’s article of â€Å"What Isn’t For Sale† fundamentally demonstrates that everything is made up for sale in the present day context. Sandel also illustrates certain instances that clearly depicts that everything made on this earth today is made for the selling purpose. For instance, as argued in the article by Sandel, the immigration rights particularly to the US is sold at $500,000; again, the shooting right to a jeopardised black rhino is sold at $250,000, and astonishingly, the upgradation of a prison-cell is sold at $90 per night. According to Sandel, not everyone can pay towards buying or availing the above mentioned services. However, the renowned college professor strongly realised that there are numerous ways for making huge money that further has ignited the trend of buying anything and selling almost everything in return of a nominal monetary value. ... From a futuristic perspective and with a hint of scepticism, Sandel also argues that the shift of today’s modern society towards which everything is made up for sale might generate worries in the economy that can further be associated with inequality in proper distribution of wealth along with income (Sandel, â€Å"What Isn’t for Sale?†). The above discussed perceptions presented in Sandel’s article drawing a critical judgement of the idea that everything for sale in this modern day context can be supported by a certain degree. This can be justified with reference to the fact that the market economy has radically transformed into a market society in recent times as compared to the preceding years. In this similar context, Sandel differentiated between the two important market concepts i.e. market society and market economy. According to Sandel, a market economy is often regarded as an effective and a valuable tool, which organises productive activity. On t he other hand, a market society is typically recognised as a place, wherein almost everything has been made up for sale or selling purpose quantifying the values of such objects in monetary terms (MacNeil/Lehrer Productions, â€Å"What Money Can’t Buy’ and What It Shouldn’t Buy†). It has often been argued that certain areas of human life have fundamentally become less market-driven, which eventually contributed in generating market society rather than market economy. One of the areas in this similar concern can be associated with reference to the fact that people had effectually paid for their respective spouses with dowries in the traditional period. In the article,

Unit9 Essay Example | Topics and Well Written Essays - 250 words - 1

Unit9 - Essay Example The course met my expectations as I was set on learning about analysis of policies and the in-depth detail was provided. The progress so far has been overwhelming. I did not expect that at this point I would have made much progress and learnt the much I have but the truth is that am way ahead and am immensely impressed by this progress. Despite the overwhelming progress and the making of leeway in the course, I still wish most of the concepts about the public policies analysis could have been carried out in slower manner to give time to really understand them since they impact directly on our day to day lives. All in all, the much taught though shallow still was good. To those students undertaking this course next year, I would advise them to start early preparations of trying to understand (though not fully) the main concepts in the course. This is in order to enable them have many questions which in the end makes the course be detailed with as many real life examples as possible hence making the course much more relevant to them. More interactive time and open forums with the tutor where debates about the course topics would have arisen and therefore made the course less intense would have been appreciated. This is because interactive time provides an avenue and time to get up close with the course instructor and hence opening communication channels to the shy students who are not so comfortable in intense classroom lectures and do better in an open forum sort-of discussion. Reuters. â€Å"Consumer Spending Rises as Jobless Claims Hold Steady.† The New York Times, 30th August, 2012. Retrieved from: