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Unformatted text preview: Chapter 01 Overview of Financial Statement Analysis QUESTIONS 9. Internal users: Owners, managers, employees, directors, internal auditors; External users: Current and potential equity investors, current and potential debt investors, current and potential creditors, current and potential suppliers, current and potential customers, labor unions members and representatives, regulators, and government agencies. 10. A business pursues four major activities in a desire to provide a saleable product and/or service and to yield a satisfactory return on investment. These activities are: Planning activities . A company implements specific goals and objectives. A company's goals and objectives are captured in its business plans (or strategies)—that describe the company's purpose, strategy, and tactics. The business plan assists managers in focusing their efforts and identifying expected opportunities and obstacles. Financing Activities . A company requires financing to carry out its business plan. Financing activities are the means companies use to pay for these ventures. A company must take care in acquiring and managing its financial resources because of both their magnitude and their potential to determine success or failure. There are two main sources of business financing: equity investors (referred to as owner financing) and creditors (referred to as non-owner financing). Investing Activities . Investing activities are the means a company uses to acquire and maintain investments for purchasing, developing, and selling products and services. Financing provides the funds necessary for acquisition of investments needed to carry out business plans. Investments include land, buildings, equipment, legal rights (patents, licenses, and copyrights), inventories, human capital (managers and employees), accounting systems, and all components necessary for the company to operate. Operating Activities . Operating activities represent the carrying out of the business plan, given necessary financing and investing. These activities involve several basic functions such as research, purchasing, production, marketing, and labor. Operating activities are a company's primary source of income. Income measures a company's success in buying from input markets and selling in output markets. How well a company does in devising business plans and strategies, and with decisions on elements comprising the mix of operating activities, determines its success or failure. 18. Past trend often is a good predictor of the future if all relevant variables remain constant or nearly constant. In practice, however, this is seldom the case. Consequently, the analyst should use the results of trend analysis and adjust them in the light of other available information, including the expected state of the economy and industry....
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This note was uploaded on 07/04/2011 for the course FINA 470 taught by Professor Austin during the Spring '11 term at South Carolina.
- Spring '11