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FINC20018 Managerial Finance

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FINC20018 Managerial Finance

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FINC20018 Managerial Finance

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Course Code: FINC20018
University: Central Queensland University

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Country: Australia

Question:

Q1 Theory Question: Getting Started with Financial Management.
What are the three main forms of business organisations and describe their advantages and disadvantages?   
Develop your responses by reviewing 3 references from peer reviewed articles and/or professional publications and/or credible texts. Word count 300 words excluding references.
Q2 Total Word Count 500 words excluding references.
Suppose you were interested in investing in shares of Wesfarmers. Before you make an investment decision, you would like to learn more about the company.
Investigate the public company of WESFARMERS and discuss what you learn about the company by responding to the following questions:
a)Describe what the company stands for [i.e. what are the values, goals of the firm and/or objectives]
b)Provide examples of how it activates these values, goals and/or objectives.
c)Via the ASX website collect information about Wesfarmers including recent Stock Prices, trends in the stock prices, useful information from announcements.
d)Via the ASX website do type in the code WES and describe what have been the most recent dividends.
e)Via Prices and Research -> Dividends -> How are dividends released? https://www.asx.com.au/prices/dividends.htm  Summarise in your own words how dividends are released and reference your response.
f)With reference to Principle 4 of Finance what do we mean when we say that market prices reflect information?
g)Discuss how the instantaneous access to information via Internet might affect the share market price and reputation of this firm?
h)What are the ethical considerations of a firm and why would ethics be relevant to the financial management of this firm?  
The following theory questions relate to Chapter 3 Understanding Financial Statements.
Develop your responses by reviewing by reviewing 3 references from peer-reviewed articles and/or professional publications and/or credible texts. Word Count for each answer is 150 words excluding references.
Describe the content and the importance of the balance sheet and the income statement.
What is a firm’s net working capital, and what does it tell you about the liquidity of a firm.
Calculation-based Question about the Balance Sheet, Income Statement and Firm Performance.
From the following scrambled items for Swagman Pty Ltd: a) Prepare a balance sheet and an income statement and b) Use financial ratios to analyse and comment on the firm’s financial condition.
Develop your answers using an Excel spreadsheet and/or tables to present your work. Show all workings.

Answer:

Question 1:
Type of business organizations along with their advantages and disadvantages:

Business organizations

Advantages

Disadvantages

Sole proprietorship: A sole proprietorship is the business which is managed and owned by an individual.

The main advantage of sole proprietorship is that the decisions are made quickly as the owner makes the decision.
 

The main drawback is owner held liable for all the business activities and action (Haney, 2009).

Partnership: A partnership business is the business which is managed and owned by 2 or more person which contributes the capital and other resources in the business.

One major advantage of this business organization is funding. Each of the partners could help with the capital and resources (Goss, 2015).

The main drawback of the business is that the partners have to share the profits.

Corporation:  A corporation business is the business which has separate legal entity from the owner’s personality.

One major advantage of this business organization is funding as the funds are generated from the market.  
 

The main drawback of the business is that the no person could be held liable for any activity (Chandra, 2011).

Question 2:
Wesfarmers financial evaluation:
Company overview:
Wesfarmers limited is an Australian company which has been originated in the year of 1914. It is one of the Australian largest companies. Currently, the company has 2,20,000 employees and approximately 5,30,000 shareholders. The main objectives of the business are to offer satisfactory return to the investors and the shareholders of the company. The main focus of the business to create the long term value of the business through managing the environmental and community impact (Who we are, 2018).  
Examples of goals and objectives:
The Wesfarmer’s limited is meeting the objectives and goals through applying various new policies and techniques. Such as for meeting the needs of the customers the company has set the provision of goods and services.  As well as, the business has responded to the expectations and the attitudes of society in which it operates (Delivering our objectives, 2018). The business has also followed the rule of honesty and integrity to improve the overall performance and meet the objectives of the business.
Stock performance of Wesfarmers:
Stock performance of Wesfarmers has been evaluated and it has been measured that the current stock price of the business is $ 51.04. The stock price of the company has been improved rapidly in last 5 year. In the month of Feb, 2018, the stock price of the company was $ 41 which has improved rapidly and reaches to a milestone of $ 51 in Aug, 2018 (Share price, 2018). The evaluation explains that the market performance of the business is continuously improving.
Most recent dividend evaluation:
The dividend position of the business has been evaluated further and it has been found that the dividend amount has been announced by the business in 26/02/2018 which has been paid by the business on 05/04/2018. The business has paid 103 c to the stockholders of the company (Market dividend, 2018). The dividend is interim dividends which have been paid by the company after 6 months.
Dividend release process:
Dividends are the total amount which is paid by a business to its shareholder as return of their invested amount. For many of the investors, dividends are the essential criteria to ensure that the investment must be done or not. There are various steps to release the dividend amount (Dividend release, 2018). Firstly, on the record date dividend amount is finalized than a date is decided on which the dividend amount is paid to the shareholders.
Market price reflection:
Investors respond to the market information to buy and sell the stock of the company. Investors are not aware about the internal activities and operations of the company and thus they only evaluate the market information related to the company and the stock and make decision about the investment and divestment. If the market information of a stock is positive then the stock price will automatically increase or vice versa.
Instantaneous access to information:
If there is any good news about the stock or the company on the internet than investors get attracted towards the securities and buy the stock due to which the stock price of the company improves and vice versa. It explains that the internet plays huge role in manipulating the stock price.
Ethical consideration:
The main ethical consideration of the business is trust and integrity. A business is required to follow these rules so that the trust of the stakeholders could be built in the organization as well as in terms of finance, transparency must be there and company should disclose all the figures and financial activities.
Question 3:
Income statement and balance sheet:
Balance sheet:
Balance sheet is a final statement of financial position which includes total assets, total liabilities and the stakeholder’s equity. This statement reveals the entire financial performance of the company which makes it easier for the stakeholder of the company to identify the real position of the business. The main formula of balance sheet is as follows:
Assets = Liabilities + Shareholder’s equity (Gapenski & Reiter, 2008)
It explains that the assets are the balanced financial obligation along with the equity investment of the company.
Income statement:
Income statement is a final statement of financial performance which includes total revenues and the expenses of the business in a particular time period. This statement reveals the entire financial position and profitability level of the company which makes it easier for the stakeholder of the company to identify the profits and the investment level of the business (Higgins, 2012).
Question 4:
Net working capital is the balance amount of current assets and liabilities of a business. The net working capital is used by the business to calculate the short term debt position and liquidity level of the business. If the net working capital of a business is positive then it explains about better liquidity position of the company.
A business is required to maintain the quick assets (those items which could be converted quickly into cash) more than the current liabilities of the company so that the short term debt could be paid by the company at any time and this would lead to better liquidity level of the company (Fridson & Alvarez, 2011). The net working capital of a business explains that it is the extra amount which would be maintained by the company even after paying the current liabilities of the company. The better the net working capital of the company, the better the liquidity position would be.
Question 5:
Refer to appendix.
Question 6:
Liquidity level explains the degree to that an asset could be quickly sold in the market against the cash amount. Liquidity level of a business must be positive so that the liquid risk position could be minimized. The liquidity position of a business could be calculated through current ratio and quick ratio (Petzke, Fuller & Metges, 2010). Current ratio explains that on the basis of all available current assets how much current liabilities could be paid by the company. Further, the quick ratio explains about the quick assets against the current liabilities of the company.  
According to the case, if same plan is carried by the business than the current ratio of the business would be 2.22 times which is higher than the previous plan of the business. It explains that the business has been more liquid than last time. The calculations of current position have been given into the appendix.
Question 7:
Net margin and operating margin of the business, Allen corporation has been calculated and it has been found that the operating margin is $ 7.8 and the net margin is $ 5.82. The company is achieving reasonable profits as after all the expenses company is able to make extra profits (Vogel, 2014).
The return on assets and return on equity has been calculated further and it has been measured that these ratios explain about investment level of the business. It explains that how much profit is generated by the company on the basis of the available resources and for the shareholders of the company (Babalola & Abiola, 2013).
Question 8:
The calculations of future cash flows and total time period have been given into the appendix. In first case, it has been identified that the investor has to wait for 6 years to get the amount $ 75000 through an investment of $ 50000 on 7% interest rate. Further, it has been found that if the investor would invest for 10.25 years than the total future value of the invested amount would be $ 1,00,035 (Lee, 2012).
As the calculations of third case explains, the investor has to wait for 14 years to get $ 75000 on 3% interest and if the interest rate is 11% than the amount would be converted into $ 75000 in 4 years (Liu, 2009). It explains that the more the interest rate of the business would be, the lesser the time would take to improve the future value and vice versa (Madhura, 2015).    
References:
Babalola, Y. A., & Abiola, F. R. (2013). Financial ratio analysis of firms: A tool for decision making. International journal of management sciences, 1(4), 132-137.
Chandra, P. (2011). Financial management. Tata McGraw-Hill Education.
Delivering our objectives. (2018). Wesfarmers Limited. [online]. Retrieved from https://www.wesfarmers.com.au/investor-centre/company-performance-news/delivering-our-objective 
Dividend release. (2018). ASX. [online]. Retrieved from https://www.asx.com.au/prices/dividends.htm
Fridson, M. S., & Alvarez, F. (2011). Financial statement analysis: a practitioner’s guide (Vol. 597). John Wiley & Sons.
Gapenski, L. C., & Reiter, K. L. (2008). Healthcare finance: an introduction to accounting and financial management. Chicago, IL: Health Administration Press.
Goss, D. (2015). Small Business and Society (Routledge Revivals). Routledge.
Haney, L. H. (2009). Business Organization and Combination. BiblioBazaar, LLC.
Higgins, R. C. (2012). Analysis for financial management. McGraw-Hill/Irwin.
Lee, W. (2012). Time Value of Money. Cambridge University Press.
Liu, B. (2009). Some research problems in uncertainty theory. Journal of Uncertain systems, 3(1), 3-10.
Madhura, L. (2015). Financial management. Tata McGraw-Hill Education.
Market dividends. (2018). Wesfarmers Limited. [online]. Retrieved from https://www.asx.com.au/asx/markets/dividends.do?by=asxCodes&asxCodes=WES&view=all
Petzke, K. J., Fuller, B. T., & Metges, C. C. (2010). Advances in natural stable isotope ratio analysis of human hair to determine nutritional and metabolic status. Current Opinion in Clinical Nutrition & Metabolic Care, 13(5), 532-540.
Share price. (2018). Wesfarmers Limited. [online]. Retrieved from: https://www.asx.com.au/asx/share-price-research/company/WES 
Vogel, H. L. (2014). Entertainment industry economics: A guide for financial analysis. Cambridge University Press.
Who we are. (2018). Wesfarmers Limited. [online]. Retrieved from https://www.wesfarmers.com.au/who-we-are/who-we-are

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