Role accounting plays in providing financial information

This activity helps students recognize the significant role accounting plays in providing financial information to management for decision making through the evaluation of financial statements. This experiential assignment requires students to use ratios to evaluate and analyze a company’s liquidity, solvency, and profitability.

Assignment Steps

Resources: Generally Accepted Accounting Principles (GAAP), U.S. Securities and Exchange Commission (SEC), University Library, Library resources: Company Directories and Financials

Tutorial help on Excel® and Word functions can be found on the Microsoft® Office website. There are also additional tutorials via the web offering support for Office products.

Select a publicly traded, U.S. corporation with which you are familiar or one where you currently work or have worked in the past.

Research the company on the Internet and download the Income Statement, Statement of Shareholders’ Equity, Balance Sheet, and Statement of Cash Flows.

Develop a minimum 700-word examination of the financial statements and include the following:

Determine the net income for the current fiscal year (FY). Is this income up or down from the prior year?

Explain the relevance of changes in net income to investors.

Determine the ending balance in shareholders’ equity. Why would organizations such as labor unions be interested in this?

Determine the total value of assets.

Discuss the relevance of the total value of assets to potential creditors and why this is important.

Compute the return on assets. Discuss the relative profitability of the company based on your results.

Compute the working capital and current ratio. Evaluate the relative liquidity of the company based on your results.

Compute the debt to assets ratio and the free cash flow for your company. Analyze the results and comment on the relative solvency of the company.

Discuss how the financial statements are used in your current role or a position you would like to hold. How might these aid you in managerial decision making?

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