Money

GAP cannot reflect positive or negative externalities Involve In the consumption and production UT these externalities do affect on people’s living standard. Negative externalities such as pollution brings environmental costs to society but not calculated by GAP. Positive externalities such as technological advance benefits to society but it is not count in GAP. Economic well-being would be under-value or over-value if GAP is the only single measure of economic well-being. 3. Leisure helps people enjoy a better life.

In countries with lower GAP, the welfare gain from leisure can compensate the welfare loss from low GAP. Explain why frictional and structural unemployment are unavoidable in most of the economies. There are always some workers without Jobs, even when the overall economy is doing well. For example, people now prefer cell phones from Apple than from Monika. Monika decides to cut down Its employees due to the decrease of revenue. It takes time for him (the worker) to search another job that is best suited for him. In this period when matching jobs and workers, he is unemployed and it is called frictional unemployment.

Another example is that now most of the textile factories decide to move to mainland China. A worker in one of these factories loses her job, however, he Is unable to learn or change new working skills or knowledge on other specialist or other field. And therefore, she cannot find a new Job In her Orlando Industry and also in other industries. This imbalance between the skills and other characteristics of some workers and the needs of workers in the labor market causes unemployment called structural unemployment.

When unemployment consist only frictional and structural unemployment, unemployment is at natural rate. In most of the economies, there are always some reasons causing frictional or structural unemployment. Employment rate never fall to zero it fluctuates around the natural rate of unemployment. Therefore, frictional and structural unemployment are unavoidable in most of the economies. major functions of money? Discuss how these functions be affected by inflation. Account and a store of value.

A medium of exchange is an item that buyers give to sellers when they purchase goods and services. When you buy a shirt at a , the store gives you the shirt, and you give the store your money. This transfer of money from buyer to seller allows the transaction to take place. When you walk into a store, you are confident that the store will accept your money for the items it is selling because money is the commonly accepted medium of exchange. A unit of account is the yardstick people use to post prices and record debts.

When you go shopping, you might observe that a shirt costs $30 and a hamburger costs $3. Even though it would be accurate to say that the price of a shirt is 10 hamburgers and the price of a hamburger is 1110 of a shirt, prices are never quoted in this way. Similarly, if you take out a loan from a bank, the size of your future loan repayments ill be measured in dollars, not in a quantity of goods and services. When we want to measure and record economic value, we use money as the unit of account.

A store of value is an item that people can use to transfer purchasing power from the present to the future. When a seller accepts money today in exchange for a good or service, that seller can hold the money and become a buyer of another good or service at another time. Money is not the only store of value in the economy: A person can also transfer purchasing power from the present to the future by holding monetary assets such as stocks and bonds. The term wealth is used to refer to the total of all stores of value, including both money and monetary assets.

What assumptions are necessary to argue that the quantity equation of money implies that increases in the money supply lead to proportional increases in the general price (a) Discuss two reasons why the GAP deflator gives a different rate of inflation than the ICP does. 1. 12 PEP (6 marks) (b) Explain the likely effect of a binding minimum wage on the unemployment rate. (5 marks) (a) Suppose an economy that is initially at full employment faces a tremendous drop n imports. I.

All the firms under consideration are presently low-geared companies, as portrayed by the gearing ratio computed in this assignment. Gearing is a capital structure ratio that shows the proportion of equity to debt finance. Since the companies are presently low-geared, this means that the financial obligations like interest commitments are low, because debt finance is low. Therefore the higher the gearing ratio the greater the risks stemming from higher interest commitments, which an organisation may not meet during adverse trading conditions.

With only this ratio we cannot attain substantial evidence on the financial position of the organisations. Other stability ratios like for example interest cover should be applied to shed light on such matter. However, this accounting ratio provides good financial information on the funding decisions of the corporations. Since the firms are low-geared they can finance envisaged projects through debt finance. Debt finance is frequently desirable due to certain benefits like tax advantage. The interest payments stemming from debt finance are deductible from taxable profits leading to a lower tax charge.

This is not the case for dividend payments arising from equity. However, management should take particular on the amount of debt used, especially in light of the financial commitments arising from such finance medium. 1. 2. 4 Investment in Tesco PLC and J. Sainsbury PLC The earnings per share ratio again favours Tesco PLC since the ratio of this company is higher than the other firm, even though the increase of J. Sainsbury PLC was greater. This investment ratio amalgamates the profitability and the capital structure of the organisation.

It portrays the total return per share value the shareholder will attain from the investment in light of the total earning made by the organisation. Since both firms are low-geared companies as noted in the previous sub-section, the earning per share will tend to be lower than high-geared corporations. This stems from the fact that the number of ordinary shares, which is the figure that divides the profits generated would be higher. The Price-Earnings Ratio is an investment ratio that outlines the confidence of the market in the organisation.

Such confidence is basically based on the envisaged capability to make future profits. For instance, the fall in the price-earnings ratio of both firms indicates that the capital market is expecting the future profits of both organisations to decline. Investors however, portray greater confidence in Tesco PLC in light of a higher ratio. 1. 3 Limitations of Ratio Analysis The first important weakness that comes to mind is the fact that accounting ratios fail to consider the qualitative characteristics inherent in the corporations and the external environment in which they operate (Petroff 2001).

Such qualitative elements, like organisation reputation and market reputation hold a substantial influence on the financial health of the firm. For instance, the companies operate in a very competitive environment in which a proactive approach is needed to client’s tastes. Such approach is not outlined through the financial analysis conducted in this dissertation. In addition, the ratios determined in this assignment are based on historical data, which may not be a mirror of the future. Thus the ratio analysis may not actually reflect what the companies would perform in the forthcoming years, since they are based on such figures.

This can be promulgated with the argument normally contended by critics of such accounting measurement bases that it fails to reveal management stewardship. Such critics challenge that this valuation scheme fails to provide detailed analysis of how successfully executive management administered the resources of the corporation. For example let us hypothetically presume that two companies started trading in a similar industry. Company A invested ? 3,000 in a particular good, while Company B spent the same amount of money in another commodity.

Let us further presume that during the accounting period under consideration no company sold any of the commodities purchased. At the end of this time frame, the good held by Company A increased by 7%, while that of Company B by 9%. This highlights that the management of Company B was more effective in the investment decision and added additional value to the company. Since under historical cost accounting, everything is measured at either historical cost or depreciated historical cost, such improved performance would not be reflected.

It is also important noting that ratio analysis fails to consider economic elements like inflation, which also influence financially the firms considered. Ratios are also static figures and only indication of a problem. Additional analysis is necessary to identify the financial strengths and weaknesses of the company. Another important element, which outlines the limitations of ratio analysis are the deficiencies present in the financial statements. In financial statements a number of items tend to be aggregated under one figure. For example, in the profit and loss account of Tesco PLC, the Administrative Expenses of ?

907 million in 2007 include all expenses relevant to such nature. It includes a combination of office overheads, directors’ remuneration and even depreciation. This refrains the financial analyst from making a valuable distinction between value adding and non-value adding activities. In addition, the aggregation of all the departments operating in the company in one account prevents the evaluation of the financial performance of each department. Certain products marketed by the companies considered are subject to seasonal variations during an accounting period. Such movements in sales may affect the liquidity of the firms.

The financial statements do not to provide information on such aspect, which may be significant mainly for organisations that have a very rigid working capital and cash flow. Financial statements also do not present financial information on a number intangible assets held by the company. For example, internally generated goodwill is not shown in the financial statements. Such item is unquestionably of high value to the organisation and its ommittance limits the value of financial information provided. 1. 4 Concluding Remark – Most Prominent Organisation in Financial Terms

The accounting ratios computed reveal that Tesco PLC is financially well especially on the aspects of profitability and financial stability. However the financial position is presently weak in relation to J. Sainsbury PLC. Yet since such deterioration is arising from material investment, which may in the long-term be beneficial to the company, Tesco PLC seems the most viable equity investment. The equity investors are also favouring Tesco PLC as revealed in sub-section 1. 2. 4, thus leading this company to be the most optimal investment decision on such facet.

It is a general rule of life, in almost all societies on earth that one has to be gainfully employed, in order to receive an income. Those earnings are necessary if you are to comfortably function; i.e., live, eat and fulfill your basic needs, whilst procuring anything else you may desire. For this reason, our lives and societies are centered on us attending school, attaining certification, proving ourselves competent in a skill and then becoming employed. Further to this, we must contribute to society in an industrious manner. Money is the master of all things it seems and for many, money is also the source of their happiness, or is it.

What matters most? Making money or being happy? Does making a lot of money really add to your happiness levels, or does it actually add to your stress levels instead? A new study has been released on whether having a higher salary impacts your life satisfaction levels.

If we analyze these questions carefully, we could conclude that yes, money does impact our overall emotional wellbeing. However, this is true, only to a certain point. After this level, one will suffer from a case of diminishing returns and instead, it will be a burden.

1.7 million Persons who lived in over 164 countries were surveyed to help bring statistical clarity on the matter. As it relates to single people, the salary threshold for optimum fulfillment was at $95,000. However, that was not related to the broad spectrum of your overall lifep. For that, the figure was closer to $60 – $75,000.

Senior author from Fast Company, Andrew Tebb said, “Increases in happiness tend to diminish as you make more money. A $20,000 increase from $30,000 to $50,000 is likely to bring more change to your life than if you make $20,000 on top of $150,000.”

The research was completed successfully by both the University of Virginia and Purdue University. It supported the arguments made by both Daniel Kahneman and Angus Deaton, a psychologist and economist respectively. They posited that people’s satisfactory levels diminished once their incomes were outside of the range of $60,000 to $120,000. Upon looking at the arguments from these professionals and the study conducted by the Universities, Tebb emphasized that the study did not take into account life satisfaction but rather only emotional well-being.

In addition, he identified that the parameters of the study were only limited to the United States. The statistics showed that American households, on average earned approximately $65,000. However, only 25% or less was in the range of earning $75,000; this indicated that the majority of workers were not emotionally satisfied with their earnings.

Yes, those satisfactory levels would fluctuate depending on your geographical location. The satiation point in Western Europe is more around $100,000, unlike Eastern Europe which is around $45,000 and sub-Saharan Africa which is also at $40,000. Australia and North America fluctuate around $125,000 and $105,000 respectively.

The variation in these numbers makes it almost impossible to identify a single sum that would apply to all areas. However other factors do contribute to one‘s happiness. Social comparisons do play a part in your overall satisfaction levels. For instance, how much your co-workers and friends earn in comparison to your own salary.

According to Andrew Tebb, “Expectations and social comparisons are important. We’re very finely tuned social creatures, so those social comparisons occur in most human domains including career, income and the size of your house. Income is just one variable in the complicated equation of happiness. It’s not trivial, but there are other factors that are at least as important, such as meaning and significance and social relationships, family, and friends.”

Beadsman Island is a resort island surrounded by the Shores of the Kelsey River. Beadsman Island is a self-contained and all inclusive resort. The island resort features three hotels and activities such as golf, relaxing at the spa, dining, and shopping. An island has a convention center and an art gallery that contains 1200 pieces of art in its collection. The resort began development in 1988 as a result of a river redirection for flood conservation reasons. In the spirit of growth, Beadsman Island is looking to expand operations.

Of the 1600 acres of the island, only 750 acres as development, as a result there is still nearly 800 acres left for development. Some of the items on the expansion wish list include adding lodging, building private villas, expanding the convention center, gardens, and recreational facilities. This ambitious plan requires additional financing to make it a reality. The three possibilities to acquire financing include going public through an initial public offering, acquiring another organization in the same industry, or merging with another organization.

Evaluating strengths, weaknesses, opportunities, and threats is important to making he correct financing decision. After careful evaluation a decision must be may to pay for this expansion. Introduction of PIP As an alternative, the Beadsman Island Resort could decide to take their company from privately held to shared by issuing an initial public offering (PIP) in the stock market. An PIP is the first issue of stock a company makes, where the issuing firm sells pieces of itself to investors who are now partial owners (Tabular, 2001).

The investors own a number of shares, which determines what percentage of ownership they hold. Owning a portion of the firm can be potentially lucrative for an investor if the firm increases in value. After the investors own the shares, which they acquired at a certain rate, they can sell them in the secondary market for a profit, as long as the firm’s value has indeed increased. At times, when a firm has excess net income, they will share those profits with the shareholders through dividends, paying a certain amount per share back to the owners.

As with all great things, Pip’s are not without their drawbacks. A SWOT analysis is helpful for managers and will provide insight with decision. For an initial public offering, a SWOT analysis could be conducted.

Strengths:

Through an initial public offering, new capital is raised and may be available quickly and in one lump sum. This is because an PIP is typically not sold to the individual investor directly from the firm; there is a middleman or brokerage firm involved. Also, the firm’s owners gain liquidity because their shares hold value that can be sold readily in the secondary market, not to mention that a publicly held firm tends to enjoy a higher profile, making it easier to attract sales as well as vendors for supplies.

Weaknesses:

The greatest weakness may be that the firm is now responsible to share profits with many investors, as well as face the added burden of continuously improving in performance to increase shareholder wealth (the first tenant of finance). Also, now that the firm is responsible to many people, the private investors lose a Soot Analysis 9 By dillydallied introduced to help insure the interests of public shareholders are accommodated.

Opportunities:

Once a firm has entered the stock market through its PIP, there is a much greater ease in future transactions. A firm can continue to raise capital wrought issues of new shares later. Another opportunity will be a more accurate valuation of the firm, which is now set by the firms’ shares instead of through more subjective standards set by private owners. This could aid the firm if they look for a merger or acquisition in the future.

Threats:

Reporting practices required by the Securities and Exchange Commission can be exhaustive in time and effort, as well as divulging information the firm may not want as public knowledge. Falling stock prices will present a threat to the firm, because decreased valuation of the company ay affect lines of credits, secondary offering pricing, the company’s ability to maintain employees, and the personal wealth of insiders and investors.

Finally, the firm may also face the threat of a takeover if a large enough proportion of the shares are outstanding. Acquiring another Organization The Beadsman Island Resort is contemplating expansion. The act of acquiring another organization will make this possible. The resort, located on the Kelsey River, currently has three hotels to accommodate guests: The Beadsman Main, The Tunney, ND Melanoma Convention Center. A string of amenities are included at each site and are conveniently located in prime areas.

If the organization wishes to expand by acquiring a new establishment they must ask what type of establishment they will add. Will it be another hotel, possible acquire the on island museum, or some other type of tourist catered facility? Regardless of what The Beadsman Island Resort chooses, the SOOT Analysis (Strength, Weakness, Opportunity, and Threat) must be factored in to make sure the venture is advisable.

Strengths: While the initial tart-up funds may be draining, the acquisition of a new hotel or tourist based attraction will increase profits substantially. A good budget must first be drawn up to determine if the acquisition is appropriate. If the pay-back period of expansion financing exceeds a certain number of years, the project may be deemed ill-advised.

Weaknesses: Increased liabilities. There would be a decrease in cash flow as capital is needed in the acquisition of the new divisions.

Opportunities: Expansion of customer base is a key opportunity. Drawing attention to the franchise is vital if it sizes to become a household name. Word of mouth publicity will be circulated and new customers can be drawn. Increase in revenues will ensue.

Threats: Shareholders can possibly withdraw support from the organization if they feel that it is a risky venture. Loss of investors would cause stock prices to drop if the company is publicly traded. Merger A merger would be a great idea for the resort. Based on the strength of the organization, the resort could be a profitable company if they would merge with one of the surrounding hotels. Beadsman is one of the strongest resorts in the area and as the beat amenities of the three hotels in the area.

Beadsman also has a strong financial strategy to strengthen the recreation center and the botanical garden to draw more revenue. If the organization considers merging with one of the surrounding hotels, they should consider addressing the issue of the same standards of Beadsman Resort. The opportunities that tourists present will enhance the acquisition of another hotel. Beadsman should be able to increase its ability to merge because of the strong ties the Beadsman Family has with the Chamber of Commerce.

Since it was founded in 1994, the company has increased in revenue and has increased their profits on a yearly basis. Merging with another hotel will only increase the profitability of the shareholders and allow more employees to be hired, thus bringing more tourists to the town and to the resort. Conclusion After completing the SOOT analysis of all the options of going through a public offering, acquiring another organization in the same industry, or merging with another organization, the best course of action is go through an initial public offering.

The initial public offering provides the fastest and most efficient route to acquire capital. Although the private investors have to share profits with the common shareholder it has the opportunity to create a larger business and easily grow larger in the future if the company hopes to acquire additional capital. Also selling securities ensures that the company is reaching its goal of profit minimization and shareholder value. Without needing to reach those goals the company does not have to ensure profitability. With current laws such as Sardines-Solely makes it difficult to aka financial reporting errors.

Acquiring a similar company can be a drain to an expanding company. Along with acquiring a new company, the old company assumes all debts, and a reduction of cash flow, this will hamper the desire to expand on Beadsman Island in the present. However, once Beadsman Island has gone public and with a successful expansion should consider buying another company to diversify. Merging poses similar issues as acquiring a new company. Merging can include management politics that can interfere with the goal of expansion as each arty would be looking to ensure that its priorities are met.

This chapter presents the summary of findings, which summarizes the five aspects: The Marketing Aspects, Management Aspects, Technical Aspects, Financial Aspects and Socio-Economic Aspects. It is important to know about these different categories of each aspect from the start of the business to the normal operation of the proposed business.

Marketing Aspect

The services to be offered is faster and reliable way to exchange foreign currency to local currency and vice versa with a higher exchange rate compare to banks offering the same service. In that point, it can get the loyalty of the clients and they will continue in patronizing the service. The business is located at CPN Building at the Public Market and very much accessible to the target costumers because it’s the busy area of the municipality. Management Aspect The proposed business will be organized as a partnership type of business organization. The employee will receive basic fixed monthly salary. They will also receive benefits privileges.

Technical Aspect

The materials needed for the operation of the business are office supplies, furniture and fixtures, office equipment, maintenance supplies, rent expense for the building, expenses for the renovation, advertising expense and utilities. The target market of ST Money Changer are the people of Masantol, Pampanga and nearby towns. The proponents chose the place situated in the CPN Building near at the Public Market of Masantol.

Financial Aspect

The required capital to the business is Php 2,000,000.00 based on the study which the proposed business is found visible. Some of the expenses that will be involved in the operation of the business are office supplies, furniture and fixtures, office equipment, maintenance supplies, rent expense for the building, expenses for the renovation, advertising expense and utilities.

Socio-Economic Aspect

ST Money Changer is a new business that will be established in the community of Masantol Pampanga, thus gives job opportunities to the residents of the said location. In that case, it also helps the economic status and development of the community. Aside from its customers who are mostly residents of Masantol The said Money Changer will be of great help to the students who will conduct a feasibility study similar to this one.

Conclusion

The Marketing aspect is strong in such a way that it can complete with other financial institution. The Management aspect of ST Money Changer is good most especially in handling employees. As being a Partnership from organization, the owners will supervise and Manage the employee’s very well and the business operation as well. Establishing a Money Changer is profitable and viable. The Financial aspect shows that they had net profit for the first year and up although it does not have a uniform income and it requires some of expenses for their operation, still it can get a profit. The establishment of ST Money Changer has a big contribution in improving the lives of many citizens residing Masantol, Pampanga.

Recommendation

In the light of the findings of this study, the following recommendations are hereby presented:  That the proponents must know their competitors and the services they offer for benchmarking.  That they must explore new ways of offering services. That entrepreneurs must conduct a feasibility study to ensure the viability of the project. They must conduct a market research and access the needs of the target market.

Asset allocation, or dividing one’s money into various asset classes, is the best way to achieve one’s financial goals. An investor can balance one’s portfolio by investing in various asset classes wherein some are high on risk with a higher return expectation and some are low on risk and give limited returns. An excellent tool to hedge against the volatility in the capital markets, asset allocation helps investors in overcoming the shifts in the economy.

Asset classes are divided into the following categories:

1. Cash: Includes your savings, checking, current deposits, and liquid fund accounts. Usually used for emergency funds.
2. Stocks: An investor seeks to earn capital gains by buying a piece of a company. Stocks can be bought using Value Investment Style (Invest in companies with low P/E ratio and which re undervalued) or Growth Investment style ( Invest in companies with above-average returns).
3. Bonds: IOUs which signify money raised by a company, municipality, or the federal government by taking debt from the investors. In return, the issuer promises safety of principal, a fixed rate of interest, and specifies the date of maturity.
4. Real estate: A high-return, high-risk investment option. Although returns are attractive, liquidity is an issue with real estate investments.
5. Gold: A good hedge against inflation.
6. Derivatives: Investment options that derive their value from an underlying asset. Are available in the form of futures and options. Asset allocation differs from person to person and there is no standard rule to follow. A risk-loving investor can take on a higher share of investments in equity/ stocks whereas a risk-averse investor should invest more in bonds. Theoretically, one should have the same percentage of one’s portfolio invested in bonds as one’s age.

Thus, 1 30-year-old person should invest 30% in bonds and a 60-year-old person should invest 60% of his portfolio in bonds (could break it up into 40% in stocks, 40% in bonds, and 20% in cash). However, the percentages vary with each individual’s risk-taking appetite. The concept is that a person’s risk-taking ability decreases with his age and so, should his investments in stocks. An asset allocation plan or portfolio management is like getting a customized suit as per your measurements rather than buying a ready-made suit (mutual fund portfolios). The first step is to find out your own comfort level with the thought of losing money. This can be found out by filling out an investor’s profile with a financial planner or some investment websites. On doing this, one has a clear idea about one’s risk tolerance and investment objectives. Asset allocation is not a quick-rich strategy by timing the market. Instead, it is a long term strategy to help an individual achieve his/her financial goals. The general tendency of all investors is that they want whopping returns but are unwilling to lose even a dime. It is because of this tendency that the average investor quits as soon as he sees a slight drop in his investments, thus bailing out at the slightest hint of volatility.

Thus, most of the investors end up entering the markets at the highest point and exiting at the lowest. The common investor, without understanding the fundamentals of various stocks, invests merely on the basis of hearsay and ends up losing money. It is under such circumstances that portfolio management acts as a help. Active portfolio management would not only do a relevant asset class mix in one’s portfolio based on the risk appetite and financial goals, it will also guide an investor about the right time to enter and exit. It also helps in monitoring the portfolio’s performance on a monthly/ quarterly and an annual basis and advises the investor to rebalance his portfolio as he achieves the various milestones in his life. 3. 2 Tax-exempt vs Taxable investments Although the yields on tax-exempt funds are generally less than those of comparable taxable investments, the net income after taxes that they generate is actually higher than the taxable investments for investors in a high tax bracket.

Diversification: Its advantages

Each economic and market condition has a different impact on the equity and debt markets. Unless an individual’s portfolio is well-diversified and has good exposure to both asset classes, it is very difficult to achieve healthy returns. The debt market is more responsive to interest rates and economic conditions whereas the equity markets are impacted by sector/industry-specific news as well as company-specific information. By having a mix of both in a portfolio one can bring down the overall risk considerably and enhance the return potential for achieving long-term results.

Benefit of Compounding

The process of letting your investments grow over time is called compounding. An investor, who consistently invests without withdrawing money, can start earning returns on both his principal as well as his interest due to the power of compounding. If $90 a month are invested in a mutual fundi. e. just $3 a day—an investor could have as much as $18,000 in ten years (assuming an average annualized return of 10%). This is the magic of compounding. Let us take another example: A young boy in his early teens who invests $2,000 a year from age 14-18 would end up with $1,184,600 at age 65. On the other hand, an adult investing $2,000 each and every year for 40 years from age 26 through 65 will be left with only $973,704 at age 65! The difference mainly stems from the fact that the young boy has more time for his money to grow and compound. ________________________________________ Assumes all investments are earning an annual return of 10% and all distributions are reinvested. Automatic investment programs do not guarantee a profit and do not protect against loss in a declining market.

Recommendations

Thus, based on the literature reviewed, the following are some recommendations for investors:

1. Portfolio management involves risk management, but it first needs a mental preparation to ascertain the risk-return bargain.
2. Always plan for profit: Don’t get bogged down by the thought of losing capital. Once you know what your bottom line is, take the amount of risk that will not leave you in an uncomfortable position even if the worst happens.
3. Get rid of investments which are not yielding good returns. Investing is the art of using money to make more money.
4. Continuous Review and rebalancing is a must.
5. Have a pre-decided budget for investing. Never invest out of your savings or EMIs.
6. Re-evaluate your strategies depending on how many milestones have been achieved by you in your life and on your remaining financial goals.
7. In case you don’t have enough time, resources and expertise to keep a constant check on your investments, it is better to hand over the responsibility to a professional who, for not too high a fee, will chalk out a fully personalized portfolio for you keeping in mind your risk appetite and will also keep a constant track of the market movements and rebalance your portfolio accordingly.

REFERENCE

1. Books, articles, and journals Citigroup (2006) Citigroup annual report 2006 [Online]. Available from: http://www.citigroup.com/citigroup/fin/data/ar06c_en.pdf, Goldman Sachs (2008).
2. Goldman Sachs Presentation at the Credit Suisse 2008 Financial Services Conference [Online]. Available from: http://www2. goldmansachs. com/our-firm/investors/presentations/current/c-s-presentation. pdf (Accessed: March 2, 2008) Kerwer, Dieter. (2005). ‘
3. Rules that Many Use: Standards and Global Regulation’, Governance, 18(3), pp. 453-475, EBSCOhost [Online]. Available from: http://web. EBSCOhost.com.ezproxy.liv.ac.uk/ehost/pdf? vid=4;hid=102;sid=43653db8-e76f-4fe0-ac65 d396ccc2eacf%40sessionmgr104 (Accessed: February 1, 2008) Mayers, D. , Smith, C. W. (1987), “Portfolio Management and the Underinvestment Problem”, The Journal of Risk and Insurance, Vol. 54, No. 1, pp. 45-54. Risk Glossary. (2004).
4. Portfolio Management Risks and rewards [Online]. Available from: http://www.riskglossary.com/(Accessed: March 30, 2008) Sloan, Allan; Burke, Doris. (2007).

Financial Statement Companies use several tools such as a balance sheet to make sound business decisions. A balance sheet is a quantitative summary of a company’s financial condition at a specific point in time, including assets, liabilities and net worth. The first part of a balance sheet shows all the productive assets a company owns, and the second part shows all the financing methods (such as liabilities and shareholders’ equity) Also, called statement of condition.

On a balance sheet, assets are equal to the sum of liabilities, common stock, preferred stock, and retained earnings. Another tool used by companies to make decisions is a company’s Income statement. An income statement is an accounting of sales, expenses, and net profit for a given period. The purpose of this report is to view the company’s performance (profits and losses) over a designated period of time. It lists the company’s revenues and its debts during operational and non operational periods.

The balance sheet works in conjunction with the income statement: both deals with matters that concern investors. The next tool used is called a retained earnings statement. A retained earnings statement is a financial statement that lists a firm’s accumulated retained earnings and net income that has been paid as dividends to stockholders in the current period. Also can be known as, statement of retained earnings. It is important for everyone to understand that retained earnings do not represent surplus cash or cash left over after the payment of dividends.

Rather, retained earnings demonstrate what a company did with its profits; they are the amount of profit the company has reinvested in the business since its inception. These reinvestments are either asset purchases or liability reductions. Next in line is the statement of Cash flows. Statement of cash flows is a summary of a company’s cash flow over a given period of time. What can the statement of cash flows tell us? It’s simple, because the income statement is prepared under the accrual basis of accounting, the revenues reported may not have been collected.

Similarly, the expenses reported on the income statement might not have been paid. You could review the balance sheet changes to determine the facts, but the cash flow statement already has integrated all that information. As a result, savvy business people and investors utilize this important financial statement. A company also uses comparative statements to track gains, losses, and trends over a given time period. This allows that company to forecast future performance in order to make sound business decisions.

Viewing and researching how a company did last year, or the year before, or an average over the past five years can ease doubt, assist with finding solutions, and either make or break a company’s financial future. References •This is the site used for definitions under financial statements, http://www. investorwords. com/1957/financial_statement. html •This is the site I read about each topic, some topics are in other topics. http://www. accountingcoach. com/explanations. html