Discuss the limitations of ratio analysis.

1. Ratio Analysis

Discuss the limitations of ratio analysis.

2. Financial Statement Analysis

In this unit you learned about the preparation and content of financial statements. A common phrase in finance is “cash is king!” With this in mind, the Statement of Cash Flows has been heralded as the most important financial statement.

The Statement of Cash Flows on page 2.1.6 presents how changes in Balance Sheet accounts will affect a company’s cash balance. Refer to that information and discuss how an increase in your company’s accounts payable from one period to the next is a means to maintain high cash balances in your company’s bank account. Do you believe there are any ethical considerations in slowing payments to your suppliers for the sake of increasing your company’s bank balances?

3. Basic Time Value of Money

It is a common fact that many lottery winners are “broke” sooner than later. If you won a $1,000,000 lottery, would you want to collect the lump sum winnings today or receive the monies over time? How does your decision influence the ultimate amount of cash you will collect? Explain the TVM factors you would consider as you make this decision.

4. Advanced Time Value of Money

An advertised monthly lending rate of 9% is about 11% per year. This difference between an advertised rate and the annualized rate is based on finer TVM details that may be overlooked by borrowers. Discuss how you may have used TVM in a recent investment or loan decision and explain the TVM involved in your transaction.

If you have not used TVM in the past financial transactions what practical TVM application would you expect to encounter in your future.

5. Annuities

Systematic risk evaluates the probability and extent of negative consequences to the larger body. For example, the government has a record of intervening in the event of a probable bank failure; the government’s larger concern is the negative impact on bank customers. Some call this a government bail-out.

Discuss the effect on stock market investor confidence should bank customers, individuals and businesses alike, lose access to savings and undergo a loss of future purchasing power due to a bank failure.

6. Annuities and Loans

Treasury bills and Treasury notes are an investment security issued by the U.S. government. A Treasury bill matures within one year and investors typically roll over the matured Treasury bill and purchase another Treasury bill the same day. Treasury notes have maturities of up to 10 years.

You are considering investing $50,000 in a Treasury bill that you will renew every 6 months or invest in a Treasury note that you will hold until maturity. Your investment time frame is 9 years.

Current investment opportunity interest rates are 5% and are expected to increase to 7% in 6 months. Would you invest in the Treasury bill that you can rollover every 6 months and reinvest or leave your money in the Treasury note that will mature in 9 years? Discuss your reasoning.

7. Negotiating Skills

Negotiation is a soft skill that might just be one of the most important skills you will ever learn. For this Discussion, you will need to view the videos below to prepare for the rest of the Discussion.

MonkeySee. (2009, August 5). How to Negotiate. Retrieved from  http://monkeysee.com/how-to-negotiate/

MonkeySee. (2009, August 5). Powerful Negotiating Techniques. Retrieved from http://monkeysee.com/what-are-some-powerful-negotiating-techniques/

MonkeySee. (2009, August 5). Practicing Negotiation Skills. Retrieved from http://monkeysee.com/how-can-i-practice-negotiation-skills-that-let-both-sides-win/

Now that you have a little information about how to negotiate, first discuss three concepts that interested you from the videos. Then describe a situation in which you recognized that you entered into a negotiation with another person. How did this go for you?

If it went well, describe the tactics you used that contributed to the success of the negotiation.

If it did not go well discuss the issues you now recognize that caused this outcome. Remember that negotiation should be a win-win situation.

Now go practice this skill and return later in the week to discuss the skills you learned by telling us about the situation, other than purchasing an automobile, the actual negotiation that took place, and how what you learned contributed to your ability to effect an outcome. Also comment on one or two other student responses by giving tips that they might be able to use in the future.

8. Bonds

There is an inverse relationship between bond prices and yields. This inverse relationship will be demonstrated by calculating bond prices to show that interest rates move inversely: if yields rise, then bond prices fall. Bonds will be sold either at a premium or a discount. With this in mind respond to the following question.

You currently own a 30 year Treasury Bond paying a 4% annual coupon rate. The market interest rates for like securities rose to 5%. Would your bond sell for a premium or a discount? Why?

What would the market value of your bond be? Prove your answer by showing your work, the appropriate factors, or the factors that would be used for the fx calculator.

9. Stocks

There are two primary means to earn income as a stockholder. The first method is dividend income and the second method is earnings from capital gains. With respect to the investor seeking dividend income, when the investor buys a stock from a corporation with a primary focus to earn dividend income they will typically expect a higher dividend on common stock versus preferred stock. Discuss the dividend payment requirements of a common stock versus preferred stock, in terms of which type of stock has a primary claim on dividend distributions. Explain why the common stock investor demands a higher dividend rate.