Discussion Question: Using evidence from at least one scholarly source for support answer the following questions. If you were considering a capital investment, how would you utilize the information reported on your balance sheet, statement of revenue and expense, and statement of cash flows? What determinations or decisions can be made with the information reported? Please discuss your response, and include an APA citation from a minimum of one scholarly reference to support your 250-300 word post.
Example Answer: It can be understood that the different types of financial documents and the information each contain helps everyone better understand their financial position and make more informed decisions about their actions. “Preparation of financial statements that accurately depict the financial status of an organization at a point in time and how its status has changed over the most recent accounting period is the end result of the financial accounting process” (Smith, 2014). Given this information, it is clear that the balance sheet, statement of revenue and expense, and the statement of cash flows are all of high importance. Looking at the balance sheet, it can be understood that this shows us our financial position at that current moment, because it acts a detailed statement of my current assets, liabilities, and equity. Assets are the things that you own or generate a substantial income or flow of cash for you. Liabilities are items or expenses that you have that make cash flow away. As an example for equity, if I buy a house for $20,000 and it is now worth $120,000, then I have a positive equity of $100,000. Equity can be better understood as what you have remaining after what you owe has been deducted. Balance sheets allow you to identify trends in your financial performance. “Comparing current measures of financial performance against last year’s measures, as well as the forecast of measures presented in a budget, is a good use of internal standards for evaluating financial performance” (Smith, 2014). Looking at the concept behind a balance sheet, statement of revenue and expense, and statement of cash flow, it is clear that each assist me in identifying potential financial problems. “A key determinant of successful investment is management’s ability to forecast payoffs, because forecasting plays a central role in investment valuation methods, like net present value (NPV)” (Goodman, Neamtiu, Shroff, & White, 2014). The statement of cash flow acts a projector to allow me to see income will come in on a regular basis. For instance, if I had a trust fund and it continued to gain interest and the interest was guaranteed to be at that rate, then I could consider this cash flow or perpetuity (Smith, 2014). Taking this information into consideration, each document will assist me in identifying what I can afford to initiate investment and they also will allow me to see the earning potential and quality over a period of time. The sensitivity and seriousness of investing should always be thoroughly researched. The profitability may sound good, but numbers over time help each of us reach a level comfort.
Smith, D. G. (2014). Introduction to healthcare financial management. San Diego, CA: Bridgepoint Education, Inc.
Goodman, T. H., Neamtiu, M., Shroff, N., & White, H. D. (2014). Management Forecast Quality and Capital Investment Decisions. Accounting Review, 89(1), 331-365. doi:10.2308/accr-50575
LI, F. (2011). Earnings Quality Based on Corporate Investment Decisions. Journal Of Accounting Research, 49(3), 721-752. doi:10.1111/j.1475-679X.2010.00397.x
Capital Investment Plan Proposal Topic
A capital investment plan is a document that is typically prepared to obtain funding and/or financing. For your Final Project, which is due in Week Five, you will assume the role of a department manager who is seeking funding/financing for a capital investment, and you will create a capital investment plan to present to your chief financial officer and board. In the scenario you choose, you may be looking to expand in an existing department, or you may focus on a brand new capital investment for a new service line.
For this assignment, address the following points as they pertain to your selected capital investment:
Addressing these points will help you as you begin to develop your capital investment plan. Your paper should be two to three double-spaced pages in length, excluding the title and reference pages. Format your paper according to APA style as outlined in the Ashford Writing Center.
Measures for Success
Financial managers may work alongside general services managers to address certain measures of liquidity. How might a financial manager and the department administrator for your chosen capital investment plan work together to make an effort on reducing days in accounts receivable? If you are successful with your financial performance and are paid a bonus based on profitability , which measure should be used? (Comprehensively explain how a financial manager and the department manager might work together to reduce accounts receivable days. Comprehensively explain which measure should be used to measure successful financial performance.)