Discussions: Financial Management

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1.

Explain the purpose and the format of the statement of cash flows. Also, describe its relevance to decision makers.

The statement of cash flows is considered a major financial statement, along with the income statement, balance sheet, and statement of stockholders’ equity. The statement of cash flows, however, provides much information and answers certain questions that the other three statements do not. It has replaced the statement of changes in financial position, and its presentation is required whenever an income statement is prepared.

The statement of cash flows shows the effect on cash and cash equivalents of the operating, investing, and financing activities of a company for an accounting period. Cash equivalents are short-term, highly liquid investments such as money market accounts, commercial paper (short-term notes), and U.S. Treasury bills. Short-term investments (marketable securities) are not considered cash equivalents. Must be three paragraphs six lines in length with a minimum of 2 peer-reviewed references in APA Format. No Wikipedia, BLOGS with ads from yahoo.com or google.com, as they present a biased opinion. Use peer-reviewed articles to support your thoughts!

2.

Discuss the major components of the Sarbanes-Oxley Act of 2002 and Corporate Governance?

Counterpoint: According to Romano (2004), the Sarbanes-Oxley Act (SOX), in which Congress introduced a series of corporate governance initiatives into the federal securities laws are not just a considerable change in law but also a departure in the mode of regulation. The federal regime had until then consisted of disclosure requirements, rather than substantive corporate governance mandates, which were traditionally left to state corporate law and were not part of the federal security regime. Federal courts had, enforced such a view of the regime’s strictures, by characterizing the efforts of the SEC to extend its domain into substantive corporate governance as beyond its jurisdiction.Must be three paragraphs six lines in length with a minimum of 2 peer-reviewed references in APA Format. No Wikipedia, BLOGS with ads from yahoo.com or google.com, as they present a biased opinion. Use peer-reviewed articles to support your thoughts!

Reference

Romano, R. (2004). The Sarbanes-Oxley Act and the Making of Quack Corporate Governance. NYU, Law and Econ Research Paper 04-032; Yale Law & Econ Research Paper 297; Yale ICF Working Paper 04-37; ECGI – Finance Working Paper 52/2004. Available at SSRN: http://ssrn.com/abstract=596101 or http://dx.doi.org/10.2139/ssrn.596101

3.

Why would a company consider going public? What are some of the advantages and disadvantages?

A public offering of stock can help a company gain prestige by creating a perception of stability. A company’s founders, co-founders, and managers gain an enormous amount of personal prestige from being associated with a client that goes public. By selling stock on an exchange, companies can gain additional exposure and become better known. This exposure may lead to improved recognition and business operations. The public status can be leveraged when marketing goods and services. Often a company’s suppliers and consumers become shareholders, which may encourage continued or increased business. In this example, a public company could have a competitive advantage over a private enterprise. An IPO can indicate credibility to a company’s customers, which may lead to increased sales and a greater corporate profile. Once a company goes public, lenders and suppliers may perceive the company as safer credit risk, enhancing the opportunities for favorable financing terms. Also, a public offering can create publicity that is effective when marketing a company.Must be three paragraphs six lines in length with a minimum of 2 peer-reviewed references in APA Format. No Wikipedia, BLOGS with ads from yahoo.com or google.com, as they present a biased opinion. Use peer-reviewed articles to support your thoughts!

4.

Briefly describe the current International Monetary System. How does the Current systems differ from the system that was in place prior to August 1971?

Prior to 1971, the world operated on a fixed exchange rate system. The value of the U. S. Dollar link to gold at the fixed price of $35 per ounce and the values of other currencies then tied to the dollar; For example, in 1964, the British pound was fixed at $2.80 for 1 pound, with a 1 percent permissible fluctuation around this rate. Thus, the British government had regularly intervened in the foreign exchange Market to keep the pound in the range of $2.77 to $2.83. When the pound fell, the Bank of England had to buy pounds, offering either foreign currencies or gold in Exchange. Conversely, if the pound reached the top of the range, the Bank of England would sell pounds. The official exchange rates were occasionally “reset” to reflect changing economic conditions.

The current international monetary system for most industrialized nations is a floating rate system. In this system, currency exchange rates allowed to fluctuate in response to market conditions with a minimum of governmental intervention. Changes in currency demand can be due to trade deficits (i.e., one nation imports more from another nation than it does exports, causing there to be higher relative demand for the currency of the bigger exporter). It can also be due to capital movements. For example, if interest rates are relatively high in one country, then investors might seek to purchase that country’s securities, which increases demand for that country’s currency?Must be three paragraphs six lines in length with a minimum of 2 peer-reviewed references in APA Format. No Wikipedia, BLOGS with ads from yahoo.com or google.com, as they present a biased opinion. Use peer-reviewed articles to support your thoughts!

5.

What are some valid economic justifications for mergers? Please see chapter Ch.22 for references to this topic.

According to Stahl (2006), merger or acquisition promises to create value from some synergy. Statistics show that the benefits that look so good on paper often do not materialize. The failure of an M&A is frequently blamed on a clash of cultures between the merging companies that resulted in major integration problems and undermined the success of the deal. For example, an internal study conducted by Siebel Systems (which was recently acquired by Oracle) revealed that all of the company’s acquisitions had failed because of “cultural conflicts.” In other cases, deals had fallen through before they were sealed because the culture of the two companies was vastly different. When the proposed merger between Monsanto and American Home Products was called off in 1998, for example, the failure of the deal was attributed to conflicting management styles and the fact that the two CEOs could not agree on a power-sharing arrangement. A Wall Street Journal article concluded: “Another drug industry mega-merger goes bust: Clash of cultures kills Monsanto-AHP marriage”(p.3).

Reference

Stahl, G.K. (2006). Synergy springs from Cultural Revolution Cultural differences between merging companies are often blamed when M&as fail to achieve anticipated synergies. Financial Times (London, England), pg.3.

Brigham, E. F. & Ehrhardt, M. C. (2010). Financial management. (13th ed.). Mason, OH: South-Western Cengage Learning.

Must be three paragraphs six lines in length with a minimum of 2 peer-reviewed references in APA Format. No Wikipedia, BLOGS with ads from yahoo.com or google.com, as they present a biased opinion. Use peer-reviewed articles to support your thoughts!

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