ACC 312 Study Guide - Midterm Guide: Stock Valuation, Retained Earnings, Income Statement

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greenwalrus59

29 Nov 2017

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Document Summary

Profit and loss account and income statement are two terms usually used to mean the same thing. The profit and loss account of a private limited company or a public limited company should be able to tell us all about the results of the co(cid:373)pa(cid:374)y"s activities over specified accou(cid:374)ti(cid:374)g periods. The profit a(cid:374)d loss account shows us what revenues have been generated and what costs incurred in generating those revenues, and therefore the increase or decrease in wealth of the business during the period. The same note of caution that should be exercised in the analysis of balance sheet information, applies to profit and loss account information. The profit and loss account is an historical statement and so it does not tell us anything about the ability of the business to sustain or improve upon its performance over subsequent periods.

Related Questions

Please answer the below questions.I only have 1 hours beforesubmit.Please!

Questions

1. Should the Federal Government question an educationalinstitution on its recruiting practices?

2. Should the Federal Government also question State and PrivateUniversityâs retention practices?

3. Shouldnât these companies be able to operate as a business-that is- making money the aggressive way?

4. Who are the stakeholders in this situation?

What is the ethical dilemma and duty in this matter

For Profit for Education? Putting Profits over PublicGood? Contd...

For-profit colleges in the US came under increased scrutiny onseveral counts. This case study describes the problems faced byâfor-profit collegesâ in the US such as high loandefault rates, vague accreditation standards, and low graduationand job placement rates. Complaints such as overpriced degrees,misleading claims, and increasing level of student debt resulted inthe government turning its attention to the entire for-profitcollege sector. According to some reports, too much taxpayer moneywas being used to generate profits for the colleges, instead ofproviding students with useful high-quality education. The casealso focuses on the alleged fraudulent practices adopted byfor-profit colleges in the US to gain access to more federalfinancial aid.

The Study

Concerned about the disproportionate percentage of federalstudent aid flowing to âfor-profit collegesâ, someanalysts began raising questions about the rapid growth of thefor-profit education sector, the aggressive recruitment ofstudents, and the value of the education provided by suchinstitutions.

There are strategies followed by âfor-profitcollegesâ in the US to attract more students. According toa report released by US Government Accountability Office (GAO),some for-profit colleges in the US were involved in deceptivepractices and had made misleading statements to prospectivestudents which included not providing clear information about thecollege's graduation rate, applicant's likely salary aftergraduation, accreditation of the school, and the duration and costsof the programs offered by the schools. This study concludes bydetailing the new regulations proposed by the federal governmentfor the âfor-profitâ education sector in order to safeguardstudents from misleading recruitment practices and incurring hugedebts, among other issues. This study also focus on studentenrollments and the methods these colleges were adopting to attractmore students.

On release of the GAO report, the shares of for-profit educationcompanies in the US, including Apollo Group Inc. (Apollo Groupâowner of University of Phoenix), DeVry Inc. (DeVry), EducationManagement Corp, and Corinthian Colleges, Inc. (Corinthian), fellsignificantly. "GAO's findings make it disturbingly clear thatabuses in âfor-profitâ recruiting are not limited to a few roguerecruiters or even a few schools with lax oversight.

To the contrary, the evidence points to a problem that issystemic to the for-profit industry,"⁹ said Tom Harkin(Harkin), Chairman, US Senate Health, Education, Labor, andPensions (HELP) Committee.

The GAO defined for-profit colleges as "institutions ofpost-secondary education that are either privately owned or ownedby a public traded company and whose net earnings can benefit ashareholder or individual."...

In May 2010, the GAO began its investigation of 15 for-profitschools in six states (Arizona, California, Florida, Illinois,Pennsylvania, and Texas and Washington, D.C (Refer to Exhibit IIIfor a list of the schools probed)...

High Tuition Fee
The report stated that the tuition fee at for-profit colleges washigh compared to similar programs at other public colleges.Investigators found that on an average, the fee for an associatedegree program was between 6 and 13 times higher at a for-profitschool than at a public college while a bachelor's degree at afor-profit college cost almost twice that in local publicinstitutions...

Deceptive Recruitment and Marketing Tactics
According to the report, campus officials of all 15 colleges misledpotential students and made deceptive statements about theirprograms' cost, quality, and duration, and the average salary ofgraduates (Refer to Exhibit V for some examples of deceptivepractices of for-profit institutions) For-profit colleges generallypaid recruiters by the number of enrollments that theygenerated...

Loan Defaults
For-profit colleges, which accounted for 10% of all collegestudents in the US as of 2009, derived three-fourth of theirrevenues from federal grants and loans. In 2009, at 14 for-profitschools, federal aid totaled 87% of revenue in 2009...

Hands-On Project 10-12

IMPROVING DECISION MAKING: USING SPREADSHEET SOFTWARE TO ANALYZEA DOT- COM BUSINESS

Software skills: Spreadsheet downloading, formatting, andformulas

Business skills: Financial statement analysis 10- 12

Pick one e- commerce company on the Internetâ for example,Ashford, Buy. com, Yahoo, or Priceline. Study the Web pages thatdescribe the company and explain its purpose and structure. Use theWeb to find articles that comment on the company. Then visit theSecurities and Exchange Commissionâs Web site at www. sec.gov to access the companyâs 10- K ( annual report) formshowing income statements and balance sheets. Select only thesections of the 10- K form containing the desired portions offinancial statements that you need to examine, and download theminto your spreadsheet. Instructions below provide more detailedinstructions on how to download this 10- K data into a spreadsheetand information on financial statements. Create simplifiedspreadsheets of the companyâs balance sheets and income statementsfor the past three years.

â¢ Is the company a dot- com success, borderline business, orfailure? What information provides the basis of your decision? Why?When answering these questions, pay special attention to thecompanyâs three- year trends in revenues, costs of sales, grossmargins, operating expenses, and net margins.

â¢ Prepare a PowerPoint overhead presentation (with a minimum offive slides), including appropriate spreadsheets or charts, andpresent your work to your professor and classmates. An examplePowerPoint slide presentation is attached for your review in thislearning module folder in Blackboard.

As needed: Students can find material on understanding financialstatements on financial Web sites such as Ameritrade(www.ameritrade.com) or the Small Business Knowledge Basehttp://www.bizmove.com/finance/m3b2.htm.

Downloading the Data into a Spreadsheet

Use the Convert Text to Columns Wizard in your spreadsheetsoftware to arrange the 10-K data you downloaded into spreadsheetcolumns and rows. From the Excel menu, select Data and then selectthe Text to Columns option. The software brings up a Wizard toconvert the imported text into spreadsheet columns. Although youcan decide to create line breaks, it may be easiest to accept thedefault settings (Fixed Width, General format) and then adjustcolumn widths after the Wizard has arranged the data in spreadsheetcolumns.

Financial Statements

Financial statements are used to evaluate the performance of abusiness and diagnose its strengths and weaknesses. The two primaryfinancial statements are income statements and balance sheets. Theincome statement, also called an operating statement or profit andloss statement, shows the income and expenses of a firm over aperiod of time, such as a year, a quarter, or a month. Gross profitis calculated by subtracting the cost of goods sold from revenues,or sales. The gross margin is calculated by dividing gross profitby revenues (or sales). Net profit (or loss) is calculated bysubtracting all other expenses, including operating expenses andincome taxes from gross profit. Operating expenses are all businesscosts (such as expenditures for sales and marketing, general andadministrative expenditures, and depreciation) other than thoseincluded in the cost of goods sold. Net margins arecalculated by dividing net profit (or loss) by revenues (orsales).

A balance sheet provides a snapshot of a companyâs financialassets and liabilities on a given date, usually the close of anaccounting period. It lists what material andintangible assets the business owns and what money the businessowes either to its creditors (liabilities) or to its owners(shareholdersâ equity, also known as net worth). At any given timea businessâs assets equals the sum of its liabilities plus its networth. Current assets include cash, securities, accountsreceivable, or other investments that are likely to be convertedinto cash within one year. Liabilities are outstanding obligationsof the firm. Current liabilities are debts that are due within oneyear. Long-term debt consists of liabilities that are not due untilafter a year or more. If too much debt has been used to finance thefirmâs operations, problems may arise in meeting future interestpayments and repaying outstanding loans. By examining a series ofbalance sheets, one can identify and analyze trends in thefinancial strength of a business.