Chapter 6 Article

http://globalist.org.ua/eng/1441561-forecast-exchange-rate-of-dollar-and-euro

Summary:

This article is talking about the euro is continuously dropping. According to this article, it said that people are predicting euro will fall to its historic lows. This is due to various reasons, and one of them is because of Greece economic crisis. In addition, not just Greece, but in fact, the Southern Europe’s economy is not in a growth position. Euro exchanging rate is current experiencing a very difficult time, and currency experts believe that the euro is highly unstable and it will not go back up in a short period of time.

Connection:

Chapter 6 has mentioned about the risk in cash. Due to the exchanging rates, our money can be gold one day and a piece of useless paper on the next day. Fortunately, this will rarely happen because unlike stocks and other investments, the exchanging rates are not as fluctuated. However, this article proves the point that holding cash involve a risk. The price of the stocks is determined by the performance of the business; similarly, the exchanging rates depend on the economy of the places that use that currency. Since euro is use throughout Europe, so when one country’s economy goes down, it affects the whole Europe.

Personal Reflection:

Personally I believe that investing in currency is a great idea. Even though we cannot make a huge profit out of this investment; however, it still gives us a reasonable amount of return. More importantly, it will not have sudden growth or drops like stocks. Since the exchanging rates are usually depends on the economy of the country or the place that the currency that is used, it always gives the invest signs that it either will go up or down. Besides, everyone should have certain amount of saving in their bank account. Instead of letting those money sitting on the bank and getting the low interest, it would be way better if people are buying in other currency and make more money in that way.

Chapter 5 Article

The article from the beginning of the chapter

Summary:

In this article, it talks about how successful Frantic Films is. Frantic Films is a company that helps to create the computer-generated visual effects in films, lifestyle programs, and commercials. Frantic Films are created by two guys named Chris Bond and Ken Zorniak. Bond is the expert in computer graphics and animation skill; as Zorniak is good at business management and marketing. The secret of its success is the control it has on its cash flow and debts. When it gets a project, it will first calculate all the expenses, and borrow a loan that is for the life of the project. Frantic will also pay off the loan as soon as possible after the project is done. In this way, the company’s debt will always be minimized.

Connection:

This chapter is teaching us about cash flow statement. Cash flow statement is one of the most important financial statements that people would use to analyze a company. It does not only include the information of the income statement, it also includes the other information of where the company spend its money on. The cash flow statement is always divided into three parts which splits the company’s activity into three major categories which are operating, financing, investing. It is very important for the organization to use the information in this financial statement to make the right decision for the company.

Reflection:

I think it is true that if a company want to be successful, it definitely needs to control its flow and debts. Some companies will often leave off their debts unit the last minute, and they usually ended up failing. Even though they earn a profit from the money they borrowed, as long as the deadline has not arrived, they will not pay back the money. Instead they will use the new profit to invest in projects, but once the date has come, they are short of cash to pay the loan back.

Chapter 4 Article

http://www.reuters.com/article/idUSTRE6205TD20100301?type=globalMarketsNews

Summary:

This article is about McDermott International Inc.’s new quarter report about its financial status. From what they estimate, this company was going to have a 55.7 million of increase in their net income. However, in reality, they did not rise, but fell instead. Stepping in 2010, the shares of this company fell three percent because of the investors have back up and lower their expectations for this company. As the shares of McDermott fell to be around $23 to $28, the explanation of their poor performance is that they believe their businesses are still in a challenging economic environment. It would be a challenge for this company to meet its goals in the mean time.

Connections:

I n Chapter four, we have talked about revenue recognition. In class we have all go over the rules that we need to follow when we are recognizing our earnings. In fact we actually looked at a case where a company has claim to have revenue that they have not earned yet to make their financial statements to look good and attract buyers. In a recession period like now, it would be difficult to maintain a business. If business such as McDermott International Inc. lies to the investors and claim the revenue that has not yet earn, their shares may not go down and earn a profit from another way such as selling it. When all the businesses that are not doing that well lies on their performances, then the economy of the world will crash because people invested in something that are not exist.

Personal Reflection:

Realizing the relationship between the net earnings of the company and the shares of the company, it would be really hard to announce that the company`s performances are not as good as the previous quarter or what they have expected. Since businesses are depending on the investor’s money to cover their daily operation expenses and the amount of investors are determined by the performance of the company. When the results are not that great that also mean there will be lesser investors put money in the company and it would make the corporation in a bad situation. However, even though no one likes to lose in the business world, but it is more important to play fair so that the economy does not crash.

Chapter 3 Article

http://www.camagazine.com/archives/print-edition/2009/oct/upfront/news-and-trends/camagazine30247.aspx

Summary:

The blog I read was about how to prevent corporate fraud. According to the blog, most firms tries to prevent corporate fraud by cutting budget and reorganizations; however, this in fact will increase the risk of fraud. There are a few suggestions that this blog mentioned which helps reduce the chance of fraud. The first one is to conduct criminal checks for the applicants of the financially sensitive positions. Also, develop a strong ethical working environment to encourage workers to work ethically. Lastly, set up an anonymous hotline to report fraud. Once there is a call comes in, the firm should take action as quickly as possible to confirm the truth.

Connections:

Corporate fraud has become a serious business issue in these days. From chapter three, we know that there is many financial information we could find in the financial statements. For example, the performance of the business’s daily operation is reflected by its income statement. Due to that, most investors and bankers use those financial statements to determine whether they should invest in or lend money out those that particular company or not. With corporate fraud, people overstate the performance of business which misleads the decisions of the investors and bankers. Corporate fraud is not only a crime, but it is also a behaviour that cost a huge lost in the world’s economy. Because of the internet today, people can buy stocks in other countries, so a large number of people may be affected by this.

Personal Reflection:

In an economic recession period like now, no one can afford a corporate fraud. In today’s society, people could not just afford a living with just a job, so they must have a “part-time” called investing. Due to the lost of the last crisis, a lot people just want to carefully invest in those companies which have a steady growth. However, the world is not as ideal as people wish; there are still frauds out there. The main reason that I think frauds occur is because of the auditing policy of the financial statements are not tight enough. So in December 15^th, 2009 a new quality control standard has come in effect for all audits of financial statements in Canada.

Chapter 2 Article Re-Do

http://news.smh.com.au/breaking-news-business/norfolk-posts-30-profit-rise-20091125-jpbv.html

Summary:

The building service company, Norfolk Group Ltd has reported on Wednesday that it has a thirty percent rise in half year profit. The reason for such a huge improvement is because of the growth of the revenue during the past six months. The revenue went up from 3.76 billion to 3.88 billion, so the profits before interest and tax rise from 1.04 billion to 1.14 billion which is ten percent growth. In addition, the net debt fell by 24.2 percent. With the increase in revenue and decrease in liabilities, the company said they would be expecting to complete the refinancing the facility by the end of the financial year which is the end of March 2010.

Connection:

This article is pointing out how good the company is doing. Some of the investors will read the financial reports or articles like this to invest into the company. However, to calculate the profitability ratios which mentions in chapter two is one of the best ways to find out is this company worthwhile to invest in. Returning rate can calculate by net income divided by total revenues. For a normal company the returning rate should be around 10 percent, which some company may go a bit higher. Also we are only looking at the returning rate, but also the return on assets rate because the profit that a company make is generated by its assets.

Personal Reflection:

From the two rates I mentioned above, Norfolk Group Ltd. has pretty good figures. For its net revenue is 3.88 billion and its net income is 0.56 billion, so its returning rate is about 14% which is consider as a very good returning rate. Besides, its average total assets is 2.64 billion, so its return on assets rate is 21% which is consider as good too. Not only the profitability of this company is good, but since it has a huge decrease in its debt, so I think this company is definitely worthwhile to invest. One other thing that I like about this company is that the returning rate is good, but not too good like 30 or 40 %, so it will not involve with too much risk in the investment.

Chapter 2 Article

http://www.contractjournal.com/Articles/2009/09/22/71882/plant-growth-some-way-off.html

Summary:
In the downfall of the plant market, most of the plants –owning contractors are facing a difficult situation which they have to make a decision so their business can go on. Due to the economic slowdown, the residual values of the fleets is falling and there will some new regulations implement in the near future, that makes the plant – owning contractors hard to continue their business. So, Most of them have to make a decision of either hire companies to sell their equipment and hold on to what they have, or buy more kit while prices are cheap. Depending on the different circumstances of each company, this decision will determine the business successful or not.

Connection:
In chapter two, residual value is the measure value of the asset in the next two years. Since the plant sales, the contractors’ fleets have fallen in residual values. In a business the non – current assets is extremely important because they are not just used for the operation activities, but also they are to cover the liabilities when it is necessary. Even though it is the residual value is only the estimate value, this value is pretty close to what the actual values of the assets are. So when the values of the long term assets are falling, once the company is in financial trouble, it is hard for them to get out of it.

Personal Reflection:
I believe the fixed assets are just as important as the current assets. When the company is in financial trouble, by selling some of the fixed assets sometimes could pull the company out of the hot water. However, in this news we know that the values contractors’ fixed assets are dropping, so once they don’t have enough current assets to cover up their liabilities, they may not have enough assets to pay off their debt. So except they want to close the business, otherwise, I don’t think they should sell their fleets.

Chapter 1 article

http://www.forbes.com/2009/09/14/ponzi-scheme-barry-markets-equities-prosecution.html

Summary:

A pyramid scheme had run for 30 years and swindled $40 million dollars. Philip Barry was the schemer and he tricked 800 investors, who were mostly his neighbors, with a Ponzi Scheme. Barry has started a company called the Leverage Management Co. which invested for people. The leverage Management Co. stated that the clients’ money would invested in securities and stock with a guaranteed returning from 12.55%-21%. This scam could be stopped if no new investors come in. However, he gave out false financial statements to attract new investors and used some of that money to pay off the guaranteed returning to the old investor.

Connection:

The financial statements are used for owner, bankers, and investors to view the actual performances of the company. It is very important for the investors to look at the financial statements to determine whether or not they should invest in the company. However, with the behavior of Philip Barry, he would make the reliability of the financial statements decrease in general. This could lead to a serious problem to the business world because people will no longer believe in those statements and investing will become a huge gamble. People who blindly invest usually end up losing all the money. It also destroys the opportunity of those companies that has potential to growth from gathering money from the investors, because investors may see that without the financial statements.

Personal Reflection:

I think this scam succeed because of the greed in human. People who invested in the Leverage Management Co were all looking for the guaranteed profits. Unfortunately, all investments involve some risks; people should realize it is a scheme once the company guaranteed for any returning. Even though, Barry used the false statements to lead the investors thought that they made a right decision, it is always the greed that was blocking people’s eyes from seeing the truth. Furthermore, from this article we have to be aware that the financial statements we get may not always telling the truth. Investing should not be just a matter of luck; the broad outcome should be predictable from the financial statements most of the time. A lot of the big corperations could not continue without borrowing money from the bankers or gathering money from the investors. When those statements lost their credibility, bankers and investors cannot predict the outcomes anymore, so they will have less chance to give out their money into this gamble. So it is extremely important for companies to follow the GAAPs and give out the true and accurate financial status to the bankers and the investors to help them make their decisions.