CH5: Cash Flow Statement

Source: http://dimemag.com/2009/12/nba-players-d-up-their-spending/

Summary:

This article talks about how high paid professional athletes becomes broke in just a few years after retirement. The salaries of NBA players are all in the millions range. That may seem like a lot of money, but after tax reductions, anyone would be amazed at how much money gets cut off of the paycheck. Many of the athletes that go broke are all big spenders so it's no wonder they get broke so quickly. According to this article, some of the things that these athletes blow their paychecks on are cars, which is a very poor investment decision due to the fact that its value depreciates. Another reason why the athletes don't have enough money left after retirement is that an athletes career is short-lived.

Connection:

This article relates to cash outflow and inflow. These athletes are aggressively spending large sums of cash without thinking of the consequences. The mounds of cash that the NBA players are dishing out to buy unnecessary products are going to waste to buy things like vehicles and electronics, which as stated in the article, are poor investments because they amortize. Also, due to taxes, the paycheck the players receive are deducted immensely, and not only that, since the careers of basketball players are short-lived, its hard to save up enough money that will support them for the rest of their lives. Most basketball players' cash inflow is inferior to the amount of their cash outflow.

Reflection:

I find this article quite shocking. Most people would expect superstars like professional athletes would have easy lives as a result of their financially enormous paychecks. It wouldn't be surprising that the athletes spend a large portion of that money sometimes, but its quite surprising to see that not even the money the athletes initially saved up could cover them for a few years in the future. This article has taught me that although you may seem to have a lot of money at hand initially, due to bad financial decisions, that money could go to waste quickly, rather than being put into good use: into good investments and savings.

CH4: Revenue Recognition

Source: http://www.dallasnews.com/sharedcontent/dws/bus/stories/DN-Cinemark_26bus.ART0.State.Edition1.3cea987.html

Summary:

Cinemark Inc. is now the second largest theater chain in United States and it reported that over the Winter holidays the attendance at the theater rose 21%. This increase customers went down in the history of the U.S. movie theater industry being a record setting quarter. Revenue earned from movie tickets increased by 34% and revenue earned through concession jumped 28%. Most of the these profits came from an increase in attendance of consumers, and the rest of it came from an increase in ticket costs. This caused an increase in the company's shares by 36 cents each.

Connection:

Upon reading this article I can see that the relationship between Cinemark's booming success and chapter 4 is revenue recognition. Cinemark is recording revenue and profits under GAAP principles. Also, although Cinemark may have huge potential for future profits, they aren't recording it down because that would be bad accounting practice and many people, especially shareholders, will be mislead into overestimating Cinemark's performance. One of such principles that Cinemark is following is the matching principle. This states that the expenses must be recorded in the same fiscal period as the revenue it was used to generate.

Reflection:

I believe that a major factor that attracted an increase in attendance at theaters is the improved technology that present day theaters now have installed. The new 3-D effects that were implemented in "Avatar" is an example of this. Consumers chose to buy tickets to watch the movie in IMAX instead of waiting for the DVD or Blue-ray version to be released. The 3-D technology may have increased expenses by a lot theaters, but the overall profit margin increases since it attracts more customers, and the 3-D glasses used to view the movie can be easily recyclable.

CH 3: Processing Data Through the Accounting System

Source: http://blog.friendseat.com/small-businesses-affected-by-haitian-earthquake/

Summary:

Port-au-Prince is one of the largest cities in Haiti, which was recently devastated by an earthquake. This city produces many of the fresh fruits, vegetables, and other resources that are necessary to businesses world-wide. Due to the destruction of the resources, Haiti cannot produce or ship any goods out to the market. Haiti is especially famous for its mangoes, but it's feared that the facilities producing these fruits have been destroyed as well. Since the mango season starts in April and ends in August, it is very possible that the facilities will not have been rebuilt by the end of the growing season. This is why many markets around the globe are looking for replacements.

Connection:

The connection between this article and chapter 3 is extraordinary events. Due to the earthquake that hit Haiti, many businesses have lost assets that could have been sold to generate profit. Since the losses of assets are caused by an infrequent event, we can assume that the companies that suffered this loss have recorded extraordinary events somewhere in their income statements. Although this depressing and disastrous event was nobody's fault, the Haiti companies that suffered also lost business opportunities. For example since Haiti can't fix their mango producing facilities in time, many regular customers that have purchased from them have turned their backs to Haiti and gone to find replacements.

Reflection:

I find it astonishing that companies who have purchased from Haiti for years and years have now turned a blind eye on them because of an incident that no one could have prevented. I believe what should have been done is instead of finding replacement suppliers, they should contribute funds and donations to get Haiti businesses back on track. This way, the mango producing facilities and other resources would be able to recover in time for the mango growing season.

Ch 2: Transaction Analysis

http://www.allmediascotland.com/media_releases/5726/uk%92s_first_eco-friendly_luxury_hand_car_wash_opens_in_glasgow

Summary:

This article explains how the UK introduces a new eco-friendly luxury car hand wash in Glasglow. This new car washing system was designed to attract customers by boasting about its new technology compared to the old car washing method where an automated brush is used. The new method is also better because it says it recycles and retains the traffic film, and helps better protect the surface from acid rain. Since its environmental friendly, the new system includes a filter system to cleanse the used water left over from the car wash, which removes contaminants from the water. The filtered out and unwanted waste is removed safely. It also reuses 75% of its water.

Connection:

The article is connected to transaction analysis because when the company makes money by washing a customers car it’s an operating activity. Since this company focuses on doing car washes by hand, it must pay wages to the multiple employees that works there, which is also considered an operating acitivity. Some of the financial activities for this company could be to pay the water bill, electricity used for the filter system that’s used to clean the water and possibly loaning money from the bank for new investments. The cash that the company earns is recorded into the cash flow statements.

Response:

I think that this new method could turn out to be a great success to the company if they could lower the costs of their services. Sure the new system may be eco-friendly, but a lot of people care more about saving money than the environment. So if management gets around the idea of lowering costs, they could most likely earn more proft and increase environmental awareness. If I were to give suggestions to a company using this car wash method, I would recommend them to charge less, but still earn some profit. By doing this, it would be more appealing to consumers which would increase the demand for the company’s services.

Ch1: Overview of Corporate Financial Reporting

http://www.nytimes.com/2005/07/17/business/yourmoney/17costco.html

Summary: This article is talking about how Costco, being one of the nations fifth largest retailer, is too overly generous towards their customers and employees, possibly more than their shareholders. By doing this it keep Costco's customers loyal and lowers the chances of employees stealing products from the warehouses. The owner, Mr. Sinegal, works very different than how Wall Street businesses these days operate. He doesn't think about earning as much money possible from today until next week, he wants to keep his business going for another 50-60 years. At Costco, they only mark up merchandise by 10-15%, but in supermarkets they mark up by around 25%, and in department stores they mark up by 50%. In the previous 12 months, Costco's stock prices have risen 10%, while Wal-Mart has decreased 5%.

Connection: This article relates to chapter one because it shows how this particle business has differed from other companies and how it has succeeded. Although Costco could earn a lot more profit if it marked up higher on its merchandise, it refuses to do so, which makes the customers happy. By having this low price and good quality merchandise strategy, Costco is a top contender in the retail industry. The business can also check on how other companies are doing so it could adjust its own selling strategy accordingly. The financial documents mentioned in this chapter like the balance sheet, income statement, and etc. can greatly aid Costco in knowing their position in the industry.

Reflections: I think that if in the future I think about buying shares, I would definitely consider Costco. Customers like it when they charge low prices on merchandise which makes their customers happy and loyal, so as long as Costco doesn't change this about their business, customers will keep coming back. Compared to other supermarkets and department stores in the industry, Costco doesn't have any trouble competing with them. For example in this article it revealed that Costco shareholders gained a 10% increase in value in their stocks while Wal-Mart stocks plummeted 5%. Although I think if Costco got rid of their members only policy, they would definitely see more satisfied customers.