Sunday, October 6, 2019

Principles of managerial accounting. Answers to Questions. (Cash Flows Essay

Principles of managerial accounting. Answers to Questions. (Cash Flows Information, Apple's Cash Flow, Stock Features, Role of Management Accounting etc.) - Essay Example As a rule, one should look at cash flow statement, as† if the cash obtained from operating activities is greater than the derived net income, company is in a healthy position, but if it is reported otherwise, something is wrong, and management should be concerned on this. (Accounting Coach) It is different for investors because for investors more cash coming in means increases in dividends, opportunities for expansions, and payment of debts, and would improve stockholders value. Apple's Cash Flow Review the cash flow statement for Apple. How would you summarize Apple’s cash flow position and what does this statement tell you about where the money is coming from and where it’s going? What should Apple do to improve its cash position and why? A review of the yearly cash flow statement of AAPL from 2010 to 2012 shows that the cash used for operating have been larger than the reported income so it is assumed that some strategies of the company are not attuned with the operations and investing activities. (Yahoo Finance, 2013) For instance, a lot of cash are tied up in accounts receivables and in heavy investments. AAPL cash flow states Investors are happy since dividends are paid regularly and obligations are met as they fell due. What should Apple due to improve its cash position? Since cash position has been low for the past 3 years of operation, a review of company’s strategies should be done, more so in operational strategies. For instance, heavy accounts receivables means creditors are enjoying too much liberal credit facilities, or management needs to slow down on investments. 3. Stock Features What is "callable preferred stock"? Why do corporations issue such stock? Given the different features that are associated with stock (callable, cumulative, preferred, etc.), what type of stock would you want to buy personally and why? A callable preferred stocks are stocks issued by a company wherein it has the right but not an obligation to repurchase the stock at a specific price after a certain date (Investing Answers). For instance, issuer Company †Star† issued preferred stock in 2000, paying a rate of 10% and would mature in 2020 , callable at 2010 . In 2010, â€Å"Star† gains the r ight to call the stock. Star would most probably exercise its right to call the option if the interest rates in 2010 is lower than 10%. The usual procedure is that issuer pay investor a little over the par value in order to call the stock, a call known as call premium. Call premium decreases as the preferred stocks comes near to it maturity. In this case Star offers 102% of face value if the call is done in 2010, but it is reduced to 101% as it goes to 2015 or nearer. It is advantageous to issuer since it can offer the flexibility of offering lower interest rates thus gain in the transaction. A callable preferred stock becomes disadvantageous to investors because of prospects of reinvesting at a lower rate of interest. Cumulative refers to the variation in the preferred stock. This provision settles any unpaid dividends in the past to the investor before paying new obligations to investors. It is cumulative because company owes investors a collective amount (Damon, S.). Preferred St ock is a financial instrument that gives the investor a higher claim on the assets and earnings of the company than the holders of common stock. Dividends must be paid

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