Question

1. What is the primary goal of management? What are the primary tasks of a Chief Financial Officer (CFO) and others in finance function of an organization?

2. Name and explain three tricks that management can play to manage earnings. Explain how using financial ratios can help spot these tricks.

3. Why is it important to analyze profitability, specifically focusing on return on investment? Invoke the breakdown of ROI in thinking about your response.

Answer 1

1.maximize the current value per share of existing stock

other secondary financial goals are

• maintain a steady growth
• avoidance of bankruptcy
• minimize cost
• minimize profit
• survive in the business

the cheif financial officer (CFO) is critical to the growth of the firm.as one of the executives in the firm they have multiple roles to play

• administrator
• strategist
• catalyst
• risk manager

these are the main roles they done in the organization are other financial functions of organization as follows

• prepare financial statements
• cash planning
• credit management
• record and maintain data
• reporting(as a absolute responsibily)
• investment decision
• divident policy
• analysis of performance
• forcasting
• procurment of fraud
• advice to boad of directors

2. Tricks that used by the managment is as follows

• EXPENSES AND REVENUES
  • in this context earning the profit earned date is altered and revenues are entered to companies book,if a company wishes to inflate earnings during a given period it can record anticipated revenue that alresdy earned or delaying the recording that already incurred either way the company looks more profitable than actually it is during this period of time
• COOKIE JAR ACCOUNTING PRACTICES
  • company record associated future expences at the of revenue is earned, a product that comes with a warranty is a prime opportunity to engage in cookie jar accounting practices , accounting practice in which a company takes a quantity of large reserves from an economically successful year and incurs them against losses from less successful years.its completly unethicall and represents the false picture of a performance

• SWITCHING UP THE ACCOUNTING METHODS
  • company can switch from one type of recording to another to get a better financial picture during a specific period these include the method of calculating the value of inventory and the depreciation schedule uses of assets over and extented period these method will produce a identical results however the accounting method that company uses can have a really a substantial impact on earnings during that specific period of time

the financial ratios are as follows

price earning ratio, debt ratios and equity ratios helps to know the financial performance because its found using the profitability of the firm

3. profitability analysis provides an opportunity for business owners and managers to evaluate the ability of a business to generate profit in the future

the common profitability ratio is ROA (return on asset)

• this ratio can be computed by dividing net income by the average total assets

for example if ROA of a company is $.049 then the  net income for every dollar of assets it employs is $0.49

ROA will be always lower than the asset turnover ratio,how much lower represents how efficiently the companies operating. ideally a company wants ROA and asset turnover ratios to be close as possible which indicates company doesnt spent much on cost of goods sold and other expences