Unit 6: Finance And Accounting - Discussion 1 There Are Two

Unit 6: Finance and Accounting - Discussion 1 There are two separate Discussions this week

Discuss the following: Financial Statements: For a publicly traded company, what are the most important financial statements and why? Choose a small business other than that given in the scenario or that chosen by another classmate: In a small business of your choice, what accounting/financial statements would be most crucial to running your day to day business and why? Make sure you specify what type of business you would choose. Scenario: If your best friend came to you and said that their business was doing poorly and you looked over their business and saw the information (in the scenario below), what would you advise him or her and explain why. Scenario: Your best friend works for an In-Home Health Provider Company (IHHPC) in Palm Beach County, Florida. Your friend comes to you and explains that the In-Home Health Provider Co. wants to expand the next year to Broward County and Miami County. Your friend explains the company is dealing with a cash flow problem and if it is not figured out over the next six months the IHHPC will not meet the asset requirement for the expansion loan. IHHPC Revenue: 80% private pay patients. 10% Health insurance. 10% Long Term Care Insurance Policy. Process at IHHPC: Your friend explains this is how the IHHPC works. A patient would call in and request a nurse for eight hours, seven days a week, starting the next day. The company would send the nurse the next day, then bill the patient on a weekly cycle. The IHHPC would mail a statement to the patient at the end of the first week of service. By the time the patient would get around to writing a check, and mailing it back into the IHHPC, sometimes the company would not receive payment for six to eight weeks. The company would be paying the nurse weekly although not receiving payment for services yet. What would you advise him or her and explain why.

Paper For Above instruction

Financial statements are a crucial element of financial reporting that offer insights into a company's financial health and operational performance. For publicly traded companies, the most important financial statements include the Income Statement, Balance Sheet, and Cash Flow Statement. Each provides unique and essential information that stakeholders, including investors, analysts, and management, utilize for decision-making.

The Income Statement, also known as the Profit and Loss Statement, summarizes the company's revenues, expenses, and profits over a specific period. It is vital because it reveals whether the company is generating profit, which is key for shareholders and potential investors assessing the company's profitability and operational efficiency (Kieso, Weygandt, & Warfield, 2019). The Balance Sheet provides a snapshot of the company’s assets, liabilities, and shareholders’ equity at a particular point in time. This statement is critical for understanding the company’s financial stability and liquidity position, informing decisions regarding debt management and asset utilization (Wild, Subramanyam, & Halsey, 2020). The Cash Flow Statement tracks the inflow and outflow of cash, which is essential for assessing the company's liquidity, operational viability, and ability to meet short-term financial obligations (Brigham & Houston, 2021).

For small businesses, especially those operating in niche markets or specific service environments, the primary financial statement of concern often differs based on the nature of their operations. For example, a small coffee shop might focus heavily on the Cash Flow Statement to manage daily liquidity, while a small manufacturing company might prioritize the Balance Sheet's valuation of inventory and receivables. For this discussion, I choose a small digital marketing agency. In such a business, the Income Statement is most crucial because it directly reflects revenue streams from clients, expenses related to campaigns and staffing, and overall profitability. Ensuring cash flows from campaigns translate into timely revenue recognition affects the agency’s ability to sustain operations and grow (Hansen, Mowen, & Guan, 2020). Monthly profit margins help determine pricing strategies and resource allocation, making the Income Statement vital for operational decision-making.

Regarding the scenario involving the In-Home Health Provider Company (IHHPC), the primary concern is the company's cash flow problem, which threatens to impact its expansion plans. The income generated from private pay, insurance, and long-term care policies suggests diversified revenue streams, but delayed payments from patients create liquidity issues. I would advise the company to focus on improving its receivables collection process and managing cash flow more proactively. Implementing faster billing and collections, perhaps by offering discounts for early payments or using electronic payment systems, could accelerate cash inflows (Brigham & Ehrhardt, 2019). Additionally, establishing a line of credit or short-term financing might help bridge the cash gap until receivables are collected.

It is essential to review key financial ratios such as the accounts receivable turnover ratio to evaluate the efficiency of collections and the current ratio to measure liquidity. By optimizing receivables management, the company can free up cash more quickly, ensuring it meets operational expenses, including paying nurses weekly. Proper cash flow management is critical to meeting the asset requirement for the expansion loan, and improving liquidity can enable the company to secure necessary funding for its growth initiatives.

Furthermore, scenario-based financial planning and forecasting could help the IHHPC better anticipate cash needs and identify potential shortfalls ahead of time. This proactive approach could include setting aside cash reserves during profitable months to cover lean periods, reducing unnecessary expenses, and exploring invoice factoring options to accelerate receivables collection. Such strategies would increase liquidity, stabilize cash flows, and improve the company's ability to expand without jeopardizing its financial stability.

References

• Brigham, E. F., & Ehrhardt, M. C. (2019). Financial Management: Theory & Practice (16th ed.). Cengage Learning.
• Brigham, E. F., & Houston, J. F. (2021). Fundamentals of Financial Management (15th ed.). Cengage Learning.
• Hansen, D. R., Mowen, M. M., & Guan, L. (2020). Cost Management: A Strategic Emphasis (8th ed.). Cengage Learning.
• Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate Accounting (16th ed.). Wiley.
• Wild, J. J., Subramanyam, K. R., & Halsey, R. F. (2020). Financial Statement Analysis (12th ed.). Pearson.