Accounting Terms

Complete a 2-part assessment in which you analyze and compute financial ratios and interpret the results of a multi-year financial ratio analysis.Smart investors also execute due diligence by performing a bit of financial statement analysis (also known as ratio analysis), where financial statement numbers are used to evaluate three characteristics of an organization’s performance: (1) liquidity, (2) profitability, and (3) solvency.SHOW LESSBy successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:Competency 2: Apply accounting cycle strategies to manage business financial events.Compute financial ratios using accounting data from financial statements.Interpret the results of financial ratios.Interpret trends found in a multi-year financial ratio analysis.Recommend strategies to improve financial trends.Competency MapCHECK YOUR PROGRESSUse this online tool to track your performance and progress through your course.You have reached the end of the organization’s accounting period. The accounting cycle, consisting of recording transactions, transferring to the ledger, and preparing the financial statements, is complete for this calendar or fiscal (an accounting period other than January to December) year. So now, what do you do with all the accounting information that has been gathered? You analyze it, synthesize it, and use it to make decisions concerning the current health of the organization and its future financial direction.If you were a potential investor (and had some disposable income to burn), you would mostly likely look through the annual reports of various organizations, read the comments of key decision makers, talk to friends and family members, and make an informed decision about which organization deserves your hard-earned money. Or, you could trust Wall Street to advise you on where to invest your money (but remember, they get a cut of your investment dollars as a commission).Questions to ConsiderTo deepen your understanding, you are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of the business community.Consider these final reflections:What did you find to be the most complicated?What did you find to be the least complicatedWhat concept or principle surprised you the most?Which concepts and principles do you believe you will use the most in your professional lifeRequired ResourcesThe following resources are required to complete the assessment.Capella ResourcesClick the links provided to view the following resources:Assessment 5, Part 1 Template.Assessment 5, Part 2 Template.Suggested ResourcesThe following optional resources are provided to support you in completing the assessment or to provide a helpful context. For additional resources, refer to the Research Resources and Supplemental Resources in the left navigation menu of your courseroom.Library ResourcesThe following e-books or articles from the Capella University Library are linked directly in this course:Fields, E. (2011). The essentials of finance and accounting for nonfinancial managers (2nd ed.). New York, NY: AMACOM Books.Chapter 6, “Key Financial Ratios,” is particularly applicable to the assessment.Course Library GuideA Capella University library guide has been created specifically for your use in this course. You are encouraged to refer to the resources in the BUS-FP3061 – Fundamentals of Accounting Library Guide to help direct your research.Internet ResourcesAccess the following resources by clicking the links provided. Please note that URLs change frequently. Permissions for the following links have been either granted or deemed appropriate for educational use at the time of course publication.Accounting Basics for Students. (2013). Retrieved from http://www.accounting-basics-for-students.com/Bean Counter’s Free Accounting & Bookkeeping Tutorial Site. (n.d.). Retrieved from http://www.dwmbeancounter.com/moodle/Additional ResourcesThe resources listed below are relevant to the topics and assessments in this course and are not required.McCrary, S. A. (2010). Mastering financial accounting essentials: The critical nuts and bolts. Hoboken, NJ: Wiley.Mullis, D., & Orloff, J. (2008). The accounting game: Basic accounting fresh from the lemonade stand. Naperville, IL: Sourcebooks.Shim, J. K., & Siegel, J. G. (2010). Dictionary of accounting terms (5th ed.). Hauppauge, NY: Barrons Educational Series.Assessment InstructionsThis assessment includes two parts. Use the templates provided as you complete each part. Both of the templates are linked in the Resources under the Required Resources heading. Note that for Part 2 you will use the template for data but will create your own document to submit.Part 1: Ratio AnalysisMaking sense of accounting data on financial statements can be difficult. Thankfully, combining numbers from income statements, balance sheets, and other data provides a starting point to analyze a company’s financial results. You now have the opportunity to demonstrate your prowess by identifying and computing financial ratios.Using the Assessment 5, Part 1 Template, analyze and compute the necessary financial ratios. The Financial Statements worksheet in the template contains the income statement, balance sheets, and additional information needed. The Ratio Analysis worksheet contains space for your calculations and answers.Part 2: Interpreting Financial Statement AnalysisWhat does the calculation of a financial statement ratio represent? How does one year compare to another? Is there a trend to the ratio data? Is the trend positive or negative? What can be done to change the trend? These are some of the questions that can be answered when the ratio data is interpreted. For this part of the assessment, demonstrate your ability to interpret the results of a multi-year financial ratio analysis.On the Assessment 5, Part 2 Template you will find selected ratios for a company over a two-year period. Compare the ratios, and in a separate document (Word or Excel), submit your answers to the following questions:What does the calculation of each ratio represent?How does year one compare with year two, and what trend can be seen when you compare the two years?Is the trend from year one to year two positive or negative?What are the possible reasons for the trend?What recommendations do you have for turning a negative trend to a positive trend?Submit the completed template for Part 1 and the document you created with answers to the questions for Part 2 for this assessment.

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