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Every business, worldwide, whether for profit or not-for-profit, must keep score of its performance and progress. While there are many ways in which a business entity can be evaluated, the most common measures are financial in scope. All businesses must understand how well or how poorly their operations are performing at all times, not only at the end of some pre-determined fiscal time period. Financial statements provide the basic data for analyzing and understanding the company's performance, over time. These financial statements are concise reports designed to summarize particular financial activities for a specific time period (one month, one quarter, one year, five years, etc.). There are several different types of financial statements. Some are generally used internally; others have greater usage outside the company, for bankers and investors, for ex. The two key reports for companies of all sizes and categories of business are the Income Statement, which records revenue and expense, and the Balance Sheet which lists what the business owns and what it owes. It is a "snapshot" of the business at a particular point in time. These two basic financial statements can provide a picture of the company's strengths and weaknesses -- provided that you know how to read them. By regularly analyzing a company's financial statements' information, both management and investors can detect problems early, and take corrective action on problems such as falling sales volume, high operating costs, credit and inventory mismanagement, and funds tied into excessive fixed assets. By comparing financial statements over several fiscal periods, the company's management can more easily spot and track trends and makes the necessary budget revisions before small problems become big ones. Also, all these financial data help lenders and other investors make intelligent decisions about their participation in the business. It is equally important to think about how these interpretations translate back into managerial performance. To get some insights into how executives use the financial information to evaluate their firms and others, take a look at this discussion of the uses of financial information, this discussion on financial ratio analysis and this discussion on how to read a financial report. The application of these indicators is a good place to start learning about how financial information is interpreted. As a case in point, consider AMD Corp., one of the leading producers of microprocessors and 3-D graphics technology. They've had their ups and downs, but have been consistently competitive. And one of the reasons, of course, is that they have attended very carefully to the financials and to their relationships with their investors. If you go to AMD's Investor Relations website, you can see the variety of information that they provide to the public and the financial markets. Each year, publicly traded companies are required to file what is called a 10K statement, reviewing their financial status. Please read the background of 10k's in the previous link and then look at AMD's 2010 10-K filing. The 10-k is quite long and you do not have to read the entire statement. For this case you should concentrate on reading: - Item 6. Selected Financial Data, page 38. - Item 7. Management's discussion and analysis of financial condition and results of operations, pages 39-73. Try to look for the kind of information that AMD is providing about its own financial status. The background information also contains further information about how to interpret financial information about companies, and you may find it useful. You may also wish to consult search tools for further information about the status of the company. When you have reviewed the above information, please prepare a short response discussing the problem: 1. What does AMD's presentation of their financial information tell you about how they use financial information to inform investors? 2. What does AMD's presentation of their financial information tell you about how they use financial information for internal decision making? In other words, what financial analyses do they use to inform their decisions? Use information from the modular background readings as well as any good quality resource you can find. Please cite all sources and provide a reference list at the end of your paper. LENGTH: 3-5 pages typed and double-spaced.

Basic Finance, Finance

  • Category:- Basic Finance
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