Finance

The progress of mankind can be attributed to efficient and effective communication.  Take the example of Warren Edward Buffett, who, with only a word, can he impact the whole business world.  He is definitely a person who can make good use of harmonizing independent thinking and expression.  Aside from being such an influence in the world of business, he is also a philanthropist, donating a lot of his personal fortune to charities.  By equipping professional knowledge, integral communication skills and business ethic and social responsibility, this Sage of Omaha is respected and followed by thousands of business world people.

Looking at what he has achieved, I believe that his success is derived from having a Principled Leadership.
This philosophy of having a principled leadership has helped me in my own endeavors as well.  Through the examples that leaders such as Warren Buffet have given, I am able to emulate them and pattern my own personal leadership style in such a manner.  A pivotal experience that helped me cultivate my leadership was a training project I designed when I worked in the Treasury Department.  This was a difficult situation for me because I understood the importance of this module.  The training project would be integral to the development and formation of new hires and I wanted to impress upon them the solid fundamentals and principles that were needed to not only bring the department to new heights but also allow these employees to grow as individuals.  It was inevitable that we would reach and impasse but because of my leadership I quickly took the role of facilitator and allowed the freedom of intercourse between the parties.  This led to a clearer resolution of objectives and thus I was able to accomplish the project perfectly.

The challenge in this globalized world lies in being able to move up without sacrificing any principles.  I believe that this can be accomplished by establishing clear communication channels and establishing strong working relations with team members.  I also believe that while I have the experience and the talent to achieve this I also need the training and guidance that this MBA program has to offer.  As such, I formally present my intention to apply for the graduate studies in this school and look forward to an enriching and fulfilling educational experience.

Ladies and Gentlemen

I would like to express my sincerest intention to apply at Seattle University. My name is Oky Aditya Putra. I was born in Jakarta, Indonesia on 7th October 1989. Eventually, I moved in the United States and this move has made me become more adaptable to different cultures, thus making me able to deal with people from different parts of the globe.  I can speak and write well in Bahasa and English.

About myself, some of my hobbies include drawing, playing basketball and swimming. I love swimming and playing basketball because apart from keeping me healthy, these sports also relieve me from lifes daily stress. I have always taken pleasure in these activities because for example, in basketball, I get to play with other people, thus making me more sociable and able to develop my interpersonal skills. I enjoy doing artworks during my free time as well because it helps me express myself better. I have had this interest since I was young. It is also by continuously practicing this said hobby that I am able to improve my craft. It is relevant to note that this talent is so innate in me and that has made my parents encourage me to take up a degree in college that specializes in Arts. In as much as I would like to take their advice, I want to do something that means more to me than just simply being a hobby. Since I do not really see myself pursuing a career in this field, I have tried to make my parents understand that I want to study something that truly interests me and that is a business course majoring in finance. I would like to make a career out of this field and will make sure that I will complete this with very good results.

To give you a brief introduction regarding my education, I earned both my elementary and high school diploma in Jakarta, Indonesia. During my 2nd-4th grade, I was compelled to continue studying in Australia because my father was taking further studies there. Whilst my family and I were in Australia, I got a first taste of a totally different culture, something apart from what I have grown with in Jakarta. Because of that, I became much more confident in conversing with people, making me able to socialize well. When I reached high school, I was sent to an institution where they followed an Australian curriculum and system of education. Students then were free to decide which path they would take in the future  be it in arts, science and dramatheatre. During this phase of my life, I opted to take up a business degree since I already knew the fundamentals of basic accounting, economics and general business itself.

After finishing high school, I then moved to the United States and thought of studying at Bellevue Community College (which is now known as Bellevue College). This time around, it became such a challenging shift because I was the only one in the family who left Indonesia. I have lived in America as the rest of my family still are based in our homeland, Indonesia. Initially, I struggled in adapting to the new culture since it was totally different from what I grew up with. I was, admittedly, culture-shocked and alone. I was not then used to seeing a very diversified group of people. My studies were slightly affected during my adjustment period. Fortunately, I was able to overcome such ordeal when I joined the Indonesian Community Club. This Club actually helped new students like me to cope with the diverse environment, specifically in the United States of America. It was both a challenging and liberating experience because Americans have different set of norms, people are very much not the same (be it in terms of race, personality and culture) and most specially, the college or educational system was dissimilar compared to the one I have known in Jakarta. This organization also represents our nation (Indonesia) for events such as the international nights. Ive got to mingle with people more and that has helped me become more secure.

To add more to that, while I was at the period of deciding and shaping my future, I stumbled upon the thought of taking my studies and prospect career very seriously. I realized I wanted something better, something that would enhance my skills. Because of this, I came to a decision to attend North Seattle Community College. I took an Associate in Business Degree to jumpstart my desire to learn everything about business. I had basic requirements first (which gave me much exposure in the whole idea of a business course) before choosing to take up the major subjects. I pondered about what area of (business) specialization I should dwell into. I was faced with a lot of options and I had to choose the best, only the best.

In order for me to improve my academic qualifications and assist me to compete in my future career, I have decided to finally take up a degree in Business at Seattle University majoring in Finance. I chose Finance because it is a very complex area of study and tricky as well. I deem it as something that will truly help me develop my knowledge about Business. And because Finance is such a sensitive area of any business, I welcome the difficulty and challenges as opportunities to improve myself, harnessing my skills in numbers and honing my analytical capabilities.

Based on the research I did myself and views shared by several senior students  colleagues, I learned that Seattle University  its graduate school- is ranked sixth (6th) amongst all the private schools in the United States of America. I also heard that this institution is better than UW and such enticed me to complete my further studies here. Whats even better to know is that Seattle University is known for the courses it offers in Business programs. Because of the comments I got about Seattle University specifically the graduate school and due to the institutions unblemished credibility, I strongly believe that I will be able to achieve my dreams. It will be a great opportunity for me to be accepted at Seattle University. I have no doubt that through this school, I will be equipped with the right information about business, trainings that will help me sharpen up my understanding in finance and the confidence that I will be able to make it in the tough work environment and become somebody in my field of expertise.      

Hong Kong and Shanghai Bank Corporation (HSBC) is a global organisation providing one of the most expansive financial services with 8,500 offices spread in 86 countries mainly in Europe, the Asia Pacific region, the Middle East, Africa and America. It provides banking services such as personal, commercial, corporate, institutional, investment and private banking. Its financial statements meet International Financial Reporting Standards (IFRSs) recognised by the E.U. the banks net profit decreased by 70.06 in 2008 to USD5,728M and a further lower profit of USD5,019M was recorded in the year 2009. HSBC holding was established in the year 1965 in the U.K. and has shares held by 220,000 shareholders. The stocks are actively traded in The New York Stock Exchange (NYSE).

Having been established in 1865, its expansion was aided by takeovers, mergers and acquisitions. An example is its entrance into the Korean insurance market mainly for growth purposes during the economic downturn in the year 2008. The bank uses environment friendly products as a campaign to keep the environment conservation efforts high. 60 of its net income is realised from personal financial services while 19.3 is drawn from commercial banking. The remaining percentage is from global banking and markets and private banking which takes the least percentage. The HSBC bank has subsidiaries that include HSBC Limited in Asia Pacific region, Hong Kong Bank Limited in Hong Kong, HSBC Bank plc in the UK, HSBC France, Household International Inc in the USA, HSBC Private Banking Holding(Suisse) SA mainly in Europe, HSBC Bank USA NA  and Grupo Finances SA de CV in Mexico. Government entities, institutes, corporate clients, multinational and SME companies form its customer base. Stiff competition in the market that challenges HSBC in the USA and UK include Barclays Bank plc, Royal Bank of Scotland, Lloyds Bank Group, Citigroup, Bank of America and JP Morgan Chase (JPM).

Companies linked with HSBC prepare annual and semi-annual reports to reflect accountability. Interim reports were first prepared in the year 2002 with the formats differing from country to country due to the different regulations that exist in the different countries. These reports were used by the stakeholders to judge the strength of the company. These reports are also tracked by the web-crawler technology that allows for easy searching and copying into other documents with ease enabling easy location of important documents at the Global Reports Library on Research and Markets. The interim consolidated financial statements must include comparative information, a requirement by the IAS 34, UK Disclosure and Transparency Rules and The Hong Kong Listing Rules. The future state of financial affairs can then be judged using the available information. The HSBC adheres to accounting policies. These policies guide the efficient running of the company funds. The ones that are readily used are policies like Interest income and expense, Policies on non-interest income, Segment reporting, Policies on loans and advances to banks and customers and finally policies on the Impairment of Loans and advances.

Corporate governance analysis is the link to management, board of directors and shareholders that holds the management accountable and safeguards the interests of the shareholders. Compliance with the combined code on corporate governance was released by the Financial Reporting Council. There are several committees appointed to deal with several activities of the bank, for instance the Group Management Board, Group Audit Committee and the Remuneration Committee. Directors conduct internal controls within the bank so as to safeguard assets from unauthorised use, to maintain financial accounts that are proper, prevent frauds, errors, material misstatement or losses in the business. It also manages risks associated with health and safety of its operators. This is done by the Health, Safety and fire coordinators. Regular information is passed to customers in annual general meetings and timely responses provided ensure good customer-bank relations. During the financial meltdown, it augmented its capital by 8.3 and complemented its capital ratio by maintaining 83.6 advance to deposit ratio. Certain limitations hinder its growth despite all this an example of the limitations is marginal growth in the major business segments. Return on average invested on capital, basic profit per share an return on average total shareholders equity are some of the ways that HSBC benchmarks against competitors.

The current ratio for the last two years is at 0.92 from 0.70. Liquidity ratio is 7.1 while the shareholders liquidity ratio declined from 7.23 in 2006 to 1.16 in 2008 indicating little increase in shareholder funds. Solvency ratio is at 3.84 down from 5.65 last year but maintained 5.8 to 6.8 over the last four years. The gearing ratio shows vulnerability in repayment of interest if profits drop. Return on capital employed declined from 14.4 in 2007 to 5.2 in 2008. These results are a clear indication that management actions need to be questioned.

In the fiscal trend analysis, fixed and current assets have increased year-on-year (YoY) by 41.9 and 48.5 respectively. Current liabilities show an increase of 47.7 which is inline with increase in total asset increase. A percentage profitability trend analysis reveals a decrease in profit before taxation.  As such, HSBC has outsmarted its other rivals after the economic downturn. It is only Barclays that performed at par with HSBC as it also survived without bail out packages from their respective governments. HSBC implemented stringent corporate governance in line with NYSE and Stock Exchange of Hong Kong guidelines as exposed by the 2008 annual report. It also changed its accounting policies for financial instrumentations under recognition and measurement and the one under disclosure.
   
HSBC is focused on improvement by having synergy between each of its groups. By creating strong brands, providing offerings in accordance with each countrys culture, capitalising on human assets improvement is achieved. Revenue growth, revenue mix, cost efficiency ratio and credit performance are some key indicators, financial and non-financials that measure the companys strength. Currently, 59 of HSBC is in developed countries. It plans gain 50 in G7 and non-G7 countries in a decade due to a realisation that the future lies in expansion. The objective of financial reporting, according to IAS, is to provide information about financial position performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions. They are prepared on historical transactions of the company. Governance in HSBC is managed by a board of directors that constitutes of a total of a group chairman, group chief executive and nineteen other directors with different positions.

In conclusion, HSBC handles and manages risks efficiently by implementing stress testing and other techniques. It also has a department that handles legal issues. Its growth is currently focused on the worlds economic centre of gravity which is moving from east to west. It therefore focuses on this particular market. A good analysis of its services suggests that the quality of its services is among the best in the world of banking. As a result, it offers the best quality for markets. Global incentive programs as well as global scorecards for its top managers ensures that it remains a leader in quality of the staff including its employees and managers who run the different departments in the bank. It is therefore recommended that the HSBC expands it tentacles to cover emerging markets as these have proved to be the points that foster growth in the current economy. This pursuit does not promise an easy escapade and it is a must that the HSBC focuses on its strong points to overcome the competition in the emerging markets. A SWOT analysis reveals that the HSBC has fewer weaknesses as compared to strengths and therefore it is likely to fair well in its exploration of new markets. Finally, due to all the facts that have been mentioned above, the HSBC was noted to have escaped the wrath of the recession that hit the worlds economic giants.  

Using Information Technology as a Management Control Lever

Fraud and information technology are two business phenomena that can be taken uniquely and differently or they can be taken in perfect congruence. Fraud, with all its intents and consequences, can be as potent as its combination with information technology (IT), with all the latters technical usefulness. The combination of fraud and IT may be taken both in sharp contrast as a conspiracy as when IT is utilized to commit fraud or IT can be used as a control mechanism to prevent the commission of fraud or simply detection of errors at the least. (Miller, 1978)

In 2003, the HM Treasury identified several fraud risks occurring in the UK area such as theft, false financial accounting, bribery and corruption, deception and collusion. Experts identify the major fraud elements as people whether insiders, outsiders or both in conspiracy assets to acquire serving as motivations the intent to defraud and the opportunity to commit. Because of the nature of the intent, fraud is usually difficult to detect and even prevent. Clearly, the prevention and detection of fraud require the active participation of people in the organization creating a strong ethical dimension of work, policy statements, appropriate risk assessment and adoption of management control measures to prevent its commission. Prominent here is credit card fraud , that although online fraud went down by 67 per cent in 2007, credit card fraud went up by 42per cent. (APACS, 2007) This however, went down 23 per cent in 2009.
           
Adding the banking system into the formula of credit card fraud and information technology may likely create an area of sensitivity that can provide both breadth or breach of security. Admittedly, the banking system is perhaps one of the major industries and sectors heavily impacted by the use of information technology. Indeed, IT can facilitate, even enhance, the commission of credit card fraud or it can entirely prevent its occurrence as when IT is used to protect and secure an organization against itself. Here, credit card fraud appears to be as sophisticated as the credit card technology concept itself. Hence, the banking system becoming its primary target with about 60 billion dollars losses in 2009.

Management Issue in the research project.
The management issue being addressed in the research project focus on the role of IT in preventing credit card fraud and fraud risks in the banking system through a set of management control systems. Here, use of IT is directed towards strengthening the management control systems to make it an effective tool in the prevention and detection of frauds in the UK banking system.  

2-  Research Questions
IT and credit card fraud as experienced in the UK banking system presents the core of the study. Clearly, the antecedent here is that credit fraud in the UK banking system is on the rise and IT can be considered as a management control lever to insulate sensitive banking transactions from simple fraud and breach of security. The study attempts to identify the credit card fraud risk areas in the UK banking system in general, and the role of IT in fraud prevention in the UK banking system in particular. The study will recommend strategic measures to utilize IT primarily as a management control lever to prevent, detect and correct fraudulent banking transactions.

In the process, this study aims to address the following sub-problems
Describe the credit card fraud risk phenomenon inherent in the UK banking system
How, where and possibly why specifically are this credit card fraud risks perpetrated in the UK banking system

(3) What and how can IT capability be used to obviate the identified credit card fraud risks in the UK banking system

(4) What specific strategic management control lever system may prove effective in terms of prevention and detection of credit card fraud risks in the UK banking system

3- Aims of the research project
The study covers the credit card frauds risk areas of the banking system as it relates to the inherent character of the UK financial systems, including the use of mobile and internet banking technology and a more vulnerable area of ecommerce. The study identifies the credit card fraud risks reported over the last ten years as indicated and validated by key informants in the banking system such as funds and credit clients, bank managers and decision makers, government examiners and regulatory agencies, legal experts, among others. Likewise this attempts to (Bowman  Ambrosini, 2003)
Increase awareness of credit card fraud risk areas through theoretical and empirical literature as well as practices in the UK banking system
Reduce the vulnerability of the UK banking on this credit card fraud risk
Increase and sustain IT capabilities which may prove effective in credit card fraud risk control
Raise the level of effectiveness of management control systems and thus help prevent and detect credit card fraud risks in the UK banking system.

4- Objectives of the research study
The main objectives of the study are the following
Explain the nature and impact of the fraud risks in the UK banking system through theoretical and empirical literature
Identify and explain the vulnerability of the UK banking system and the environment of fraud motivation in the UK banking system
Identify and evaluate the various existing IT capabilities, processes and determine their potential cost effectiveness and advantages in the fraud risk prevention and detection
Explain what and how management control systems can help sustain fraud risk controls.
     
In terms of significance, the study brings open banking policies, services and practices in areas vulnerable to credit card fraud risks. Clearly, the extent of management control systems such as ethical practices, good governance, confidentiality as well as privacy requirements are provided emphasis and priority to protect stakeholders commencing from the university academic and curricular planning. IT vulnerabilities are identified and secured. Future researchers may likely be benefitted by predicting emerging credit card fraud issues and credit card derivatives as subjects of additional control levers. (Simons, 1994)  Here, the aspect of management control as a lever of prevention and detection is emphasized and supported.        

5  Three main sources and annotated bibliography
The following main sources will be used extensively in the theoretical and empirical support of the research inquiry
Management Control Systems (2003) by Robert Anthony and Vijay Govindarajan. This book is designed to allow managers gain knowledge, insights and analytical skills related to how a firms management can go about designing, implementing and using planning and control systems to implement the firms strategies. This comprehensive source can serve as handbook for managers, consultants, IT-based system designers in addressing the complexities and realities of the 21st century corporate operations. The authors are distinguished experts and are notably connected with Harvard University and Dartmouth College respectively. .
 
Financial Stability Reports, periodically issued by the Bank of England. This authoritative paper issued by the Bank of England gathers and analyzes the various issues confronting the UK banking system, the risks confronted by the system and the pockets of measures. Likewise, this report provides an authoritative reference to the structure, risks, shocks and prospects faced by the UK banking system. This report additionally recommends risk mitigation measures for the UK banking system.

LexisNexis IT Solutions and Services. This company makes use of research-based content-enabled workflow and strategic solutions specifically designed for IT and business professionals in the legal, risk management, corporate, government, law enforcement, accounting and academic markets. LexisNexis is a pioneer in online information systems with its Lexis and Nexis services. A member of Reed Elsevier, LexisNexis serves customers in more than 100 countries with 18,000 employees worldwide.  Current practices by the company make this portal of great importance in identifying solutions to prevent and detect credit card fraud risks in the UK banking system.

6- Peer-reviewed journal articles  
The following peer-reviewed journal articles are being used for this research undertaking. These are considered relevant and timely. These are authored by experts who, through their expertise are able to explain the rigors of the thesis problems on hand and its environment.
Bowman, C and Ambrosini, V. 2003. How the resource-based and the dynamic capability views of the firm inform corporate-level strategy. British Academy of Management. British Journal of Management. Vol. 14, 289-303 (2003)

Frow, N, Marginson, D  Ogden, S. 2005. Encouraging strategic behavior while maintaining management control Multi-functional project teams, budgets, and the negotiation of shared accountabilities in contemporary enterprises. Elsevier. Management Accounting research 16 (2005) 269-292 doi. 10 1016 j mar 2005.06.004 www.elsevier.comlocatemar

Kaminsky GL, Reinhart,CM  Vegh,C 2003. The unholy trinity of financial contagion. The Journal of Economic Perspectives, Fall 2003. 17, 4 ABIINFORM Global pg. 51

Miller, L 1978.  Has artificial intelligence contributed to an understanding of the human mind A critique of Arguments for and against. Cognitive Science A multidisciplinary journal. DOI 10.1207S15516709COG0202_2 URT httpdx.doi.org10.1207 S15516709COG0202_2

Simons, R 1994. How new top managers use control systems as levers of strategic renewal. Strategic Management Journal. May 1994. 15,3 ABIINFORM Global pg. 169.

Turner, J. L., T. J. Mock and R. P. Srivastava. 2003, An analysis of the fraud triangle. Viewed January 29, 2010 at website httpaaahq.orgauditmidyear03midyearpapersResearch20Roundtable203-Turner-Mock-Srivastava.pdf

The research project identifies various journal publications and articles that empirically addresses the literature support of the fraud risk triangle (Turner, Mock  Srivastava, 20032002) of opportunity, the incentive or pressure prevailing and the rationalization as the potent conceptual illustration of the existence of fraud in the UK banking system. In figure 1, the opportunities may likely represent IT risks and vulnerabilities specifically in the Internet and mobile banking services as well other IT-related processes. A great number of fraudulent acts, both internal and external basically follow the same pattern  

The UK banking system is one vulnerable area for fraud despite advances in the use of IT processes. During the period 2005 to 2006, total credit card frauds amounted to more than 800 million pounds with online banking frauds increasing to 33.5 million pounds from 23.2 million a year-ago. (FinFacts, 2007) In addition, check fraud losses in 2006 amounted to 30.6 million pounds from 40.3 million. Experts see phising of security details as among the more common frauds committed. Clearly, scams of this type registered 33.5 million pounds, an increase of 44 per cent or 14,156 attacks on UK banks.                          

FinFacts data (2007) implies that there is no one-size-that-fits-all approach to handling and dealing with banking fraud anywhere.(Ramos, 2003)  Although certain measures such as the Chip and PIN has had a significantly positive impact on preventing fraud losses in UK business shops.(Visa, 2010) Clearly, cards embedded with the cutting edge microchip are able to store  150 times more information than magnetic-stripe-type cards. The additional capacity is expected to provide users, shops and cardholders greater convenience, reliable security payment flexibility. However, non-users of Chip and Pin remain vulnerable to frauds especially those heavy on the use of internet and phone. Unsecured banks are especially at greater risk. (Frow, Marginson,  Ogden, 2005)

Credit card fraud is likely to develop to more sophistication as the use of IT in the banking system. Clearly, credit card fraud crimes cannot be addressed with single-layered approach. Preventive and detective measures may need to come through collaboration of the public and private sectors. Here, fraud can be spawned from within, as well as externally. (Kaminsky  Reinhart  Vegh, 2003) Here, a phenomenon of crime committed by sectors tasked to secure the system remains an industry concern. Hence, developing and implementing strategies, sharing of data and government interventions to eliminate existing barriers are moot and academic. The enactment of the Fraud Review and the Serious Crime Bill is expected to introduce better, more strategic use of new and existing powers to disrupt criminal activities and prosecute those responsible through the creation of a Serious Organised Crime Agency. (HL Bill 27 2006-2007).

7.1 Literature search and review
Documentary sources will serve as secondary data identified and analyzed in support of fraud risk incidents. Internet sources specifically from the peer-reviewed journal portals of Elsevier, Science Direct, Questia, Lexis Nexis or Psychology Press are to be explored for comprehensive empirical and theoretical literature.
Primary data obtained through interviews and surveys are considered appropriate as these will provide the key explanations on the nature, character and disposition of credit card fraud crimes resolved and documented. A researcher-designed survey questionnaire that will provide answers to the research problems are to be pilot-tested and submitted for approval for purposes of generating valuable and credible data. (Cooper  Schindler, 2008)

7.2 Data collection and sample
The scientific process of inquiry will make use of the descriptive survey using both quantitative and qualitative processes. This will involve the identification of the survey respondents from samples of respondents and key informants  the list of key bank officers of the UK banking system including credit card companies occupying direct controls over the IT infrastructure internal anti-fraud and risk management officers and operations head as well. Government examiners and regulators tasked with handling credit card fraud crimes in the UK banking system are included.

The qualitative approach will be provided by the analysis of critical incidents of fraud from ground data gathered as provided by key informants. The phenomenological and grounded theory approaches will be used in this regard. Grounded theory is an inductive technique developed Glaser and Strauss (1967) and has its roots in the various data from which it was derived and is based on symbolic interaction theory. .

Thus, data in support of the need to identify the credit card credit card fraud risk will come from surveys and interview of key banking executives and practitioners in the UK area as well as documents evaluated from the files and records of the Bank of England, Financial Times, Credit Card issuers or Scotland Yard credit card fraud archives.  

The CEO and upper management of a company are extremely important in planning the long run vision of the company and laying the path that will see it grow or fall in the future. As such the decisions taken in the board rooms and the high offices dictate to a great extent whether the business will be profitable or incur losses. Studies have even been conducted that point to a strong correlation between quality of the upper management and strong and sustained profits. Therefore, their role is extremely important in an organization which is one of the reasons executive compensation is strongly linked to performance and is the highest in the organization (Elig 2007). The question that arises then is whether pay rise should be quelled when the company does not perform well This question surfaced in the recent financial crisis as well as AIG and other institutions doled out huge bonuses after getting bail out money from the government. Analyzing the different angles requires looking at things from the lens of various ethical perspectives.

The deontological perspective points out that an act may be inherently right or inherently wrong. This has nothing to do with the consequences but rather focuses on the very nature of the act itself which may go against a maxim, defined by rational individuals, no matter how fruitful the consequences of the act may be (Edel 1993). Thus from this perspective, since upper management is more responsible for the profitability of the business than any other stakeholder, they should get the highest amount of compensation compared to other workers when profits are flowing in (Carrol 2008). However, when the company is lagging or facing bankruptcy, the responsibility falls on the shoulders of upper management because they should have seen to the forthcoming and taken appropriate action to hedge against it or reduced exposure. Therefore when fortunes decline, pay rises or bonuses are not at all ethical for the upper management when the company faces bankruptcy, from a deontological perspective.

Virtue ethics has a different take on the issue. It focuses more on the nature of the personalities involved and the character of the moral agent (Edel 1993). It thus specifies certain virtues that should exist in a person to result in virtuous behavior and thus be ethical. There is no focus on consequences or the inherent nature of the act. From this standpoint, it has to be considered that the decisions of the upper management not only govern the direction of the organization, but also the salaries that will be received by the workers and potential layoffs as well (Crane 2007). It may also impact the funds organization is able to make available for social causes. Thus, when these decisions lead to potential bankruptcy, it has a multiplier effect on other stakeholders as well. In such an environment, if the upper management get bonuses, it results in a disparity as every other stakeholder is suffering. Virtue ethics thus states that for the virtuous character to be achieved by the management, these bonuses should not be taken. This was echoed in the statement given by the new CEO of AIG after the case of bonuses being given to the upper management following bailout when he said that the bonuses were legal because they were agreed prior to the financial crisis but asked the upper management to return them on their own account.

Consequentialism can be said to be one of the most useful ethical frameworks with regards to the matter at hand. It basically considers the costs and the benefits of a particular act and analyzes the decision from the impact that it has on the various stakeholders and prefers the one where the benefits are maximized and the costs are minimized (Edel 1993). First off, there are many adverse consequences of the upper management getting bonuses when performance is adverse. It puts additional strain on the financial resources of the company in dire times as executive compensation is significant and it may potentially hamper the liquidity position of the company as well as leave less money for operations which will be crucial at the stage. The already bad condition may go worse if large amounts are doled out to the upper management.

Secondly, it harms the lower management and the line workers of the organization. They do not have as significant a say in the direction of the company and in decision making and thus may only be spectators of the decisions taken by the CEO, thereby making them a simple casualty of the dire economic condition. Thus layoffs or pay cuts may be the ultimate outcome. This could be avoided or its impact lessened if executive bonuses are curtailed at the time as these workers will be more in need of the money as compared to the fairly rich upper management. There is also the case of the act harming the culture of the organization and the notion of reward for performance. As the workers get additional compensation for the more and better work they do, bonuses to upper management when company is on the brink of bankruptcy may serve to psychologically affect the workers who may reduce their effectiveness and efficiency as such moves are led by example and follow a top down approach.

On the other hand, consequentialism does make a slight case for the executive bonuses in dire times as well. When the performance of the company in tanking, there is a need for bright minds and those familiar with the organization to stick with it and navigate it out of the troubled waters (Eleg 2007). At a time such as the recent financial crisis when all financial institutions faced declining financial figures, the ones with the fastest recovery would be able to enjoy better profitability. Since the existing management may be in the best position to guide the institution out of the trouble times, there is a strong incentive for the company to retain them. The CEO and the upper management may leave the company and go in search of others and may even be approached by various organizations looking to draw them towards themselves (Carrol 2008). Thus bonuses in such times may serve to keep the management at the company and provide them with an incentive to work towards the recovery of the company as they may be the only ones in possession of certain information about the operations of the organization that can steer it to better performance.

Having analyzed the three approaches towards the issue of executive bonuses in a near bankruptcy situation, it appears that the deontological and the virtue ethics perspective looks at the act as unethical. This is because it is not becoming of a moral character and the act itself is not consistent with the ways and hence inherently immoral. On the other hand, consequentialism provides a case for the bonuses in terms of retaining the management but it also points to several disadvantages of the move. In the end the issue comes down to what is more certain in terms of impact. The existing management may have been incompetent to start with having brought the company to such a stage and trusting it further with additional bonuses may not only be taking a risk but also taking away any incentive for them to work harder as the bonuses have already been provided. Thus giving bonuses to upper management and CEO when the company is approaching bankruptcy is an unethical act.

For managing my personal finances, I would like to maintain the following financial statements to enable me to take informed key financial decisions -

1. Financial statement that should be able to summarize all my income and expenses and my net savings for the entire year (or for part of year, if required).  The financial statement should also be able to provide me a list of all my sources of funds (i.e. whether my funds comes from my own income  Capital or whether it comes from borrowing from others -Outside liabilities) and data about my usage of funds (ie whether  long term assets are created or the funds are used for current consumption. Accordingly, I will create the following sample financial statement for this

Sample format
My income  expenditure account for the year ended.. (or month ended)
IncomeAmountExpensesAmountSalary Income
Rent received
Profits on Investments
Income from parents
Other incomes

Tuition fees
Books
Food  Lodging expenses
Entertainment
Miscellaneous expenses
Net savings for the year (balancing figure)


YYYTotalXXXXXTotalXXXX
Statement showing my sources and usage of funds -
Sources of fundsAmountUsage of fundsAmount
My previous savings
Add
Net savings for the year
Add
Borrowing from friends

Assets Owned
Bike
Guitar
Investments in shares
Cash in Hand
Bank Balance
Loan to friend

TotalYYYYYTotalYYYYYKey decisions possible through these 2 financial statements -
This financial statement will help me take several key decisions - like the amount that I would be spending out of my total income sources and the assets that I can purchase with my given set of savings and borrowings and the amount that I can either invest in various savings instruments like term deposits, shares and other investments or the amount that I can lend to my friends out of my given resources.

2. A financial statement to show me all the forecasted cash flows during each month of the year to assess whether there is sufficient cash inflow to meet all my forecasted expenditure over the year.

Sample format of Month wise and summarized  forecasted cash flow statement
JanFebMarAprMayJunJulAugSepOctNovDecSummaryBeginning Cash BalancexXxxxxxxxxxx0Cash Inflows (Income)XxxxxxxxxxxxSalaryxXxxxxxxxxxxxLoan from friendsxXxxxxxxxxxxxGift from parentsxXxxxxxxxxxxx   Total Cash InflowsxXxxxxxxxxxxxAvailable Cash BalancexXxxxxxxxxxxxCash Outflows (Expenses)xXxxxxxxxxxxxPurchase of SharesxXxxxxxxxxxxxLoan to friendxXxxxx xxxxxxxPurchase of GuitarxXxxxxxxxxxxxAll other expensesxXxxxxxxxxxxx   Total Cash OutflowsxXxxxxxxxxxxxEnding Cash BalancexXxxxxxxxxxxx

Key decision - This financial statement will enable me to plan all my cash requirements for the year in advance helping me ensure that I do not run out of cash for those important expenses at the right time. And if I find some months cash position to be short of my requirements, I can plan to either ask my parents to send in some money or my friends to lend me or arrange from somewhere else to meet my requirements.

3. A financial statement that captures all the details of my savings and the present market value of all my investments during the year in the form of an investment portfolio.

Investment typeFolio number of my investmentDate of PurchasePurchase priceNumber of units purchasedDate of SaleNumber of Units soldSales priceRemaining number of unitsProfit generatedSharesTerm depositMutual fundsInsurance Plan

This financial statement will help me keep a track of all my investments and to decide which investments to retain and which units to sell to generate maximum profits.

Generally Accepted Accounting Principles (G.A.A.P)
GAAP are basically accounting rules which are utilized in the preparation, presentation and reporting of an entitys financial statements. It can serve a wide variety of entities which range from privately owned entities to publicly owned enterprises. GAAP includes the accounting framework, local accountancy law and accounting standards.

GAAP incorporates some important principles which are key towards efficient financial reporting and are as follows
Consistency A company is required to adopt the same accounting assumptions and methods from one period to another in order to ensure consistency in financial statements.  This can help users in developing a pattern and assist in decision making.

Relevance Under this concept an entity is required to report appropriate information which is holds relevance to users in their decision making.

Reliability This requires an entity to ensure that the information given is reliable and can be verified by an independent third party. Users of an entity can make accurate decisions if the information provided in reliable and bonafide.

Comparability This ensures that the information provided in an entitys financial statements is comparable with those of other entities. This is crucial in order to facilitate users to compare financial information of their entity with those of other entities (Epstein, Nach Bragg. 2007).

Historical Cost
Under the historical cost concept an asset is valued at the cost at which it was purchased or acquired. Once an asset is stated at historical cost it is not restated owing to any changes (either an increase or decrease) in its market value.

Using the historical cost as a measurement method is important for financial reporting purposes probably because they are quite straightforward and easy to produce. Furthermore historical cost concept is extensively used among many other accounting conventions.

Accruals accounting vs. Cash accounting
Under the accruals basis of accounting economic events (income or expense) are recognized once rewards or obligations have been transferred irrespective of when the cash payment is made or received. The underlying concept is based on the matching principle according to which revenues are matched to expenses. Cash basis accounting on the other hand is of the view that economic events should only be recognized once the exchange of cash has been made.

Accruals accounting is the standard practice when preparing financial statements probably because it accurately deals with the complexity of business transactions. In case of a seller it is appropriately reflective of his or her revenue. Furthermore it presents the revenue earned or the expenses incurred in the income statement on a more even basis from period to period and hence intend to overcome any significant fluctuations in the profit figures from one period to another which is usually the case with cash basis of accounting (Wood. 2005).

Current assets and liabilities vs. Noncurrent assets and liabilities
Current assets are those assets of an entity which will be converted to cash within the next 12 months similarly current liabilities are the obligations that an entity will have to fulfill in an accounting period. Noncurrent assets and liabilities on the other hand are retained by an entity for more than one period and are focused on the long term prospects of the entity.

Current assets in the financial statements should be more than the current liabilities so that the business can not only payoff its obligations on time but also has surplus cash to fulfill the day to day working capital needs. Both current assets and current liabilities represent the liquidity position of an entity and the greater the amount of current assets over current liabilities the better the liquidity.

Non-current assets are an important figure on the balance sheet and it is recommended that they are greater than non-current liabilities, probably because it will keep the financial leverage within limits. Not only an appropriate amount of noncurrent assets will help retain the existing investors but will also help in obtaining long term credit since lenders will secure their debt on the companys assets. Nevertheless both noncurrent assets and liabilities are important figures on the balance sheet since they determine an entitys future in the long run.

Part II
Johnson and Johnson

Johnson and Johnson has seen increase in both its assets and liabilities for instance total assets have increased from  80 million in 2007 to  84 million in 2008 however this increase is reflective of the increase in current assets, non-current assets have remained at almost the same levels. Similarly total liabilities have also surged from  37 million in 2007 to  42 million in 2008.

Net income saw an improvement of 19 over last year from  10,500 million in 2007 to  12,500 in 2008. On the other hand cashflow from operating activities have slumped a little in 2008 when compared to 2007 which is due to the increase in receivables and inventories and a significant decrease in payables. Hence net income is more useful as compared to cashflow from operating activities when determining Johnson  Johnsons performance (Johnson  Johnson. n.d).

Johnson  Johnson has shown stable performance during the year and it seems possible it will see further improvement in the coming years.

Lockheed Martin

Lockheed Martin has seen mild improvement over the last year. Total assets have increased from  28 million in 2007 to  33.5 million in 2008 which accounts for a 20 whereas total liabilities have increased considerably from  19 million in 2007 to  30 million in 2008. In fact current liabilities have become almost equal to current assets in 2008 hence bringing Lockheeds liquidity into jeopardy.

Net income has slightly increased over the net earnings figure in 2007. Similarly, cashflow from operating activities has also increased in line with the net income. Since net income and operating cashflow both have increased accordingly it would be better to use net income for assessing Lockheeds performance (Martin. n.d).

Lockheed has only shown a mild improvement over last year moreover its liquidity is touching dangerous levels and therefore it seems that Lockheed might eventually go into losses in future.

Samsung

Total assets of Samsung have increased from  74 million in 2007 to  83 million in 2008. Total liabilities on the other hand have increased  29.8 million in 2007 to  33.7 million in 2008. Current liabilities accounted for a major part of Samsungs liabilities. Net income for the period ending 2008 was  4.9 million which was significantly below the net income in 2007 ( 6.3 million). Cashflow from operating activities was almost the same as in 2007 with an approximate cashflow  14.3 million. Samsung has managed to sustain its cashflow owing to increase in trade payables therefore the net income seems a more appropriate measure when assessing Samsungs performance (Samsung Electronics, n.d).

Samsung has already received a setback in 2008 when its net income dropped by 29 from 2007. Moreover its cashflow position is moderate at best and profits continue to decrease in the coming years then Samsung apart from poor profitability might also face a liquidity crisis.

Absorption costing in a modern production environment.

In the modern production environment, absorption costing is an accounting method where all fixed and variable costs incurred in production process are absorbed by cost centers. Variable costs in absorption costing also known as marginal costs are incurred or charged during the process of manufacturing and selling of products or services. Fixed costs on the other hand are costs charged direct to income statement.

The production process includes direct materials and direct labor. Direct materials include all materials that become part of finished products and they can be traced in finished product. Direct labor involves labor costs that a factory incurs during the time of manufacturing. The evolution of costing in the nineteenth century has led to treatment of costs being absorbed as part of overheads. This has led to charging products at a price that covers overheads. Many accountants opt to use absorption cost method to prepare financial statements. The method is high appreciated in modern production because overheads are considered to bring stocks at their present conditions (Kip, 2007, p.36). Absorption costing is a major achievement of accountants.

2. Compare and contrast absorption costing and activity based costing
In absorption costing, indirect production costs are allocated to products on the basis of volume produced. Activity based costing (ABC) method of inventory valuation applies both production and non-production related bases. Absorption costing is a method of inventory valuation that acknowledges allocation or apportionment of overheads to different production departments while ABC allocates overheads to cost pools (Williams, 1995, p.8). Allocation of overheads in production departments means that each department has particular target that must be met. Cost pools as is used in Activity Based Costing means distribution of overhead costs as a group such as machine hours and direct labor (Heyman, Bloom, 1990, p.12).
 
Activity Based Accounting is used to give out efficient results as compared to absorption costing. This is because costs incurred during production are traced trough activities. This will help to monitor the usage of resources since activities are applied to use resources and products consume activities. Manufacturing, selling, and administrative costs are associated to products in ABC method while absorption costing recognizes these costs during preparation of financial statements. Absorption costing applies rates based on volume absorption while Activity Based Accounting applies cost driver rates (Cheatham, 1993, p.44).

3. Compare and contrast absorption costing and marginal costing
Marginal costing also known as variable costing includes manufacturing costs such as direct labor, material and overheads in the process of determining cost per unit of producing a product. Absorption overhead on the other hand involves manufacturing costs such as direct labor, direct materials and variable and fixed overheads while evaluating cost per unit of a product.

Marginal costing does not recognize importance of working to full capacity and it uses cost plus pricing method (Pohlem, 1999, p.74). Absorption costing on its part avoids fluctuations in profit due to market demand in sales while production is constant. In marginal costing, selling price does not guarantee that all fixed costs will be covered. Absorption costing recognizes variable costs in the long run thus this argument favors absorption costing. Other arguments that favor marginal costing are that it shows the cash flows of an organization and how profits are affected by change in sale volume. This is true because profit is proportional to the volume of units sold. Absorption costing allows profits to be manipulated through setting of a production level that is met through market demand of sales (Mohsen, 2000, p.37).

Compare and contrast absorption costing and standard (opportunity) costing
Standard costing also known as opportunity costing is an accounting system that acknowledges application of manufacturing costs to inventory by using standard prices. This is different from absorption costing that allows the use of volume based absorption prices. Opportunity cost is benefit of best foregone option. It is the benefit which ha been given up at the expense of choosing another option (Lewis, 1993, p.21). In standard costing, resources are valued at their opportunity cost other than the actual cost incurred to acquire the resources.

The  advantage of standard  costing as compared to absorption costing is  that management  can easily  monitor how  resources are used and to develop new  policies on how to utilize resources effectively. However, one major draw back of standard costing is that it is not easy for manager to identify accurate opportunity cost. In case there is no another way in which resources can be used or when the resources are not limited, opportunity cost becomes zero. The use of standard costing in business is a way of comparing costs and revenues with the actual results so as to obtain variances (Brimson, Antos, 1999, p.19). Variance is used to stimulate performance in production process.

Pricing approach and relevant factors considered by company launching a new product.

The price of a product is determined by several factors such as cost incurred, variable and fixed overheads, and inventory method used. The approach of absorption cost is used to allocate unit products. It is a guide to products price that cover overheads. Direct materials, labor and overheads are aspect of manufacturing costs that determine the price of a product. The price of the product must be set such that it covers all manufacturing costs and the some profit is recognized (Tsuji, Garner, 1999, p.25) Contribution approach is another pricing approach that many companys advocate to use.

Managers of a company must consider some factors when launching a new product in the market. Such factors include target customers, competition in the market, demand and supply forces in the market, and advertisement costs. Positioning and location are the best strategies that must be used to launch a product successfully in the market. Promotion is another factor that managers should put into consideration. This will help to draw the attention of buyers from their normal taste to that of new product. Discount policy is a major factor that must be put in consideration by managers.

Analyze why budgets may cause budget padding and dysfunctional behavior by employees.

Budgeting in production process helps the company to utilize its resources in an effective manner. It is a way of helping employees to allocate resources in specific areas needed for production. Budgets however, may create budget padding because some head of departments may fail to come up with the list of items needed during manufacturing process. The additional items later in the budget may cause dysfunctional behavior of employees. Employees will fail to work due to lack of basic resources or equipments (Razek, 2002, p.160). On the other hand, employees try to include items that are not of essence during production process and use them for their own benefits. It is therefore, important for managers to budget well for all their needs and resources to avoid weird behaviors by employees.

An efficient market is defined as a market that accurately and fully reflects all available information in the form of prices. This would make it impossible for any investor to consistently generate higher returns than the market average i.e. no investor can beat the market consistently except by luck.

Market efficiency can be further explained in the form of 3 types of efficiencies price, operational and allocation efficiency. In case of capital markets efficiency is usually determined by price efficiency. Price efficiency can be understood as prices of assets being determined by expected future cash flows, and that any data or information that may have any impact on the future cash flows is available to all investors and reflected in the quoted price of the security also any new information will be instantly reflected in adjusted price. Operational efficiency refers to the cost of transactions. Allocation efficiency is the extent to which capital is directed to the most competitive or profitable sectors of the economy.

The efficient market is therefore characterized by rational (profit seeking) investors, free and accurate information availability i.e. no informational discrepancy between investors.

Efficient Market Hypothesis is stated in three forms weak, semi-strong and strong. The weak form states that the historical price and performance is not reflective of future price and performance and therefore investors cannot predict trends. The semi-strong form states that all public or commonly known facts and information are reflected in the market price. Public information includes financial accounts, press releases etc. The strong form dictates that all information i.e. both public and private is available and known by all investors and reflected in the equilibrium prices of the securities. Private information includes information not available to general public. The strong form eliminates distinction between public and private information. Due to the unrealistic demands of the strong form all markets generally fall between semi strong and weak forms.

Monte Carlo simulation model works by integrating together probability distributions and sensitivities for a set of variables in determining the probability distribution of the NPV of the project. A computer is programmed to select a random value for each variable from a range of values, which are specified in the beginning for each variable. Variables are factors, which cannot be predicted with certainty these may include sales volume, sales price, variable costs, overhead costs, inflation and prices of inputs such as oil etc. The program calculates the values the NPV for the project based on the selected set of values and stores the result i.e. NPV in its memory. This can be understood as the first simulation run, the program will repeat this process i.e. select another random set of values and calculate another NPV, a number of times, perhaps 1000 or even more if required. The result is a set of NPVs that are approximately normally distributed. Unlike the scenario or situational analysis that only generates a single or few NPVs, the Monte Carlo simulation generates a range of NPVs with the mean NPV, standard deviation and also the NPV probability distribution.

The key benefit of Monte Carlo simulation is that it allows the analyst to test the project feasibility against a set of possible changes. Similar to other sensitivity analysis techniques except that due to numerous reruns, the simulation results tend to be more comprehensive and rigorous. A 3 situational analysis (optimistic, realistic, pessimistic) simply reveals the conditions under which the NPV is positive and its expected value. However a simulation will reveal the probability of a positive NPV, NPV distribution skewness, overall risk of the project (standard deviation), and the maximum potential upside and downside. In short the results of the simulation are important because they offer much more detail than a simple NPV or IRR analysis.

The company that I have chosen for my project is The Tyson Company. The Tyson Company was founded in 1935 in Springdale, Arkansas. It is the second largest food production company according to Fortune 500. It is also a member of SP 500.

The company is the market leader when it comes to protein based and prepared food products. It is also the largest processor of beef, pork and chicken. The products of Tyson Company are sold to people in more than 90 countries and throughout the United States. The core values and beliefs of the company are diversity, integrity, serving the people, safety, consistency, respect of customers and other stakeholders, and faithfulness towards God and the company. There are currently around 117,000 employees of the company the employees are not referred to as the employees but rather as team members as they help achieve the goals that the company has set for itself. There are more than 300 facilities and offices within the United States and it is through these facilities and offices that the company operates. (Tyson Foods)

I have a personal relationship with the company as my grandfather has worked with the Tyson Company for over 20 years as a security guard. While I was a teenager, I interned with the Tyson Company during the summers. This has helped me develop a personal relationship with the company and makes me feel a part of it. After having interned there I think I will be better able to understand the processes and the procedures of the company, which will help me analyze the company better and write up my report.

Apple Inc.

Liquidity Analysis
Apple Inc. has current assets worth  36,265 million and sufficient enough to fulfill its current obligations which stand at  19,282 million.  Apple seems to be in good shape because about 80 of the current assets are cash and short-term investments which can be readily converted into cash unlike inventory and receivables. Other current assets and liabilities have seen an increase in 2009.  The current ratio of Apple Inc. in 2009 was 1.88 and quick ratio was 1.86 which is reflective of the fact that Apple has successfully managed to keep lower inventory levels.

Capital Investment Analysis
Apple has invested an additional  9,245 million in capital investment in 2009. Non-current assets have increased by  7,261 million in 2008 to  17,586 million in 2009.  This shows that Apple has increased its investment in its operations and is therefore making efforts to grow further.

Efficiency Analysis
Net income has steadily increased over the last three years. Net profit margin was 14.6 in 2007 which increased to 14.88 in 2008 which eventually increased to 15.6 in 2009. Cashflow from operating activities also saw a steady increase over the last three years with a 75 increase in 2008 and a 6 increase in 2009.

This reflects that the companys operations are not only profitable but generate adequate cashflow as well.
(Apple. n.d)
Grade
Apple Inc. deserves an A.

It is a progressive organization and seems to have out done when compared to the other two companies. Although its profit margin may have been a bit low than the other two companies but its liquidity position is the best and has made significant capital investment as well which bodes well for the existing investors and is a positive indication to potential investors
McDonalds Corp.
Liquidity Analysis

Although McDonalds liquidity had significantly deteriorated in 2008 when current liabilities had exceeded current assets and both current and quick ratio were 0.8 and 0.77 respectively which was below the industry standard. However the situation has considerably improved in 2009 and current assets are respectably above current liabilities. McDonalds current ratio and quick ratio in 2009 were 1.38 and 1.34 respectively.

Capital Investment Analysis
McDonalds has increased its capital investment in 2009 with an estimated cash outflow of  524 million. However noncurrent assets decreased from  25,811 million in 2008 to  24,943 million in 2009. It could have been possible that besides cash outflow for investing activities McDonalds disposed of some capital assets and as a result of those disposals might have been more than additions in 2009.

Owing to the economic crisis McDonalds seems to be recovering from the recession it faced in 2008 along with many multinationals around the world.

Efficiency Analysis
Profitability went down in 2008 from a net profit margin of 13.7 in 2007 to 10.2 in 2008. However in 2009 it improved to 18.3 which was way above the last two years and an 80 increase over the last year. Cash generated from operations also steadily increased over the last three years. Cashflow from operations was  4,876 million in 2008 which was an increase of 12 from an operational cash inflow of  4,341 million in 2007. Cashflow from operations further increased in 2009 to  5,917 million which is reflective of the increased trading activity.  Hence it shows that McDonalds operations are doing considerably well and have shown not only increased profitability over the last year but a better operational cash inflow as well. (MSN Moneycentral.n.d.)
Grade
McDonalds deserves a B grade.

Although profitability has been the best for the current year when compared to both Apple and PG, but its cashflow position is appropriate and has made a modest capital investment. Hence McDonalds liquidity position and capital investment is inferior to Apple Inc.

Procter  Gamble Co.

Liquidity Analysis
PGs liquidity position has further deteriorated over the last year. Both current and quick ratios were 0.8 and 0.52 in 2008 which further slumped to 0.71 and 0.49 in 2009. Not only the current ratio was below the recommended 1.0 threshold but quick ratio was dangerously low and this largely due to unconventionally higher inventory levels maintained.

Although PG did try to reduce its inventory levels and the inventory figure decreased by 18 in 2009 but still the liquidity crisis looms large. The companys current assets therefore remain significantly insufficient to pay off its current obligations.

Capital Investment Analysis
PG has decreased its capital investment in 2009 with cashflow from investing activities witnessing a decline of 8.  As mentioned above the company is already facing shortage of cash which owing to which there are doubts as to whether it would be able to fulfill obligations let alone investing for capital purposes. Furthermore non-current assets have also decreased from  119 million in 2008 to an estimated  113 million in 2009.

However capital investment is crucial for a companys growth but in case of PG here it seems that it is only concentrating to survive for now which is true of many huge conglomerates around the globe which have come across financial crisis owing to the global economic recession.

Efficiency Analysis
On the profitability front, PG has managed to both create and increase profits over the last year. Net profit margin in the last three years was 13.8 (2007), 14.8 (2008) and 17 in (2009) respectively. As can be seen profit margin was the highest in 2009 when compared with the profit margin in the other two years and PG managed this increase even when its revenue had seen a little slump in 2009 as compared to last year. However cashflow from operations had dropped this year. (PG. n.d.)
Grade
PG deserves a C grade.

PG has performed poorly on both the liquidity and capital investment front. Not only its liquidity position is dangerously adverse but by decreasing its capital investment it has deliberately halted its growth. The only saving grace is the companys impressive profit margin for the current year. The company seems to be in substantial financial woes.

The underlying paper examines three financial disasters and critically discusses the roles of modern portfolio theory and financial engineering in those disasters. The paper describes modern portfolio theory as a computer program which optimizes the risk and return combinations for an investor. MPT provides two outputs for an investor, namely, efficient frontier (or, the risk-return trade-off) and the portfolio that produces the optimal risk-return combination. MPT requires three inputs to provide these outputs these are expected returns for each security, co-variance estimates, and constraints on the choice of portfolio. In these inputs the co-variance estimate has significance, as it affects the correlation between the securities and higher the negative correlation between the securities, lesser the combined risk of the portfolio would be achieved.
Further, the paper describes financial engineering as a process which involves investment vehicles like options etc. Values of options are derived from underlying securities using Black-Scholes-Merton option pricing model. BSM model uses stock price, exercise price, interest rate and expiration date of the option to calculate the option price.

Next, the paper traces the causes of recent financial disasters to these two theories. The first disaster explained is Black Monday, known for the global market crash on 19 October 1987. The cause of the crash lies on the way option pricing theory is used to calculate the price of an option. The BSM analysis implies that, in the frictionless world a call is redundant because they can be replicated by shifting between cash and the stock as the stock price moves up and down. This replication of a call option is termed as synthetic call. To replicate the outcome of call, the synthetic call must increase its position in the security as the price goes up and decrease its position in the security as the price falls. However, the problem in this analysis lies in its unrealistic assumptions that markets are continuous in time and infinitely liquid.

The problem started when portfolio insurers (participants capturing the upside of the market by replicating the call options by taking long positions in future) started selling the index futures, after the substantial fall in the market on the Wednesday through Friday of the previous week. This higher selling pressure on the future contracts caused disequilibrium in the relationship between the future price and the spot price, which was not even controlled by the index arbitrageurs.

The next disaster explained is Long Term Capital Management (LTCM), which was a large, highly leveraged hedge fund. LTCM used MPT rather than BSM to judge the safety of its portfolios. LTCM used to go short the liquid side (30 years treasury bills) of many markets and long the illiquid side (29 years treasury bills). On 1998 after the Russian default there was great demand for liquidity and corresponding flight from illiquid assets, which resulted in its accounts being wiped out after marking it to market. The major problem in LTCM is considered to be its high leverage, which magnified the brunt of the Russian default.

At the last the recent financial crisis highlights the importance of correlation risks. The major cause of this crisis is the structure of various products which were created using complex financial engineering such as, Collateralized Mortgage Obligations pooled together high leveraged mortgages and then these CMOs adding their own leverage to the mixture and further complicating the structure. The other cause was the financing of the mortgages for low cost housing and mandating the subprime loans.

Finally, the paper proposes three best practice MPT to prevent investors from the exposures that represent the points at which models are most apt to breakdown.  The first suggestion proposed is not to take positions in derivatives of complex nature unless investors understand its nature and the related risks. Had this practice been followed, the recent financial crisis would not have been as severe as it turned to be, because most of the investors who invested in CDOs and CMOs were not at all aware of the associated risks and their exact natures. The second best practice proposed is, during the times of market panic, one with high leverage is wiped out. So, investments should not be highly leveraged as it was in the case of LTCM. Finally, the investors should think about the portfolio as a whole and should remember the law of average covariance. For example, a portfolio of Credit Default Swaps is in fact a portfolio of insurance policies guaranteeing correlated risks.

The underlying paper examines three financial disasters and critically discusses the roles of modern portfolio theory and financial engineering in those disasters. The paper describes modern portfolio theory as a computer program which optimizes the risk and return combinations for an investor. MPT provides two outputs for an investor, namely, efficient frontier (or, the risk-return trade-off) and the portfolio that produces the optimal risk-return combination. MPT requires three inputs to provide these outputs these are expected returns for each security, co-variance estimates, and constraints on the choice of portfolio. In these inputs the co-variance estimate has significance, as it affects the correlation between the securities and higher the negative correlation between the securities, lesser the combined risk of the portfolio would be achieved.
Further, the paper describes financial engineering as a process which involves investment vehicles like options etc. Values of options are derived from underlying securities using Black-Scholes-Merton option pricing model. BSM model uses stock price, exercise price, interest rate and expiration date of the option to calculate the option price.

Next, the paper traces the causes of recent financial disasters to these two theories. The first disaster explained is Black Monday, known for the global market crash on 19 October 1987. The cause of the crash lies on the way option pricing theory is used to calculate the price of an option. The BSM analysis implies that, in the frictionless world a call is redundant because they can be replicated by shifting between cash and the stock as the stock price moves up and down. This replication of a call option is termed as synthetic call. To replicate the outcome of call, the synthetic call must increase its position in the security as the price goes up and decrease its position in the security as the price falls. However, the problem in this analysis lies in its unrealistic assumptions that markets are continuous in time and infinitely liquid.

The problem started when portfolio insurers (participants capturing the upside of the market by replicating the call options by taking long positions in future) started selling the index futures, after the substantial fall in the market on the Wednesday through Friday of the previous week. This higher selling pressure on the future contracts caused disequilibrium in the relationship between the future price and the spot price, which was not even controlled by the index arbitrageurs.

The next disaster explained is Long Term Capital Management (LTCM), which was a large, highly leveraged hedge fund. LTCM used MPT rather than BSM to judge the safety of its portfolios. LTCM used to go short the liquid side (30 years treasury bills) of many markets and long the illiquid side (29 years treasury bills). On 1998 after the Russian default there was great demand for liquidity and corresponding flight from illiquid assets, which resulted in its accounts being wiped out after marking it to market. The major problem in LTCM is considered to be its high leverage, which magnified the brunt of the Russian default.

At the last the recent financial crisis highlights the importance of correlation risks. The major cause of this crisis is the structure of various products which were created using complex financial engineering such as, Collateralized Mortgage Obligations pooled together high leveraged mortgages and then these CMOs adding their own leverage to the mixture and further complexing the structure. The other cause was the financing of the mortgages for low cost housing and mandating the subprime loans.

Finally, the paper proposes three best practice MPT to prevent investors from the exposures that represent the points at which models are most apt to breakdown.  The first suggestion proposed is not to take positions in derivatives of complex nature unless investors understand its nature and the related risks. Had this practice been followed, the recent financial crisis would not have been as severe as it turned to be, because most of the investors who invested in CDOs and CMOs were not at all aware of the associated risks and their exact natures. The second best practice proposed is, during the times of market panic, one with high leverage is wiped out. So, investments should not be highly leveraged as it was in the case of LTCM. Finally, the investors should think about the portfolio as a whole and should remember the law of average covariance. For example, a portfolio of Credit Default Swaps is in fact a portfolio of insurance policies guaranteeing correlated risks.

Financial engineering has been described as the replication of the pay off of  options (as financial instruments who derive their value through an underlying security) through the use of different securities  assets to limit or expand on the downside or upside of the asset itself. However, option pricing theory has a number of assumptions at its heart and options do not hold a symmetrical relationship to their underlying security as a result leading to catastrophic consequences.

Black Monday
The Stock Market crash of 1929 (Black Monday) had its roots in the low interest  environment following World War I when cheap credit enabled Americans to live beyond their means and borrow cheaply to invest in a bullish stock market. These investments then acted as collateral for more borrowing so that in essence the American economy represented a massive asset price bubble with asset prices inflated far beyond their fair values. However, this consistent increase in asset prices could not be sustained as credit started drying up for over leveraged individuals and businesses who were forced to start liquidating their holdings. This led to a massive sell off on the stock market which culminated into a crash of the market itself in October of 1929, sending the world into a deep prolonged recession.

This collapse can be explained by option pricing theory and the replication principle when portfolio managers use assets to replicate the pay off another asset (synthetic instruments). However, replicating an assets pay off does not necessary mean that we limit the downside of our replicating portfolio by the same amount and hence risk return tradeoff changes with replication.

Long Term Capital Management
The Long term capital management fiasco involved a hedge fund of the same name which would play on leverage and hence play around small differences on both sides of the trade of a particular security. However, with the default by Russia in 1998 and the over riding trend for investors to move away from illiquid assets to liquid ones, the hedge fund soon found itself trapped in a liquidity crunch as claims by investors for redemptions mounted. The end result was that the fund was forced to liquidate positions at massive losses and before capital markets would suffer more, the fund was bailed out by the Federal Reserve.

With regard to the application of theory, this disaster has its roots in the misapplication of modern portfolio theory. Hedge fund managers used excessive leverage to earn a modest return whereby the same could have been possible through different avenues with lesser risk. Hence, a mis interpretation of the efficient frontier is seen.

Financial Crisis of 2008
Rising house prices, easy credit terms with special provisions in the initial financing tenure and a welcoming attitude by financial institutions to people with short or no credit histories attracted Americans to take out mortgages. However, a fall in house prices and restricted bank lending to the sector as a result meant that many adjustable rate mortgages could not be refinanced and hence defaults started occurring. However, the impact of these defaults was massive as financial engineering through the use of secularization of these loans and the existence of credit default swaps to hedge against the bankruptcy of these investment vehicles without counter parties re insuring themselves meant that the impact on financial institutions holding these sub standard securities was so large that the whole capital base of some financial institutions was wiped out leading to a massive loss of confidence in the economy.

The lack of mark to market requirements for these assets complicated matters as investors were never really aware of the true value of their investments in these highly structured products and hence mean variance analysis could not return any respectable measure of risk. At the same time, the lack of reinsurance against counter party risks meant that the whole idea of hedging oneself from portfolio losses was neglected.

Best Practices Proposed
Mr Markovitz has proposed that investors should be vary of taking positions in a derivative instrument if they do not understand the dynamics of derivatives themselves while at the same time making note of leverage levels and not letting them go out of hand. Lastly, investors should take a portfolio approach to investing and look at portfolio risk rather then the risks of individual securities. All three correspond in order to the three financial crisis es mentioned above. However, the prevention of any future crisis depends more on the ethicality of the investment profession then on the tools for risk return analysis for at many instances, the underlying cause of the financial crisis that we have witnessed has been naked greed.

Section 1

a)
Brightview may increase the efficiency and effectiveness of the management of its stocks by examining the link between its stocks in the companys supply chain operations and activities. As the stock usually sucks up the cash available to a firm while having the stock waiting to get sold, the companies always try to keep stock in hand for the shortest possible time.

Stock management is vital for a company because it costs the company to maintain its stocks. These costs may include carrying costs of stocks, opportunity costs and risk of wastage, loss or obsolescence.
Like every business, Brightview must strive to achieve an optimum level for its stock in hand as poor management of stocks may lead to disappointment to customers, increased carrying costs for the company, blocking of cash and outdated stocks.

The company therefore must use a relevant stock management method such as
Just in time
Fixed re-order stock level
Fixed time re-ordering
Economic order quantity
For an effective and efficient management of stocks it is vital for Brightview plc to know the sale cycle of its products, which is based on knowing the time between when a finished product arrives in to the market until they are sold to customers.

Section 1
b)
The sources of finance available to Brightview plc may include obtaining funds from

Capital market
Loan stock
Bank borrowing
Factoring

CAPITAL MARKET

Issuing shares in capital market is one of the most common and important source of obtaining long term finance by a company. Holders of such shares are termed as the real owners of a company. Ordinary shares are the best source of raising finance, as they are only required to be paid back if the company is wound up.

Advantages
Common with the managers of the company investors have a vested interest a companys success.
Future cash flows are not committed (as payment of dividend is on the discretion of the directors)
No charge on the companys fixed assets.

Disadvantages
Earnings  ownership dilution.
Share holders participate in the profits of the company.
Floatation costs for equity are higher as compared to flotation costs for debt.

LOAN STOCK
It is legally termed as an interest attached debt instrument issued by a company under its common seal to acknowledge the loan taken by the company. Holders of such instruments are called long-term creditors of the company.

Advantages
Costs cheaper than bank borrowing as cost of debt for a company is lower than the cost of equity.
It offers the company tax benefits as the interest expense is tax allowable expense.
Holders of loan stock do not play role in the management and control of the company.
Preferred mode of investment for risk-averse investors as they offer a better return than government bonds or banks.

Disadvantages
Return has to be paid in fixed or determinable amounts of money, therefore regarded as a fixed cost to the company.

Interest has to be paid even if the company is not making profits, hence endangering the existence of the company.

Loss of credit worthiness.

BANK BORROWING

Bank borrowing has always been an important source of finance to companies. Short term bank borrowing may be in the form of
Overdraft
Short-term loan

Advantages
Interest expense is normally tax allowable.
Loans are mostly offered in reliable and secure amounts of money, that is there is a fixed duration for which funds can be utilized..

Disadvantages
Creates a charge over the assets of the company.
Fixed payments.
Impacts the credit worthiness of a company.

FACTOR FINANCE

Its an arrangement between a company and a factor agent under which the factor agent collects debts on behalf of the company. However the factor agent advances to the company apportion of the money it is due to collect from the debts.

Advantages
Allows the business to realize cash from its sales in time to pay its suppliers on a timely basis thus allowing the company to take advantage of any early payment discounts.
Allows the company to maintain optimum stock levels, as a direct result of having sufficient cash available to it.
Growth can be achieved through making sales rather than through injecting fresh capital.

Disadvantages
With debtors making payments direct to the factor, it creates a negative picture of the companys attitude.
It can also raise questions on firms financial stability as collecting debts through a factor indicates that a company is in need of rapid cash.

Section 2
a)

The cost of capital for a company is the return that a company would seek to earn from the investments undertaken by it. The company needs this minimum return to satisfy the return required by the investors of the company (i.e. debt and equity providers)

Therefore, a company will only undertake projects from which it can earn a return that is either equal or higher than its weighted average cost of capital provided that the company uses its existing capital structure.
The initial weighted average cost of capital is the sum of weighted costs (post tax for debt, pre tax for common equity) of debt and common equity.

The weighted average cost of capital (Ka) can be calculated as follows
Ka  We x Ke  Wd x Kd (1-t)
Where,
WeWeight of common stock in the firms capital structure.(0.71KeShare holders required rate of return.(6WdWeight of debt in the firms capital structure.(0.29KdDebt (Debenture) holders required rate of return.(5

Substituting the above values in the formula we can calculate the weighted average cost of capital for Brightview plc.

Cost
(after tax)WeightsWeighted CostDebt ...Kd50.291.45Common equity (shares) ..Ke60.714.26Weighted average cost of capital ..Ka SUM(ABOVE) 5.71Note The above calculation has been done ignoring taxes if any)

Section 2

b)
The total value of the debentures at the revised market interest rate can be calculated using the formula,
MVDRiWhere,
MVDTotal market value of Debentures(12,000,000RTotal payments associated with the debentures.(Not giveniInterest rate(5Substituting the above values given above in the formula we can calculate the total payments associated with the debentures as follow
12,000,000R5
R600,000Now we can use R, as calculated above to determine the revised Market value of Brightviews debentures, with the changed interest rate.
MVD600,0004MVD15,000,000

Reason for change in the market value of the debentures
When there is a slump in the economic activity the market interest rates are more likely to decrease as a direct result the market value of a bond or an equity instrument would increase. This is because of reduction in loss of purchasing power, resulting in a reduction in the risk associated with owing an instrument.
This would be because the company would have to pay less for its sources of finance which will result in savings for the company in terms of interest payments eventually resulting in increased earnings (cash flows).
As among of many methods of valuing a company one is to take the sum of discounted values of all future cash flows the company expects to generate from its business activities.

SECTION 2

c)
i) Cash flow forecast for Brightview plc. (As originally stated)

Jan
(,000)Feb
(,000)March
(,000)April
(,000)May
(,000)June
(,000)RECEIPTSSales1,2501,6501,8601,9802,2502,450PAYMENTSWages and salaries8508508501,4601,4601,460Supplies4507509701,0701,2401,890Rent and rates808080808080Advertising505050505050Miscellaneous101010151515TOTAL SUM(ABOVE) 1,440 SUM(ABOVE) 1,740 SUM(ABOVE) 1,960 SUM(ABOVE) 2,675 SUM(ABOVE) 2,845 SUM(ABOVE) 3,495Receipts minus payments(190)(90)(100)(695)(595)(1,045)Balance brought forward750560470370(325)(920)Balance carried forward560470370(325)(920)(1,965) ii) Cash flow forecast for Brightview plc. (Recalculated)

Jan
(,000)Feb
(,000)March
(,000)April
(,000)May
(,000)June
(,000)RECEIPTSSales1,2501,6501,8601,9802,2502,450PAYMENTSWages and salaries8508508501,4601,4601,460Supplies4509001,1641,2841,4882,268Rent and rates808080100100100Advertising505050505050Miscellaneous101010303030TOTAL SUM(ABOVE) 1,440 SUM(ABOVE) 1,890 SUM(ABOVE) 2,154 SUM(ABOVE) 2,924 SUM(ABOVE) 3,128 SUM(ABOVE) 3,908Receipts minus payments(190)(240)(294)(944)(1,822)(1,458)Balance brought forward75056032026(918)(2740)Balance carried forward56032026(918)(2740)(4,198)
(it has been assumed that the increase in the supplies, rent and rates and miscellaneous costs occur as in addition to the actual cost for that yeah and not over the total cost for the previous year)

iii) Main trends and messages reflected by the cash flow statement presented above.

The recalculated cash flow statement reflects that the companys financial position will be at risk if the company fails to take immediate steps for covering its costs with the associated revenues. It is critical for the company to revisit it pricing policies and marketing strategies because it will help increase the sales revenue for the company on the other hand company needs to take steps to control its costs.

Section 3
a)
ii) Payback method

YearOutflow  Inflow
 000Cumulative
Cash flow
 0000(10,000)18,250(2,700)(4,450)213,410(5,710)3,250314,980(6,280)418,590(7,890)517,850(8,230)
Project payback time is be estimated to be equal to 1.57 years or 1 year and 7 months

iii) Accounting Rate of Return (ARR)

YearEBITDA
 000Deprecation
 000Net Profit
 00015,5502,0003,55027,7002,0005,70038,7002,0006,700410,7002,0008,70059,6202,0007,620 SUM(ABOVE) 32,270
 000Average annual profit6,454Average investment  (initial investment  residual value)25,000Accounting rate of returnAverage annual profit1.29Average investment

iii) Net Present Value (NPV)

YearCapital
 000Net cash flow
 000Discount factor  5Present value
 0000-10,000-1.000-10,00015,5000.9525,23627,7000.9076,98438,7000.8647,517410,7000.8238,80659,6200.7847,542Net present value SUM(ABOVE) 26,085
a)

A) PAYBACK
Payback method calculates the time period required for a firm to recoup its initial investment in a project in other words, it is the period of time taken by a firm to equate total inflows associated from a project to the projects outflows.

It is commonly used as a first screening method when a firm is deciding to invest in a capital investment. The payback for a particular project is compared with the companys targeted payback.

Strengths
Simple to understand and easy to compute.
Identifies risk to some extent by separating long and short-term projects.

Weaknesses
Doesnt take account of the time value of money
Ignores the future profitability of projects after initial investment has been recouped (after breakeven point).
Fails to distinguish between projects having similar payback period
May cause the company to invest in projects that have a negative NPV.


B) ACCOUNTING RATE OF RETURN
This method calculates the minimum rate of return an investment should yield if it has to be accepted by a firm. If this rate computed exceeds the target rate of return for a company its only then that an investment is undertaken.

Strengths
Simple to calculate as it uses accounting data.
It considers the total life of a project.

Weaknesses
It is based on accounting profits (accounting profits include accruals and other non cash items)
It ignores the time value of money.

C) NET PRESENT VALUE

The method discounts the future cash inflows that a company expects to earn from an investment  project and is then compared with the present value of all the cash outflows (initial and subsequent).The discounting is done using the cost of capital for the company as it is the minimum return the company must generate to pay its finance providers.

Strengths
Uses cash flows from a project not merely accounting profits.
They account for the concept of time value of money.
They take in to account all the related cash flows from a project.
It adjusts for the timing of cash flows.
Account for the risk differences in different projects  investments.

Weaknesses
They are based on future cash flows which are usually difficult to forecast.
The fail to provide a conclusive decision when the capital available for the projects is rationed.
The discount rate (cost of capital) used to discount cash flows is difficult to estimate.
The cost of capital tends to change over the life of a particular project  investment.

b)
Factors that should be taken in to account by a firm like Brightview plc while setting its prices, may include
Internal factors
Marketing objectives of the company for that particular product.
Marketing mix strategies
Consideration of costs
Organizational considerations
External factors
Nature of the products market and demand for the product.
Competitors financial strategies (price, costs etc.).
Other environmental factors (economic, social and government considerations)

 Section 4
a)
Brightview Plc
Balance Sheet
As at December 31, 2010

Note20102009 000 000EQUITY AND LIABILITIESAuthorized10,000,000 ordinary shares of  100 eachIssued, subscribed and paid up capitalReservesSurplus on revaluation of fixed assetsLIABILITIESNon-current liabilitiesLong term financingDebenturesDeferred liabilitiesCurrent liabilitiesTrade and other payablesInterest, profit, return or mark-up accruedShort term borrowingsCurrent portion of long term borrowingsProvision for taxationContingencies and commitmentsTotal equity and liabilitiesBrightview Plc
Balance Sheet
As at December 31, 2010

Note20102009 000 000ASSETSNon-current assetsProperty, plant and equipmentIntangiblesLong term investmentsCurrent assetsStores, spares and loose toolsStock in tradeTrade debtsLoans and advancesTrade deposits and short term prepaymentsAccrued interest  mark upOther receivablesCash and bank balancesTotal assets Brightview Plc
Profit and loss account
For the year ended December 31, 2010

Note20102009 000 000Turnover  netCostGROSS PROFITDistribution costsAdministrative expensesOther operating expensesFinance costOther incomePROFIT BEFORE TAXATIONTaxationPROFIT AFTER TAXATION
Distinctive elements in

a) Balance Sheet
The balance of Bright view plc would differ from another form of organization such as banks in the following ways

Assets For a bank assets would primarily consist of loan and advances given to different parties (other than banks fixed assets) however, in the case of Brightview plc they would be their own fixed assets and long-term investments etc.

Liabilities For a bank the most distinguishable liability would be deposits and other amounts that customers has kept with the bank however, for Brightview plc they would consist of Loans and borrowing from banks.

b) Profit and loss account
For a company like Brightview plc the profit and loss would consist of a trading account summarizing amounts from sale of goods produced and other operating income and expenses most of which would relate to the companys operating activities, for a bank the trading profit and loss account would primarily consist of income earned from the loans and advances given to other parties and interest expense paid to its depositors.

b)
Purpose of a profit and loss account
A profit and loss account is used to summarize the trading transactions (sales, purchases, income and expenditure) of a business and the resulting profit or loss for a given period.

It summarizes the business results for a company by stating whether the company has made profit or loss over its financial year. Further it also describes how profit or loss has arose i.e. by categorizing and comparing different classes or revenues and costs

Purpose of a balance sheet
The balance sheet of a plc provides a snapshot of the financial position of a company at a given point in time, usually at the end of an accounting period. Unlike profit and loss account it does not show the effect of day to day transactions or the current profitability of a business.

It also reflects the year-end balances of all the assets and liabilities of the company in addition to its shareholders equity.

c)
Ratios can assist in assessing the profitability and liquidity of firm through cross sectional analysis (comparison with industry) and Time series analysis (comparison with previous years).

Gross profit and Net Profit ratios of a firm when compared with the other firms in same industry may help to analyze differences in the management of sales and cost control provided they both sell same number of finished goods. Further, it can help in assessing a firms performance as compared with the previous years in economy of rising prices.

Current ratio of a firm when compared with other firms in the same industry indicates if the firm has invested excess amount of money in its current assets which otherwise can be utilized in maximizing sales.
Quick Ratio of a firm when compared with other firms in the industry might indicate excessive or too little investment in the stocks which might indicate to the management the need for establishing stock management systems.

d)
If the project set out in section 3 is undertaken it would positively affect the profit of the company and would also increase in the market value of its financers (equity and debt). This would help increase the total earnings and would also increase the asset base.