FIN534 Week 2 Scenario Script: Financial Statements and Reports, Financial Analysis, Corporate ratios and benchmarking Slide # Scene/Interaction Narration Slide 1 Scene 1 · Linda in her office · Don enters with · Linda’s Phone Rings · End of scene FIN534_2_1_Linda-1: Hello, I hope you are ready to get started today because Don gave us our first analysis project. He would like us to review some of TFC’s financial reports. FIN534_2_1_Don-1: Hello everyone. I just came from the accounting department where I was able to get TFC’s balance sheets and income statements for the prior two years. The accounting department also provided an estimate of TFC’s balance sheet and income statement after the acquisition, considering it occurs. I would like for you to review the statements and determine the financial strength of our company. We pride ourselves in having a strong cash base. We are hoping this project will keep our cash account strong. Let’s go to the conference room so I can show you the reports and review some of the accounts with you. FIN534_2_1_Linda-2: (Phone rings)Hello. (wait a few seconds). Thank you. I will be right over. FIN534_2_1_Linda-3: Sorry I cannot join you as an important matter came up at one of our facilities. FIN534_2_1_Don-2: Not a problem. I have faith in our Strayer intern. So, we will review the forms in the conference room. Slide 2 Scene 2 · In conference room with spreadsheets up · Put the three areas of Balance Sheet on a slide · Show the formula · Go to next slide FIN534_2_2_Don-1: So, it looks like this one is all on you. Here is the balance sheet and the income statements. I was able to gather the information from the last two years of TFC’s annual report, which you know also includes the statement of stockholders’ equity and the statement of cash flows. FIN534_2_2_Don-2: Let’s take a quick look at the Balance Sheet. It shows a snapshot of TFC as of December 31st of the past two years as well as this year which is an estimated number. It is pretty much showing us what the company looks like at those points in time. The amounts can change significantly from one day to the next. For example.if there is a big cash payment, then the cash account will go down overnight! There are three main areas to a Balance Sheet and they include assets, liabilities, and equity. The Balance Sheet also says everything should add up or balance and the formula for this is: assets equal liabilities plus equity. Slide 3 Scene 3 · Don shows Asset account · Go to next slide FIN534_2_3_Don-1: Assets are what TFC owns and the accounts consist of current and long term assets. Current assets are typically considered by TFC to be those accounts that will be turned into cash within one year. The long term assets also known as fixed assets are those that have longer than one year of an expected life on the books. Now let’s take a look at the other side of the Balance Sheet equation. Slide 4 Scen ...

1. FIN534 Week 2 Scenario Script: Financial Statements and
Reports, Financial Analysis, Corporate ratios and benchmarking
Slide #
Scene/Interaction
Narration
Slide 1
Scene 1
· Linda in her office
· Don enters with
· Linda’s Phone Rings
· End of scene
FIN534_2_1_Linda-1: Hello, I hope you are ready to get
started today because Don gave us our first analysis project. He
would like us to review some of TFC’s financial reports.
FIN534_2_1_Don-1: Hello everyone. I just came from the
accounting department where I was able to get TFC’s balance
sheets and income statements for the prior two years. The
accounting department also provided an estimate of TFC’s
balance sheet and income statement after the acquisition,
considering it occurs. I would like for you to review the
statements and determine the financial strength of our company.
We pride ourselves in having a strong cash base. We are hoping
this project will keep our cash account strong.
Let’s go to the conference room so I can show you the reports
and review some of the accounts with you.
FIN534_2_1_Linda-2: (Phone rings)Hello. (wait a few
seconds). Thank you. I will be right over.
FIN534_2_1_Linda-3: Sorry I cannot join you as an important

2. matter came up at one of our facilities.
FIN534_2_1_Don-2: Not a problem. I have faith in our
Strayer intern. So, we will review the forms in the conference
room.
Slide 2
Scene 2
· In conference room with spreadsheets up
· Put the three areas of Balance Sheet on a slide
· Show the formula
· Go to next slide
FIN534_2_2_Don-1: So, it looks like this one is all on you.
Here is the balance sheet and the income statements. I was able
to gather the information from the last two years of TFC’s
annual report, which you know also includes the statement of
stockholders’ equity and the statement of cash flows.
FIN534_2_2_Don-2: Let’s take a quick look at the Balance
Sheet. It shows a snapshot of TFC as of December 31st of the
past two years as well as this year which is an estimated
number. It is pretty much showing us what the company looks
like at those points in time. The amounts can change
significantly from one day to the next. For example.if there is a
big cash payment, then the cash account will go down
overnight! There are three main areas to a Balance Sheet and
they include assets, liabilities, and equity. The Balance Sheet
also says everything should add up or balance and the formula
for this is: assets equal liabilities plus equity.
Slide 3
Scene 3
· Don shows Asset account
· Go to next slide
FIN534_2_3_Don-1: Assets are what TFC owns and the
accounts consist of current and long term assets. Current assets
are typically considered by TFC to be those accounts that will

3. be turned into cash within one year. The long term assets also
known as fixed assets are those that have longer than one year
of an expected life on the books.
Now let’s take a look at the other side of the Balance Sheet
equation.
Slide 4
Scene 4
· Don shows Liabilities and Equity
· Go to next slide
FIN534_2_4_Don-1: Liabilities are what TFC owes to
creditors. The same understanding applies to current liabilities
as they are what TFC will pay in cash in the following year,
while long term liabilities are more than a year. Also accounts
payables are those payments that are due to other companies
while notes payable are typically due to lending institutions.
FIN534_2_4_Don-2: Equity basically represents the owners of
the company and any net income that is not paid out in
dividends over time gets transferred into our Retained Earnings
account.
Please take some time to look over the balance sheet.
FIN534_2_4_Don-3: As you can see cash is a common theme
and we need to have good management of it.
Slide 5
Scene 5
Check Your Understanding:
Review Balance Sheet Items
· List different accounts and the user needs to choose whether it
is an Asset, Liability, Equity
· Would like to not have the user be able to open up the balance

4. sheet. So maybe at this point don’t make the spreadsheet as a
download – that will come later on
· Go to next slide
User: Use matching where user has to put account in proper
bucket (Asset, Liability or Equity)
See addendum Scene 5 CYU
Slide 6
Scene 6
· Don shows Income Statement in conference room
· In comes Joe
· Go to next slide
FIN534_2_6_Don-1: I sure hope everything is fine with Linda.
In the business world, these “putting out the fire” actions
happen all the time. We are all about making the Body
Builder’s experience the most enjoyable experience every time
so when that standard is not being met, action needs to be taken
A.S.A.P!
FIN534_2_6_Don-2: Before I digress anymore let’s take a look
at the income statement. This statement is different from the
balance sheet as it occurs over a specific time instead of at one
point in time. It, too, has a simple formula of revenue minus
expenses equals profit or loss.
FIN534_2_6_Don-3: On our income statement we call revenue
net Sales because we already have deducted any discounts we
gave to our Body Builders. The expenses are also listed starting
with depreciation.
FIN534_2_6_Don-4: Let’s talk about depreciation. It is a non
cash item, meaning that when aLong Term Asset is purchased

5. we own it, but since we plan on using it over a number of years,
we spread the cost of it over years instead of all at once. Think
of a work out building. Since we plan on having our Body
Builders use it for years, we expense it or depreciate it over a
number of years. We also have to make sure we are following
accepted accounting rules when depreciating.
FIN534_2_6_Joe-1: I see you are discussing the financial
statements. How is the company looking?
FIN534_2_6_Don-4: Funny, you should ask. We were just
going to get into the analysis.
Slide 7
Scene 7 (Interaction- Multiple choice)
· Don looks at balance sheet again
· Make sheet available for download
· Show formula : (Ending cash – Beginning Cash) / Beginning
Cash
· Show calculation. (30,000,000-20,000,000)/20,000,000
· In conference room
· Answer Choices
· A. -33%
· B. -67%
· C. 33%
FIN534_2_7_Don-1: Well we reviewed what each statement is,
now let’s dive in deeper by doing some analysis. The cash
account is very important to us at TFC. Two years ago we had
cash of twenty million dollars. Last year our cash position was
thirty million dollars. That is a fifty percent gain.
FIN534_2_7_Don-2: To get that we took the Ending Cash
minus theBeginning Cash and divided that amount by the
Beginning Cash.This year we are projecting to have a cash
position of ten million dollars. What type of gain or loss would

6. that be?
FIN534_2_7_Don-3: (Correct Answer): Nice work! It is a loss
of sixty seven percent.
FIN534_2_7_Don-4: (Incorrect Answer): Try again.
Remember, use the formula Ending Cash minus theBeginning
Cash and divide that amount by the Beginning Cash.
Slide 8
Scene 8
FIN534_2_8_Don-1: Doing year over year comparisons are
good to get an idea of the direction of the company. As you can
see our cash account is expected to go down significantly which
is a concern to us especially during this expansion.
FIN534_2_8_Don-2: (Phone rings) Hello. (pauses a few
seconds). Okay, I’ll be right there.
FIN534_2_8_Don-3: Well – another fire has to be put out. I
have to go now but I am going to leave you with the financial
statements and ask that you review them and draw some
conclusions.
Slide 9
Scene 9 - Check Your Understanding:
See addendum CYU Slide 9
Slide 10
Scene 10
· Linda Enters
· List all 4 on a slide for Financial Analysis

7. FIN534_2_10_Linda-1: I just bumped into Don. Great work
on the analysis. He told me you were hard at work. A
Financial analysis is very important for any company. Besides
looking over the balance sheet and income statement; financial
analysis also includes examining the statement of cash flows,
calculating and examining the return on invested capital,
calculating and examining free cash flow, and performing ratio
analysis using benchmarks as a guide.
Let’s focus on ratio analysis with benchmarks.
Slide 11
Scene 11
· Linda Speaks
· Put up Strayer banner
· List 5 area of ratio analysis
· Next Slide
FIN534_2_11_Linda-1: When I was attendingStrayer
University for my MBA, ratio analysis became a personal
favorite of mine. I believe it helps you see the entire picture of
the company, especially when you compare them to
benchmarks, which are usually ratios for the particular industry.
You can say that ratio analysis standardizes all companies, or
puts them on the same playing field when comparisons are
made.
FIN534_2_11_Linda-2: There are typically five areas of
ratio analysis and they include liquidity, asset management,
debt management, profitability, and market value.
Slide 12
Scene 12
· Show money – maybe having dollar signs come into the room
– or can you have dollar bills explode out of a jar?

8. · Show financial statements with benchmarks
· Emphasize the Liquidity concern
· ON the screen show the current ratios from paragraph 2.
FIN534_2_12_Linda-1: Liquidity ratios are used to see what
position the company is to pay those obligations that are due in
the short term. At TFC we usually look at two different ratios,
the current and quick also known as the Acid Test.
FIN534_2_12_Linda-2: Let’s take a look at the current ratio.
Two years ago our current ratio was three point two two and
three point five seven, meaning we have over three times more
current assets than current liabilities. However, we are
projected to only have one point three four times as much this
year. Is it enough? That is a question no one knows, but we
can do a comparison to the industry to see where we stand.
FIN534_2_12_Linda-3: Let’s look at the industry for the current
ratio from our spreadsheet. As you see, we are well above the
industry average for the last two years, indicating we are in a
strong position to meet current obligations. However, looking
at the current year tells a different story. Our current ratio is
one point three four, while the industry average is two point
zero. This is why I am nervous. We pride ourselves at TFC to
be liquid but this project is really going to put us on the edge.
Let’s now look at some asset management ratios.
Slide 13
Scene 13
· Show money – maybe having dollar signs come into the room
– or can you have dollar bills explode out of a jar?
· Show financial statements with benchmarks

9. · Total Asset Turnover = Sales/Total Assets
·
FIN534_2_13_Linda-1: Asset management ratios focus on how
well TFC is using its assets to create wealth. From my Strayer
MBA days, we covered a lot of them. The two we like to focus
on at TFC are the total assets turnover and days sales
outstanding. Let’s look at both of them.
FIN534_2_13_Linda-2: The total assets turnover ratio measures
how well Assets are generating sells. The ratio for the last two
years was point six eight and point seven zero, respectively. To
figure out the ratio we use the formula: total asset turnover
equals sales divided by total assets. When comparing to the
benchmark of point five zero, TFC’s ratio is in line with the
industry.
FIN534_2_13_Linda-3: Days sales outstanding, also known as
the average collection period is used to see how long it is taking
TFC to collect on its accounts receivables. The benchmark is
thirtydays but TFC has been collecting its receivables a lot less
than that.
Slide 14
Scene 14
· Linda Speaks
· Put Debt Ratio on board which is Debt Ratio = Total
Debt/Total Assets
· Put TIE on board = EBIT/Interest Expense
FIN534_2_14_Linda-1: Let’s now look at debt management
ratios. These are the ratios that show how well a company
leverages itself with debt. Here at TFC we want to stay around
the industry average which is fifty percent. Two years ago we
weren’t there but we made changes to how we finance our assets
and we did much better last year. However, for the current year,

10. we are projected to be a higher than we would like. New
project financing is doing this to us.
FIN534_2_14_Linda-2: Times-interest earned or TIE for short
is the other ratio we at TFC look at closely. Don’t get me
wrong, we are concerned with all the ratios, but some we look
at more closely than others. This ratio is concerned with how
well our earnings are covering our interest expense. The higher
---the better for us. The prior two years we were a lot higher
than the industry average of ten. Our profits have been great
and we grew at a controlled rate so we were able to manage our
debt well.
Slide 15
Scene 15
· Linda starts
· In enters Joe
· Goes over Net Profit Margin = Net Income/Sales and ROE =
Net Income/Equity
FIN534_2_15_Linda-1: We are really going in unchartered
waters for TFC.
FIN534_2_15_Linda-2: Let’s now look at what our
shareholders are concerned about which are profitability ratios.
FIN534_2_15_Linda-3: Shareholders invest to see a nice
return. At TFC, we have been doing that. Two measurements
we look at closely are the Net Profit Margin and Return on
Equity.
(Joe comes in…..)
FIN534_2_15_Joe-1: Hi everyone. I would like to talk about
this group of ratios. As I mentioned, I am not your financial
wizard. However, as CEO, I have to keep our shareholders
happy so I really look at these ratios.
FIN534_2_15_Joe-2: The net profit margin percentage tells us
how much of each dollar we are selling at TFC stays with the

11. company. The industry average is ten percent or ten cents for
each dollar. Here at TFC, we have been beating the industry
continuously. Last year we earned twenty one percent or twenty
one cents for each dollar sold. Great results for our
shareholders and us especially!
FIN534_2_15_Joe-3: The return on equity or ROE, more
closely relates to what investors are returning on their money.
Over the last two years our investors were able to earn a return
of twenty five percent and twenty three percent, respectively.
The industry average is twelve percent so we are doing great.
FIN534_2_15_Linda-1: Thanks Joe. If you stay for a few
minutes, we were just going to run our projected numbers.
Slide 16
Scene 16
Determine the Return on Equity (ROE) for the year 2013?
A. 6% (correct-This is what shareholders can expect to earn on
their investment with TFC in 2013.)
B. 12% (incorrect-Nice try, but remember the formula for ROE
is Net Income/Total Stockholder’s Equity.)
C. 8% (incorrect-Nice try, but remember the formula for ROE is
Net Income/Total Stockholder’s Equity.)
D. 10% (incorrect-Nice try, but remember the formula for ROE
is Net Income/Total Stockholder’s Equity.)
Slide 17
Scene 17
· Linda speaks about Market Value ratios
· Put up P/E Ratios
FIN534_2_17_Linda-1: Great job! So, we are projected to be

12. less than the industry which is a concern for us and our
shareholders.
FIN534_2_17_Linda-2: We also look at our price/earnings
ratio which is our market value ratio. This gives us an idea of
how our stock price compares to that of others in our industry in
particular to our earnings. Since we have had very good
earnings, our stock price has gone up in value. We considered a
stock split but we decided against it as investors were seeing
some growth. We do pay a small dividend, as well. When
looking at our P/E Ratio, we are aligned with the industry. We
will revisit this lateras we review other analyses.
Slide 18
Scene 18
· Check point
[Check Your Understanding here. Intern will be given the
category as in Liquidity and say whether it is stronger, the
same, or weaker than the industry]
(1) Regarding Liquidity, when looking at the Current Ratio for
the prior years is TFC Stronger, Same, Weaker when compared
to the Industry?
Answer: Stronger but in the projected year that is not the case
Same – Nice try but the Current Ratio has gotten stronger albeit
by a small amount. This shows good coverage for debts due in
the current year
Weaker – Nice try but look from at the last two years and the
ratios are above the industry average
(2) Regarding Asset Management, when looking at the Total
Asset Turnover Ratio for the prior years is TFC Stronger,
Same, Weaker when compared to the Industry?
Answer: Stronger: The ratios are a little bit higher than the
industry which means that assets are generating sales.
However, as assets become aged, that may not be the case. TFC
should look at this ratio each year to determine if action is
needed

13. Same – Nice try but the ratios are the same year over year but
they are still higher than the industry, which is good but should
be a concern if they go down
Weaker – Nice try the ratios are about the same for the last two
years which show stability but should be a concern if assets are
not generating sales in the future
(3) Regarding Profitability, when looking at the Net Profit
Margin Ratio for the prior years is TFC Stronger, Same, Weaker
when looking at year over year?
Answer: Same – TFC is above the industry average but is
relatively flat which may be the reason to expand.
Stronger – Nice try but while the ratios are better than the
industry they still didn’t not improve by a wide amount from
one year to the next
Weaker – Nice try but look from at the last two years and the
ratios are above the industry average
FIN534_2_18_Linda-1: So how are we looking regarding our
ratios? With all of your studies from Strayer University what
do you think of the ratios when compared to the industry and
year over year?
Slide 19
Scene 19
· Linda comments on ratios
· Tabbed Interaction
FIN534_2_19_Linda-1: Let’s now summarize the five areas
offinancial ratios.
FIN534_2_19_Linda-2: First is liquidity – We currently are
very strong compared but it appears we will be having some
cash concerns during this expansion year.
FIN534_2_19_Linda-3: Next, asset management – We really
are doing well, especially in the days it takes us to collect what

14. is owed to us.
FIN534_2_19_Linda-4: Third, debt management – Currently we
are doing well but we need to pay close attention to our debt in
the projected year.
FIN534_2_19_Linda-5: Fourth, profitability ratios – Same
story as debt management. We are doing fine now but
projections say we will be below the industry.
FIN534_2_19_Linda-6: And lastly, market value – We are
doing fine now, but projections say we will be below the
industry.
FIN534_2_19_Linda-7: So, financially, we are financially
strong; however, if we proceed with this expansion project we
really need to watch it closely. Our initial projections have
TFC taking out a large sum of debt to finance this project. In
doing so, it is really going to hurt our financial strength and
possibly make us vulnerable. If we do proceed, we need Joe to
really sell it to our shareholders. He is great at telling the story
in such a positive way.
Slide 20
Scene 20
· Summary slide
FIN534_2_20_Linda-1: Great work this week. To recap, we
discussed the different types of financial statements and how
important they are for our company. We also discussed the
many different types of ratios that TFC uses for comparison to
the industry. These ratios and financial statements are the
building blocks for companies and are used to paint a financial
picture of where the company is currently and where it may be
headed. At TFC, we are financially strong now, but going
forward, we have to see if that will still hold true.

15. FIN534_2_20_Linda-2: There are many areas of finance and
financial analysis is only one area. Cash is also a key concern
and we will explore that next week with time value of money
concepts as well as bonds, which is one of the areas that we
plan on exploring at TFC to raise capital.
FIN534_2_20_Linda-3: As a reminder, please complete your
weekly discussions based on your learning experience today.
CYU Addendum (No recording Necessary):
Scene 5 CYU:
Put each of the Balance Sheet Accounts in the appropriate
bucket. Student can check and have them try again if all are not
correct
Asset – what company owns
Liabilities – what company owes
Equity – Owners and income preserved
Cash
Accounts Payable
Common Stock
Accounts Receivable
Sales tax Payable
Preferred Stock
Inventory
Notes Payable
Retained Earnings
Prepaid Expenses
Accruals
Paid In Capital in Excess of Par Value
Land
Long Term Bonds
Accumulated Depreciation
Goodwill

16. Furniture and Fixtures
Scene 9 CYU:
Using the spreadsheet, match up the scenario to the percent of
gain or loss from year over year. If get wrong remember the
formula (Ending – Beginning)/Beginning * 100
Change in Accounts Receivablefrom 2012 to 2013 = +47%
Change in Depreciation Expense from 2011 to 2012 = +11%
Change in Long Term Debt from 2012 to 2013 = +122%
Change in Accruals from 2012 to 2013 = +133%
Change in Total Equity from 2012 to 2013 = +87%
Change in Total Current Assets from 2012 to 2013 = -20%
Change in Net Income Available to Common stockholders from
2012 to 2013 = -50%
Change in Net Income Available to Common stockholders from
2011 to 2012 = +8.2%
Team Assessment
Overall, how effectively has your team been working together
on this project?
Poor
Good
Very Good
Excellent

17. Rate each member’s contribution to the team:
Participant
Fair
Good
Very Good
Excellent
2. How many of the team members participated actively in the
discussion forum or other means of communication used at least
3 times per week?
3. How many of you were fully prepared and submitted your
portion of work on time?
4. Give one specific example of something you felt was
beneficial in working in this team.
5. Give one specific example of something you felt negatively

18. impacted the overall team experience.
6. Suggest one specific, practical change the team could make
that would help improve everyone’s learning.