Statement of Cash Flows Guide

20
The Statement of
Cash Flows
Chapter Twenty
After completing this chapter, you should be able to:
1 Briefly describe the evolution of the statement of cash flows.
2 State the purposes of the statement of cash flows.
3 Describe the types of cash flows shown in each of the
statement’s three sections.
4 Prepare a statement of cash flows using the indirect method,
the direct method, and
the T-account approach.
5 Prepare a schedule disclosing direct exchange transactions.
6 Describe how the statement of cash flows is used by an
enterprise’s managers and
by interested parties outside the organization.
Coulterton, CO—The Coulter-
ton Transit Company got a big
boost this week as Alpine Trails
Ski Resort made a major pur-
chase of the small bus line’s

stock. Lance Martin, a spokes-
man for Alpine Trails, made the
announcement yesterday and
emphasized that the resort’s
management felt the invest-
ment was a wise one. Alpine
Trails, one of the area’s most
popular ski resorts, depends
on the Coulterton Transit
Company to ferry skiers from
Coulterton out to the resort’s
slopes. Martin stated that
Alpine Trails’ management was
very happy with the service
provided by the bus line, and
stressed that Alpine would not
seek any changes in the bus
service’s operations or man-
agement personnel. “Alpine
Trails has felt for some time
that we are in a sort of part-
nership with Coulterton Transit
Company,” said Martin. “Alpine
depends on the bus line to get
our skiers to the mountain, and
Coulterton depends on Alpine
for the bulk of its business.
Alpine’s management just felt
that investing in the bus line
made good business sense.”
When asked how Alpine Trails
would finance the Coulterton
Transit stock purchase, Martin
cited Alpine Trails’ recent
strong cash flow. “Our cash

flow from operations has been
very solid the past couple of
years. Skiing in the western
slopes of the Rockies is
growing by leaps and bounds,
and we’re getting our share of
the growth. Alpine Trails’ man-
agement wants to reinvest that
cash flow from operations in
ways that will strengthen our
business in the future. This
year we made two major
investments. One was the
stock in Coulterton Transit, and
the other was new snow-
making equipment. We get a
lot of snow out here, but occa-
sionally we get a mild spell.
Then we need to help out
Mother Nature with a little
extra white stuff. You never
can predict. Take the Winter
Olympics in Nagano, Japan,
for example. In the weeks
leading up to the games, they
were worried about having
enough snow. Then when the
games got underway, they
were inundated with snow.
Several of the alpine events
had to be postponed. We feel
fortunate at Alpine Trails that
we’ve got the cash flow to
make the investments we
need to in order to keep our

business strong.”
ALPINE TRAILS PURCHASES COULTERTON
TRANSIT STOCK
How was Chrysler Corporation able to acquire American Motors
Corporation for
$1.646 billion? How was USAirways able to purchase Piedmont
Airlines for $1.28
billion? What type of financing did Marriott use when it
introduced its new Courtyard
Hotels? How did the top managers in each of these companies
make the decision to go
forward with such huge investments? The essential question in
each example is, How
did a company generate cash, and how was the cash used? How
much cash did
McDonald’s Corporation generate last year through its
operations, which involve the
provision of food service to millions of people worldwide? How
much cash did the
company obtain through the issuance of debt or capital stock?
How did McDonald’s
use the cash it generated?
These are the kinds of questions addressed by the statement of
cash flows. In this
chapter, we discuss how this important financial statement is
prepared and used.
Evolution of the Statement of Cash Flows
Nowadays most managers, investors, and financial analysts
consider the
statement of cash flows to be as important as an organization’s

balance sheet
or income statement. However, the statement of cash flows is a
newcomer
compared to the other major financial statements. Prior to 1961,
accountants
sometimes prepared a simple analysis of the changes in the
firm’s balance sheet
accounts, which often was referred to as a “Where Got and
Where Gone Statement.”
However, no formal statement of cash flows was required for
external reporting pur-
poses. In 1961, the American Institute of Certified Public
Accountants (AICPA) spon-
sored research in the area of cash flow analysis. The resulting
report recommended that
some type of cash flow analysis be provided as part of a
company’s annual report. In
1971 the AICPA’s Accounting Principles Board began requiring
a statement of changes
of financial position as part of a company’s financial
statements. Throughout the next
two decades, this statement evolved in its form, content, and
importance to financial
statement users. In 1987, the Financial Accounting Standards
Board (FASB) issued its
Standard No. 95, which requires that the statement of cash
flows be prepared in the
manner described in this chapter.
Purpose of the Statement of Cash Flows
The primary purpose of the statement of cash flows is to
provide infor-
mation about the sources and uses of an enterprise’s cash during
a particular
time period. This information provides financial statement users

with insight
about the enterprise’s operating, investing, and financing
activities as they
relate to the provision and use of cash. According to the
FASB’s Statement of Financial
Accounting Standards No. 95,1 the statement of cash flows
should provide financial
statement users with insight about:
1. The organization’s ability to generate positive future net cash
flows.
2. The organization’s ability to meet its financial obligations
and pay dividends.
3. The future needs of the organization for external financing.
4. The reasons for the difference between net income and the
net cash flows related
to operating activities.
5. The effects of the organization’s cash and noncash investing
and financing
activities.
4 Chapter 20 The Statement of Cash Flows
LO 1 Briefly describe the evolution of
the statement of cash flows.
LO 2 State the purposes of the
statement of cash flows.
The statement of cash
flows provides
information about the
sources and uses of an

enterprise’s cash during
a particular time period.
1 “Statement of Cash Flows,” Statement of Financial
Accounting Standards No. 95 (Stamford, CT:
FASB, 1987).
Evolution of the Statement of Cash Flows
Cash and Cash Equivalents
Any enterprise needs to have cash available to pay its bills,
compensate employees,
purchase equipment, and so forth. At the same time,
organizations try to manage their
cash to avoid having more cash on hand than is necessary. As
part of a cash-
management program, most organizations invest some of their
cash in short-term,
highly liquid investments. Examples of such investments
include money market
accounts and U.S. Treasury bills. Such investments enable the
organization to earn a
return on the invested funds, yet at the same time keep the
money readily available if it
is needed. Because these highly liquid investments are turned
into cash easily, they are,
in a sense, cash equivalents. Cash equivalents are defined as
highly liquid investments
that may be converted easily into a known amount of cash and
are near to their
maturity dates.
Since cash equivalents are readily available when needed, the
statement of cash

flows focuses not only on cash but also on the total of an
enterprise’s cash and cash
equivalents. The statement of cash flows is designed to show
financial statement users
the reasons behind the change in an enterprise’s total cash and
cash equivalents during
a particular period of time.
Content and Organization of the Statement
The FASB has specified that the cash flow statement be
organized into three
sections. Each section details the cash flows that have arisen
during the
accounting period from a particular type of activity. The
statement’s three
sections disclose the cash flows arising from operating
activities, investing
activities, and financing activities. Descriptions of each of these
types of
activities follow.
Operating Activities
Operating activities are defined as all events and transactions
that are not investing or
financing activities. The cash flow from operating activities
represents cash flows
resulting from the normal, recurring operations of an enterprise
in producing and
selling its primary product or service. Any transactions that
enter into the determination
of net income generally are classified as operating activities.
The operations of an
enterprise include all activities related to the provision of goods
or services. Thus, cash
receipts from the sale of goods or services are included in the
operating activities

portion of the cash flow statement. The cash disbursements
included in this section of
the statement include all disbursements for the purpose of
producing goods or services.
Also included in the operating portion of the cash flow
statement are cash receipts
from any interest-bearing securities or stock the company owns.
In addition, cash dis-
bursements to pay taxes or to pay interest on the company’s
debt are included in the
operating portion of the statement. Exhibit 20–1 summarizes the
types of cash flows
included in the operating activities portion of the cash flow
statement.
Investing Activities
Investing activities are defined as extending or collecting loans,
acquiring or disposing
of investments (such as other companies’ bonds or stock), and
buying or selling pro-
ductive, long-lived assets. Notice that investment activity is
defined to include changes
in the principal amount of loans, but does not include the
interest earned on such loans.
As explained previously, cash receipts for interest are included
in the operating portion
of the cash flow statement. Exhibit 20–1 summarizes the cash
flows included in the
statement’s investing activities section.
Chapter 20 The Statement of Cash Flows 5
Cash equivalents are
highly liquid investments
that may be converted

easily into a known
amount of cash and are
near to their maturity
dates.
Operating activities are
all events and transactions
that are not investing or
financing activities.
Investing activities are
extending or collecting
loans, acquiring or
disposing of investments,
and buying or selling
productive, long-lived
assets.
LO 3 Describe the types of cash flows
shown in each of the statement’s three
sections.
Financing Activities
Financing activities are defined as transactions involving the
company’s debt or
equity capital. Included in this section of the cash flow
statement are cash receipts from
the issuance of debt or the sale of the firm’s own capital stock.
Cash disbursements
included in this section of the statement include repurchase of
the company’s own
stock, payment of dividends to stockholders, and issuance of
debt. Exhibit 20–1 sum-
marizes the cash flows included in the financing section of the

cash flow statement.
Notice that the financing section of the cash flow statement
does not include cash
disbursements to pay interest on the firm’s debt. As previously
noted, cash outflows for
interest payments are included in the operating portion of the
statement.
Preparation of the Statement
The process of preparing the statement of cash flows draws
upon data from the fol-
lowing three sources:
1. Income statement. Determination of the cash provided by
operations
involves many of the accounts involved in the calculation of
income.
2. Comparative balance sheets. This information shows the
changes in
the company’s asset, liability, and owners’ equity accounts
during the
year.
Operating activities (transactions that enter into the
determination of net income):
Cash inflows from:
• Sale of goods or services
• Returns on interest-bearing securities or stock
• Miscellaneous revenue (for example, renting excess space)

Cash outflows from:
• Production of goods or services (includes disbursements such
as employee compensation, payments to suppliers of
materials or services, and payments for utilities, rent, insurance,
and so forth)
• Payment of taxes to the government
• Payment of interest on debt
Investing activities (transactions involved in the acquisition or
disposition of long-lived assets):
Cash inflows from:
• Sale of productive, long-lived assets
• Collection of loans
• Sale of other companies’ interest-bearing securities or stock
owned as an investment
Cash outflows for:
• Purchase of productive, long-lived assets
• Issuance of loans (for example, to another company)
• Purchase of other companies’ interest-bearing securities or
stock as an investment
Financing activities (transactions involving the company’s debt
or equity capital, excluding stock splits
and stock dividends):
Cash inflows from:

• Issuing debt such as bonds, notes, or mortgages
• Sale of the company’s own capital stock
Cash outflows for:
• Payment of dividends to stockholders
• Reacquisition of the company’s own stock
• Retirement of debt principal such as by paying off a loan
Exhibit 20–1
Operating, Investing, and
Financing Activities
Financing activities are
transactions involving the
company’s debt or equity
capital.
LO 4 Prepare a statement of cash
flows using the indirect method, the
direct method, and the T-account
approach.
Preparation of the Statement
3. Selected transactions. In most cases other transaction data are
needed to
determine the sources and uses of cash during the accounting

period.
Direct and Indirect Methods
Two alternative methods may be used to determine the cash
flow from operating activ-
ities. Under the direct method, the statement preparer focuses
on the firm’s cash
receipts and disbursements to determine which cash flows were
related to operating
activities. Then a cash-basis income statement is constructed, in
which operating cash
disbursements are subtracted from operating cash receipts. The
net result is the cash
provided by (or consumed by) operating activities. For example,
instead of the sales
revenue amount, which appears at the top of an income
statement, the cash flow
statement would start with cash receipts from customers.
The indirect method of preparing the operating activities section
of the cash flow
statement begins with the income statement, which already has
been prepared on an
accrual-accounting basis. The net income figure then is adjusted
from an accrual basis
to a cash basis. The resulting amount is the cash provided by (or
consumed by) opera-
tions. The indirect method is also called the reconciliation
method.
Both the direct method and the indirect method are illustrated in
the remaining sec-
tions of this chapter. We begin with the indirect method.
Using the Indirect Method of…
To illustrate the statement of cash flows, we focus on a service

industry firm.
Alpine Trails Ski Resort operates a small winter resort on the
western slopes
of the Rocky Mountains. The firm owns a ski complex and
several condo-
miniums. The resort’s primary sources of revenue are fees for
use of the ski
facilities and weekly rental of the condos. In addition, Alpine
Trails receives
rental revenue from an independent restaurant firm that oper ates
a food con-
cession in the ski lodge. Alpine Trails also operates a small ski
shop, in which it sells
ski equipment, sports clothing, and souvenirs. The company’s
most recent comparative
balance sheets, income statement, and statement of retained
earnings are displayed in
Exhibits 20–2 and 20–3.
The format for the statement of cash flows, under the indirect
method of prepa-
ration, is shown in Exhibit 20–4, which appears on page 10.
Notice that the operating
activities section of the statement begins with net income, and
then adjustments are
made to determine the net cash flow from operating activities.
Beginning with the net
income figure is the primary feature of the indirect method.
Operating Activities
Now let’s begin preparing Alpine Trails’ statement of cash
flows. We start with net
income from the firm’s 20x1 income statement (Exhibit 20–3).
We must make seven adjustments to determine the cash flow
from operating activities,

as follows:
Adjustment for Depreciation This is perhaps the easiest
adjustment to understand. On
Alpine Trails’ income statement, depreciation of $40,000 is
recorded as an operating
Starting point Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$110,000
With the direct method,
the statement preparer
focuses on the firm’s
cash receipts and
disbursements to
determine which cash
flows were related to
operating activities.
With the indirect method
of preparing the operating
activities section of the
cash flow statement,
the preparer begins with
the income statement
already prepared on
an accrual-accounting
basis. Also called the
reconciliation method.
LO 4 Prepare a statement of cash
flows using the indirect method, the
direct method, and the T-account
approach.

Using the Indirect Method of Statement Preparation
expense that reduced the company’s net income for 20x1 by
$40,000. Did this $40,000
expense represent a cash flow during the year? The answer is
no. Depreciation is a
noncash expense. Therefore, we must adjust Alpine Trails’ net
income by adding back
its depreciation expense.
This is a step that confuses some users of a statement of cash
flows. Remember,
adding back depreciation expense to net income does not imply
that depreciation is a
source of cash. Depreciation expense has nothing to do with
cash. We add back depre-
ciation expense as an adjustment to net income because
depreciation expense was sub-
tracted in the process of determining net income. Since
depreciation was not a use of
cash, however, we must now add it back to cancel out its earlier
subtraction. Thus,
Adjustment 1: Add back depreciation expense . . . . . . . . . . . .
�$40,000
Alpine Trails Ski Resort
Comparative Balance Sheets
December 31, 20x1 and 20x0
(in thousands)

Assets 20x1 20x0 Change
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17 $ 20 $
3 Decrease
Marketable securities . . . . . . . . . . . . . . . . . . . . . 10 10 –0–
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . 130 140 10
Decrease
Merchandise inventory . . . . . . . . . . . . . . . . . . . . 60 25 35
Increase
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . 8 5 3 Increase
Total current assets . . . . . . . . . . . . . . . . . . . . 225 200 25
Increase
Investment in Coulterton Transit Company Stock . . . 45 –0– 45
Increase
Facilities and equipment . . . . . . . . . . . . . . . . . . . . . 470 400
70 Increase
Less: Accumulated depreciation . . . . . . . . . . . . . . . (140)
(100) 40 Increase
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350 400
50 Decrease
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $950 $900
$ 50 Increase
Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . $ 85 $ 70 $
15 Increase
Accrued salaries payable . . . . . . . . . . . . . . . . . . 20 30 10
Decrease
Total current liabilities . . . . . . . . . . . . . . . . . . . 105 100 5
Increase
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 10 15 5
Decrease
Bonds payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190 250
60 Decrease
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 305 365 60
Decrease
Stockholders’ equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . 255 235 20
Increase
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 390 300 90
Increase
Total stockholders’ equity . . . . . . . . . . . . . . . . 645 535 110
Increase
Total liabilities and stockholders’ equity . . . . . . . . . . $950
$900 $ 50 Increase
Exhibit 20–2

depreciation expense is not a source of cash. We are merely
making an adjustment for
a noncash expense that had previously been subtracted in
determining net income.
Alpine Trails’ income statement does not show any depletion or
amortization
expenses. However, like depreciation, depletion and
amortization are noncash
expenses. If such expenses appear on an income statement, they
must be added back to
net income as an adjustment in determining the cash flow from
operating activities.
Adjustment for Changes in Prepaid Expenses Alpine Trail s must
pay for its insurance
and property taxes at the beginning of the time period to which
these expenditures
apply. The company paid for its 20x1 insurance and property
taxes in January of 20x1.
When a firm makes such a prepayment, an asset is created
called Prepaid Expenses.
Notice that on Alpine Trails’ comparative balance sheets
(Exhibit 20–2), the asset
Prepaid Expenses increased during the year by $3,000 (from
$5,000 on December 31,
20x0, to $8,000 on December 31, 20x1). This means that Alpine
Trails paid $3,000
more in cash for its 20x1 insurance and property taxes than the
actual 20x1 expense for

Income Statement
For the Year Ended December 31, 20x1
(in thousands)
Revenue:
Slope fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . $300
Condominium rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 635
Sales of merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 45
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . $980
Less: Cost of merchandise sold . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 30
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 950
Less: Operating expenses:
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . $270
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 80
Property taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . 35
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 40
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 90
Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 70
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 25
Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 155
Interest on bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 25
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 790
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 160
Income-tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 50
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . $110
Statement of Retained Earnings

(in thousands)
Retained earnings, December 31, 20x0 . . . . . . . . . . . . . . . . . . .
. . . . . $300
Add: Net income for 20x1 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 110
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 410
Deduct: Dividends declared in 20x1 . . . . . . . . . . . . . . . . . . . .
. . . . . . 20
Retained earnings, December 31, 20x1 . . . . . . . . . . . . . . . . . . .
. . . . . $390
Exhibit 20–3
Income Statement and
Statement of Retained
Earnings
these items. From the company’s 20x1 income statement we
note that the total of the
insurance and property-tax expenses for 20x1 amounted to
$115,000 ($80,000 �
$35,000). Using these facts, we conclude that Alpine Trails’
cash payment for
insurance and property taxes in 20x1 was $118,000, as shown
below.
Total of insurance and property-tax expenses . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $115,000

Increase in the asset, Prepaid Expenses, during 20x1 . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Cash payment in 20x1 for insurance and property taxes . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $118,000
Since Alpine Trails’ actual cash payment in 20x1 for insurance
and property taxes
was $118,000, but the income statement shows a total expense
for insurance and
property taxes of only $115,000, the following adjustment is
required:
Adjustment 2: Subtract the increase in Prepaid Expenses . . .
�$3,000
Statement of Cash Flows
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . XXX
Adjustments to net income to determine
cash provided by operations
List of individual adjustments
• . . . . . . . . . . . . . . . . . . . . . . . XX

• . . . . . . . . . . . . . . . . . . . . . . . XX
• . . . . . . . . . . . . . . . . . . . . . . . XX
• . . . . . . . . . . . . . . . . . . . . . . . XX
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . XX
Net cash flow from operating activities . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . XXX
Cash flows from investing activities:
List of individual cash inflows
. . . . . . . . . . . . . . . . . . . . . . . XX
. . . . . . . . . . . . . . . . . . . . . . . XX
. . . . . . . . . . . . . . . . . . . . . . . XX
Net cash provided by (or used by)
investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . XXX
Cash flows from financing activities:
List of individual cash inflows
. . . . . . . . . . . . . . . . . . . . . . . XX
. . . . . . . . . . . . . . . . . . . . . . . XX
. . . . . . . . . . . . . . . . . . . . . . . XX
Net cash provided by (or used by)

financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . XXX
Net increase (or decrease) in cash and cash equivalents . . . . . .
. . . . . . . . . . . . . . . . . . XXX
Cash balance, beginning of period . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . XXX
Cash balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . XXX
Exhibit 20–4
Format for Statement of Cash
Flows under the Indirect
Method
List of individual adjustments
•
•
•
•
Total adjustments
List of individual cash inflows and outflows
•
•

•
List of individual cash inflows and outflows
•
•
•
By subtracting $3,000 from Alpine Trails’ reported net income,
we reflect that the
firm’s 20x1 cash disbursement for insurance and property taxes
exceeded the expense
shown on the income statement.
What adjustment would be made if instead Alpine Trails’
Prepaid Expenses had
declined during 20x1 by $2,000? Try to answer this question in
your mind before
referring to footnote 2.
Adjustment for Changes in Accrued Liability Alpine Trails pays
its employees at the end
of the time period for which the salary expense is recorded. The
company’s income
statement shows that the 20x1 salary expense was $270,000.
However, a glance at the
comparative balance sheet shows that the firm’s Accrued
Salaries Payable account
declined during 20x1 by $10,000 (from $30,000 on December
31, 20x0, to $20,000 on
December 31, 20x1). Thus, Alpine Trails’ actual cash payments
to its employees in

20x1 must have been $280,000.
Salary expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $270,000
Decrease in Accrued Salaries Payable . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Cash payment in 20x1 for salaries . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $280,000
The company’s 20x1 cash payments to employees were
sufficient to cover its 20x1
expense and reduce its Accrued Salaries Payable liability from
$30,000 at the
beginning of the year to $20,000 at year-end. Thus, we must
make the following
adjustment.
By subtracting $10,000 from Alpine Trails’ reported net
income, we reflect the fact that
the firm’s 20x1 cash disbursement for salaries exceeded the …
21
Analyzing Financial
Statements
Chapter Twenty-One
After completing this chapter, you should be able to:
1 Explain the objectives of financial statement analysis.
2 Describe and use the following four analytical techniques:

horizontal analysis, trend
analysis, vertical analysis, and ratio analysis.
3 Explain the importance of comparisons and trends in financial
statement analysis.
4 Prepare and interpret common-size financial statements.
5 Define and compute the various financial ratios discussed in
the chapter.
Chicago, IL—Contemporary
Interiors, a Chicago tradition in
Scandinavian furniture and
contemporary design, has
announced a decision to go
national. Although Contempo-
rary Interiors has opened
stores throughout the Midwest
in recent years, the company
has remained a regional busi-
ness with the bulk of its sales
in the greater Chicago area.
Yesterday, however, a company
spokesman announced that
Contemporary Interiors’ Board
of Directors had decided the
time was right to make the
next move. Marc Janson,
spokesman for the firm’s pres-
ident and CEO, pointed to the
strong economy and consumer
confidence as being key to the

decision. “Disposable income
is up, and we’re seeing that in
our business,” said Janson.
“Even more important, though,
is our company’s strong finan-
cial position. The analysts tell
us that our financial state-
ments look good. Our working
capital, inventory turnover,
return on assets, and so forth
are all strong. This will be
important, because in order to
expand, the company’s going
to have to raise capital. And
the bankers and potential
investors are going to need to
see those strong financial indi-
cators. The board hasn’t
decided yet how much of our
new capital needs should be
debt and how much should be
in stock. I’m sure they’ll keep a
close eye on the debt-equity
ratio.” When asked where
Contemporary Interiors’ next
store would appear, Janson
replied that New York, Atlanta,
and San Francisco were all
under consideration.
CONTEMPORARY INTERIORS TO GO NATIONAL
Financial statements provide the primary means for managers to

communicate about
the financial condition of their organization to outside parti es.
Managers, investors,
lenders, financial analysts, and government agencies are among
the users of financial
statements. Substantial information is conveyed by financial
statements about the
financial strength and current performance of an enterprise.
Although financial state-
ments are prepared primarily for users outside an organization,
managers also find their
organization’s financial statements useful in making decisions.
As managers develop
operating plans, they think about how those plans will affect the
performance of the
organization, as conveyed by the financial statements. In this
chapter, we explore how
to analyze financial statements to glean the most information
about an organization.
Overview of Financial Statements
There are four primary financial statements:
1. Balance sheet
2. Income statement
3. Retained earnings statement
4. Statement of cash flows
Exhibit 21–1 presents the basic structure of each of these
statements and the relation-
ships between them. The balance sheet presents an
organization’s financial position at
a point in time. It shows the balances in the organization’s
assets, liabilities, and
owners’ equity, as of the balance sheet date.

The other three financial statements depicted in Exhibit 21–1
relate to a period of
time. The income statement reports the income for the period
between two balance
sheet dates. The retained earnings statement shows how income
and dividends for the
period have changed the organization’s retained earnings. The
statement of cash flows
shows how cash was obtained during the period and how it was
used.
In this chapter, we will concentrate on analyzing the data
conveyed by the balance
sheet, the income statement, and the retained earnings
statement. In the preceding
chapter, we explored how the statement of cash flows is
prepared and used.
Objectives of Financial Statement Analysis
Financial statements are based on historical accounting
information, which
reflects the transactions and other events that have affected the
firm.
Managers and other users of the firm’s financial statements are
interested in
the future. The objective of financial statement analysis is to
use historical accounting
data to help in predicting how the firm will fare in the future.
The aspects of an organi-
zation’s future performance that are of most interest depend on
the needs of the user. A
manager in the firm would be interested in the company’s
overall financial strength, its
income and growth potential, and the financial effects of
pending decisions. A potential

lender, such as a bank loan officer, would be concerned
primarily about the firm’s
ability to pay back the loan. Potential investors would be
interested not only in the
company’s ability to repay its loan obligations, but also its
future profit potential.
Potential customers would want to assess the firm’s ability to
carry out its operations
effectively and meet delivery schedules. Thus, the needs of the
analyst dictate the sort
of financial statement analysis that is most appropriate.
Analytical Techniques Used
Four analytical tools are in widespread use in analyzing
financial statements:
1. Horizontal analysis
2. Trend analysis
44 Chapter 21 Analyzing Financial Statements
Overview of Financial Statements
Objectives of Financial Statement Analysis
LO 1 Explain the objectives of financial
statement analysis.
LO 2 Describe and use the following
four analytical techniques: horizontal
analysis, trend analysis, vertical
analysis, and ratio analysis.

3. Vertical analysis
4. Ratio analysis
Each of these techniques is defined, discussed, and illustrated in
the following sections
of the chapter.
Importance of Comparisons and Trends
No single measure of a company’s financial condition or
performance can
tell us much. The single most important point to remember
about financial
statement analysis is that every financial measure should be
compared
across time and across other companies to be meaningful. For
example, an
airline’s profit for the current year should be compared with the
same
company’s profit for several previous years. Moreover, the
company’s profit should
be compared with the profit reported by other airlines of similar
size and operational
Chapter 21 Analyzing Financial Statements 45
BALANCE SHEET
12/31/x0
� �
Liabilities
Owner’s Equity
Assets

BALANCE SHEET
12/31/x1
� �
Liabilities
Owner’s Equity
Assets
INCOME STATEMENT
For the Year Ended 12/31/x1
Revenues
� Expenses
� Gains
� Losses
Income
RETAINED EARNINGS STATEMENT
Retained earnings on 12/31/x0
� Income
� Dividends

Retained earnings on 12/31/x1
STATEMENT OF CASH FLOWS
Cash inflows during 20x1
� Cash outflows during 20x1
Change in cash during 20x1
These three state-
ments refer to a
period of time, the
year 20x1. They help
reconcile the
account balances on
the balance sheets
as of 12/31/x0 and
12/31/x1.

Time
Exhibit 21–1
Overview of Financial
Statements
LO 3 Explain the importance of com-
parisons and trends in financial
statement analysis.
characteristics. Comparing key financial data with industry
norms also adds meaning
to the reported profit for the company being analyzed.
To reemphasize the point, every financial measure discussed in

this chapter should
be compared with other analogous measures to be meaningful.
Sources of Data
Published financial statements provide the primary source of
data about any organi-
zation’s financial condition and performance. A company’s
annual report, quarterly
reports, and financial news releases provide a wealth of
information about the firm.
Other sources of financial information also are available, both
for individual com-
panies and for entire industries. The Securities and Exchange
Commission requires that
every publicly held company file a detailed financial report with
the commission
annually. These reports are available to the public. The
financial press, such as The Wall
Street Journal, Barron’s, Business Week, Fortune, Forbes, and
various industry trade
publications, provides in-depth coverage of specific companies
and industries. Other
important sources of financial data include financial advisory
services, such as Dun &
Bradstreet, Moody’s Investors Service, Dow Jones, Standard &
Poor’s, and Robert
Morris Associates. A wealth of financial information is also
available on the Internet.
Doing a good job of financial statement analysis is not a trivial
task. It requires a
solid knowledge of accounting, familiarity with the analytical
techniques to be dis-
cussed in this chapter, and substantial research using data from
a variety of sources.

Comparative Financial Statements
To illustrate each of the techniques used in analyzing financial
statements, we will
focus on a retail business. Contemporary Interiors, Inc.,
headquartered in Chicago,
operates a chain of furniture stores in the Midwest. The
company specializes in con-
temporary furniture, much of it imported from the Scandinavian
countries. The firm
also sells handcrafted furnishings, such as ceramic lamps and
handwoven wall
hangings.
Contemporary Interiors’ balance sheets for December 31, 20x0
and 20x1, are dis-
played in Exhibit 21–2. The company’s income statements and
retained earnings state-
ments for 20x0 and 20x1 are presented in Exhibit 21–3.
Horizontal Analysis
Exhibits 21–2 and 21–3 display comparative financial
statements, which
show the company’s financial results for two successive years.
These state-
ments highlight the change in each financial item between 20x0
and 20x1.
For example, Exhibit 21–2 shows that Contemporary Interiors’
cash balance
increased by $100,000 between December 31, 20x0, and
December 31,
20x1. Notice that the changes highlighted in Exhibits 21–2 and
21–3 are
shown in both dollar and percentage form. Thus, Contemporary
Interiors’ $100,000

increase in cash represents an increase of 14.3 percent of the
December 31, 20x0,
amount (14.3% � $100,000 � $700,000).
Comparative financial statements and change data enable
managers and financial
analysts to do horizontal analysis, which is an analysis of the
year-to-year change in
each financial statement item. The purpose of horizontal
analysis is to determine how
each item changed, why it changed, and whether the change is
favorable or unfa-
vorable. This is a tall order, and it requires substantial
additional information. Suppose,
for example, that a business periodical recently published a
story about a growing
demand for Danish furniture. A glance at Contemporar y
Interiors’ comparative balance
Comparative Financial Statements
Comparative financial
statements show the
company’s financial
results for two successive
years and highlight
changes.

Horizontal analysis is an
analysis of the year-to-
year change in each
financial statement item.
sheet reveals that its cash, accounts receivable, and inventory
have all increased during
20x1. These changes are consistent with expanded operations in
response to increased
demand for the company’s goods. The comparative income
statement helps to confirm
this supposition, since sales and cost of goods sold increased
from 20x0 to 20x1.
Thus the analyst’s job is like putting together a jigsaw puzzle.
The analyst first
gathers all the puzzle pieces (financial data) and then tries to fit
them together to create
a meaningful picture (the firm’s financial condition and
performance).
Contemporary Interiors, Inc.
(in thousands)
Year Increase or
(Decrease)
Assets 20x1 20x0 Amount Percentage
Current assets:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 800 $
700 $ 100 14.3
Marketable securities . . . . . . . . . . . . . . . . . . . . . . 450 300
150 50.0
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . 12,000
11,000 1,000 9.1
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
17,000 3,000 17.6
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . 250 300
(50) (16.7)
Total current assets . . . . . . . . . . . . . . . . . . . . . . $ 33,500 $
29,300 $4,200 14.3
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . $ 500 $
550 $ (50) (9.1)
Property, furnishings, and equipment:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,000 $
6,000 $ –0– –0–
Buildings, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,000
52,000 3,000 5.8
Equipment and furnishings, net . . . . . . . . . . . . . . . 25,000
23,000 2,000 8.7
Total property, furnishings, and equipment . . . . . $ 86,000 $
81,000 $5,000 6.2

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $120,000
$110,850 $9,150 8.3
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,500 $
7,050 $ 450 6.4
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . 2,200 2,100
100 4.8
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
3,200 (200) (6.3)
Total current liabilities . . . . . . . . . . . . . . . . . . . . $ 12,700 $
12,350 $ 350 2.8
Long-term liabilities:
Bonds payable ($1,000 face value; 10%) . . . . . . . . 37,300
35,700 1,600 4.5
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,000 $
48,050 $1,950 4.1
Preferred stock ($100 par value; 8%) . . . . . . . . . . . $ 6,000 $
6,000 $ –0– –0–
Common stock ($10 par value)* . . . . . . . . . . . . . . . 25,000
24,000 1,000 4.2
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 4,000
3,800 200 5.3

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
29,000 6,000 20.7
Total stockholders’ equity . . . . . . . . . . . . . . . . . $ 70,000 $
62,800 $7,200 11.5
Total liabilities and stockholders’ equity . . . . . . . . . . .
$120,000 $110,850 $9,150 8.3
*100,000 shares of common stock were issued on January 1,
20x1. Since these shares were outstanding during the entire
year, the
weighted-average number of shares outsta nding in 20x1 was
2,500,000 shares.
Exhibit 21–2
Trend Analysis
The comparative financial statements in Exhibits 21–2 and 21–3
allow a
comparison of only two years’ data. When the comparison is
extended to
three or more years, the technique is called trend analysis.
Trends can be
shown in both dollar and percentage form by designating the
first year in the
sequence as the base year. Then the amounts in subsequent
years are shown
as a percentage of the base-year amount. Exhibit 21–4 displays
a trend analysis of

Contemporary Interiors’ sales and net income data over a six-
year period.
Contemporary Interiors’ sales and net income both have risen
steadily over the six-
year period. However, the growth in sales has been greater than
the growth in net
income. The increase in income between year 5 and year 6 is
quite small, despite a
large increase in sales. The relationship between the trend in
sales and the trend in net
income could be cause for concern. Why has Contemporary
Interiors’ management
been unable to convert a relatively larger growth in sales into an
equally large growth
in net income? While the trend analysis does not answer this
question, it does serve an
attention-directing role for the analyst. An alert financial
analyst will delve more
deeply into this issue and try to come up with an explanation.
Vertical Analysis
Horizontal and trend analyses focus on the relationships
between the
amounts of each financial item across time. In contrast, vertical
analysis
concentrates on the relationships between various financial
items on a par-
ticular financial statement. To show these relationships, each
item on the
Comparative Income and Retained Earnings Statements

For the Years Ended December 31, 20x1 and 20x0
(in thousands)
Year Increase or
(Decrease)
20x1 20x0 Amount Percentage
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $87,000
$82,000 $5,000 6.1
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,930
56,350 4,580 8.1
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26,070
$25,650 $ 420 1.6
Operating expenses:
Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,000 $
4,600 $ 400 8.7
Administrative expenses . . . . . . . . . . . . . . . . . . . . 2,000
2,100 (100) (4.8)
Total operating expenses . . . . . . . . . . . . . . . . . . $ 7,000 $
6,700 $ 300 4.5
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,070
$18,950 $ 120 .6
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,030
3,890 140 3.6
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . $15,040
$15,060 $ (20) (.1)

Income-tax expense . . . . . . . . . . . . . . . . . . . . . . . . . 3,760
3,800 (40) (1.1)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,280
$11,260 $ 20 .2
Dividends on preferred stock . . . . . . . . . . . . . . . . . . . 480 480
–0– –0–
Net income available to common stockholders . . . . . . $10,800
$10,780 $ 20 .2
Dividends on common stock . . . . . . . . . . . . . . . . . . . 4,800
4,600 200 4.3
Net income added to retained earnings . . . . . . . . . . . . $ 6,000
$ 6,180 $ (180) (2.9)
Retained earnings, January 1 . . . . . . . . . . . . . . . . . . . 29,000
22,820 6,180 27.1
Retained earnings, December 31 . . . . . . . . . . . . . . . . $35,000
$29,000 $6,000 20.7
Exhibit 21–3
Comparative Income and
Retained Earnings Statements

Trend analysis is a
comparison of three or
more years’ data.
Vertical analysis
concentrates on the
relationships between
various financial items on
a financial statement.
statement is expressed as a percentage of a base item that also
appears on the statement.
On the balance sheet, each item is expressed as a percentage of
total assets. On the
income statement, each item is stated as a percentage of sales.
Financial statements
prepared in terms of percentages of a base amount are called
common-size financial
statements. Contemporary Interiors’ common-size balance
sheets and income state-
ments for 20x0 and 20x1 are displayed in Exhibits 21–5 and 21–
6.
Financial analysts use vertical analysis to gain insight into the
relative importance
or magnitude of various items on the financial statements.
Using common-size state-
ments, prepared in a comparative format, analysts can discern
changes in a firm’s

financial condition and performance from year to year.
To illustrate, notice that Contemporary Interiors’ composition
of current
assets remained quite stable from 20x0 to 20x1. Although the
various asset
amounts changed, each asset represents roughly the same
proportion of total
assets on December 31, 20x1, as on December 31, 20x0. The
largest change
is in inventory, which increased from 15.3 percent to 16.7
percent of total assets. This
could be merely a reflection of increased sales, and the required
working capital.
Alternatively, it could indicate overstocking.
Ratio Analysis:The Balance Sheet
The balance sheet is like a snapshot. It records the company’s
financial
position at an instant in time. Several key relationships between
the balance
sheet items can help an analyst gain insight into the strength of
a business.
Working Capital
Current assets are assets that, under normal business operations,
will be converted into
cash within a reasonably short time period, usually a year.
Contemporary Interiors’
current assets include cash, marketable securities, accounts
receivable, inventory, and
prepaid expenses. The expectation is that the inventory will be
sold within a year, the
accounts receivable will be collected within a year, and so
forth. Current liabilities are
obligations due within a year.

A key financial measure is a company’s working capital, which
is defined as
follows:
Working capital � Current assets � Current liabilities
Contemporary Interiors’ working capital as of December 31,
20x1, amounts to
$20,800,000 ($33,500,000 � $12,700,000). Working capital is a
key concept in oper-
ating a business. It is important to keep a reasonable amount of
working capital to
Year 6 Year 5 Year 4 Year 3 Year 2 Year 1
A. Trend Analysis in Dollars
(Measured in Thousands)
Sales . . . . . . . . . . . . . . $87,000 $82,000 $78,000 $74,800
$73,000 $72,000
Net income . . . . . . . . . . 11,280 11,260 11,000 10,500 10,200
9,900
Year 6 Year 5 Year 4 Year 3 Year 2 Year 1
B. Trend Analysis in Percentages
Sales . . . . . . . . . . . . . . 121* 114† 108 104 101 100
Net income . . . . . . . . . . 114 114 111 106 103 100
*121% � $87,000 � $72,000
†114% � $82,000 � $72,000

Exhibit 21–4
Trend Analysis: Contemporary
Interiors, Inc.
Common-size financial
statements are prepared
in percentages of a base
amount.
Working capital is
current assets minus
current liabilities.
LO 4 Prepare and interpret common-
size financial statements.
LO 5 Define and compute the various
financial ratios discussed in the chapter.
ensure that short-term obligations can be paid on time,
opportunities for volume
expansion can be seized, and unforeseen circumstances can be
handled easily.
Contemporary Interiors has a comfortable balance of working
capital.
Current Ratio
Another way of viewing a company’s working capital position
is in terms of the
current ratio, defined as follows:
Current ratio �

Current assets
Current liabilities
Common-Size Balance Sheets
Common-Size Statements
Assets 20x1 20x0
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . .7 .6
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . .4 .3
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 10.0 9.9
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 16.7 15.3
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . .2 .3
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . 28.0 26.4
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . .4 .5

Property, furnishings, and equipment:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 5.0 5.4
Buildings, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . 45.8 47.0
Equipment and furnishings, net . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 20.8 20.7
Total property, furnishings, and equipment . . . . . . . . . . . . . . .
. . 71.6 73.1
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 100.0 100.0
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 6.3 6.3
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 1.8 1.9
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 2.5 2.9
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . 10.6 11.1
Long-term liabilities:
Bonds payable ($1,000 face value; 10%) . . . . . . . . . . . . . . . . .

. . . 31.1 32.2
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . 41.7 43.3
Preferred stock ($100 par value; 8%) . . . . . . . . . . . . . . . . . . .
. . . . 5.0 5.4
Common stock ($10 par value) . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 20.8 21.7
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 3.3 3.4
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . 29.2 26.2
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . 58.3 56.7
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . .
. . . . . . . 100.0 100.0
Exhibit 21–5
Common-Size Balance Sheets
Contemporary Interiors’ current ratio as of December 31, 20x1,
is computed below:
Current ratio (12/31/x1) � � 2.64, or 2.64 to 1

A popular rule of thumb is that a company’s current ratio should
be at least 2 to 1.
Thus, Contemporary Interiors’ current ratio is quite healthy.
Indeed, it may be too
large, once again indicating a possible excess of inventory. It is
naïve and somewhat
dangerous to place too much faith in a rule of thumb such as
“Keep a current ratio of 2
to 1.” The appropriate magnitude for this ratio (and all financial
ratios) varies widely
among industries, companies, and the specific circumstances of
individual firms.
Limitation of the Current Ratio The current ratio does not tell
the whole story of a
company’s ability to meet its short-term obligations. Consider
the following balance
sheet data for Contemporary Interiors and its chief competitor,
Trends in Teak.
Contemporary Trends
Interiors in Teak
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . $ 800 $ 100
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . 450 150
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . 12,000 2,950
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 20,000 30,000
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . 250 300
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . $33,500 $33,500
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . $12,700 $12,700
Current ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . 2.64 to 1 2.64 to 1
Each of these companies exhibits a current ratio of 2.64 to 1.
However, are the two
firms in equally strong positions regarding payment of their
current obligations? The
answer is no. Trends in Teak has most of its current assets tied
up in inventory, which
may take close to a year to convert into cash through normal
business operations. In
contrast, Contemporary Interiors can cover all of its current
debts with cash, mar-
ketable securities, and accounts receivable, which typically will
be converted to cash
more quickly than inventory.
$33,500,000
$12,700,000
Common-Size Income Statements
For the Years Ended December 31, 20x1 and 20x0

Common-size Statements
20x1 20x0
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 100.0 100.0
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 70.0 68.7
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 30.0 31.3
Operating expenses:
Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . 5.8 5.6
Administrative expenses . . . . . . . . . . . . . …
1. Discussion1_Accounting for leaders: 1 page references in
APA format use text books as references Dead line by
Wednesday:
This week we are learning about financial statement analysis
and how to compute various ratios. This is a great way to
understand how a company is doing. However, what are some
limitations of financial statements analysis? Meaning, what are
some things which make financial statement analysis less
reliable? Do some research on this and post your thoughts on
what you find.
Text book: Managerial Accounting: Creating Value in a
Dynamic Business Environment 12e (Hilton/Platt) McGraw-Hill
(2019)
2. Project accounting for leaders: 18 slides PPT references in
APA format use text books as references Dead line by Friday

evening:
Last week you selected a publicly traded company and found
their annual report. Now that you have their financial
information I would like you to perform a ratio analysis on the
financial statements. Focus on the financial statement analysis
chapter (PDF) you are reading this week. You will want to
compute ratios for your company for the last two years. Do not
compute each ratio you learned about for your company. There
may be some that are not relevant. Rather focus on those eight
ratios that you feel are the most important and relevant to
analyze how your company is doing. Make sure to justify the
ratios that you choose for your analysis. Compare how your
company has done to the industry averages. Do you notice any
trends that are positive or negative? Does anything look good or
bad that is notable? Do you have any suggestions on things they
could be doing to improve these ratios? Please analyze what you
found for each of the eight ratios. Then organize your findings
into a 15 minute presentation that you will work on during
virtual residency. Be sure to include some background on your
company in your presentation.
Submission Details:
· Please use PowerPoint for your presentation.
· Due in week thirteen.
In week thirteen you were introduced to this assignment. In
week twelve you selected a publicly traded company and found
their annual report. Now that you have their financial
information I would like you to perform a ratio analysis on the
financial statements. Focus on the financial statement analysis
chapter (PDF) you are reading this week. You will want to
compute ratios for your company for the last two years. Do not
compute each ratio you learned about for your company. There
may be some that are not relevant. Rather focus on those eight
ratios that you feel are the most important and relevant to
analyze how your company is doing. Make sure to justify the
ratios that you choose for your analysis. Compare how your

company has done to the industry averages. Do you notice any
trends that are positive or negative? Does anything look good or
bad that is notable? Do you have any suggestio ns on things they
could be doing to improve these ratios? Please analyze what you
found for each of the eight ratios. Then organize your findings
into a 15 minute presentation. Be sure to include some
background on your company in your presentation.
Submission Details:
· 15 minute presentation
· Please use PowerPoint for your presentation.
· Due by the end of the day on Sunday of this week.
Managerial Accounting: Creating Value in a Dynamic Business
Environment 12e (Hilton/Platt) McGraw-Hill (2019)
---------------------------------------------------------------------------
-----------------------------------------------------
1. Discussion1 Marketing Strategies: 1 page references in APA
format use text books as references Deadline by Wednesday
Evening:
Why might a customer use physical evidence to form an
evaluation for a service? How might a company manage
physical evidence?
Text book: Peter, J. P., & Donnelly, Jr., J. H. (2019). A preface
to marketing management (15
th ed.). Columbus, OH:
2.Final Marketing Plan Marketing Strategies: 14 page references
in APA format use text books as references Deadline by Friday
Evening:
The final paper includes the three Milestone papers, and adds an
implementation and evaluation plan, a table of contents, and an
executive summary. Your final submission should be a polished,
integrated paper that incorporates previous feedback. The final
touches will be a title page and a consolidated References list.
Paper length: 10-12 pp. not including title page, table of
contents, and references.
Required structure and content:
· Title Page

· Table of Contents
· Executive Summary
· Company Profile
· Situational Analysis
· Marketing Objectives
· Research
· Target Markets
· Marketing Mix: product, promotion, distribution, pricing
· Implementation and Evaluation Plan
· References
Your paper is due by 11:59 pm EST Sunday
Remember, papers may only be submitted as Word documents.
Text book: Peter, J. P., & Donnelly, Jr., J. H. (2019). A preface
to marketing management (15
th ed.). Columbus, OH:
3.Final Marketing Plan PowerPoint Presentation Marketing
Strategies: 15 slides PPT references in APA format use text
books as references Deadline by Friday Evening:
You will prepare no more than 15 slides summarizing the
findings from your paper. Please cite your sources and use in-
text citation if necessary. You can use graphs, pictures, talking
points and videos but make sure to provide 13 slides of content
without these supplements.
Running Head: CHALLENGES FACING VERIZON COMPANY
1
CHALLENGES FACING VERIZON COMPANY
6

Verizon Communication International Company (VZ)
Saiteja Mundru
New England College
Marketing Strategies
Date: 11/05/2020
Verizon Communication International Company (VZ)
VZ communication Company was formed in the year 2000, and
it recently celebrated its 20th anniversary as one of the leading
communication company in the world. It provides services that
are related to communication, information, and technology
(King, Case & Premo, 2012). Its main headquarters are in New
York, America, with several branches all over the world.
According to the financial reports of 2019, the company
generated an annual income of $131. 9 billion (King, Case &
Premo, 2012). The company’s strength includes offering data,
voice and video services, delivering products and services that
match the customers’ demands and mobility. It also provides
reliable internet connectivity, security and control over many
places in America. The paper below is a description of VZ
communication Company and the main marketing challenge that
the company is facing.
Description

The company has succeeded in its expansion worldwide by
acquiring other business organizations. For example, in 2015,
Verizon acquired AOL organization, and two years later, it
would go on and acquire the Yahoo. The two companies were
amalgamated into a new division within Verizon referred to as
the Oath international company, that is currently known as the
Verizon media. In 2019, Verizon subsidiary company, known as
the Verizon Wireless was named the leading communication
service providing organization in the USA; giving services to
more than 150 million customers. The same year it was ranked
as the second-best telecommunication company slightly behind
AT&T international company.
Marketing Campaigns and Strategies
Over the years it has been operating, VZ has developed several
marketing campaigns that have been crucial in ensuring that it
expands its customer base worldwide. For example, the
company ran a campaign dubbed, “the can you hear me now?”
in the year 2001. The campaign was famous because of
featuring actor, Paul Marcarelli who played the main role in this
campaign and travelled all over the USA asking people, “can
you hear me?”. The marketing campaign above ran for close to
ten years. As a result of the campaign, the customers of the
Verizon company rose by 10% in 2002, by 15% in 2003
(Hopkins & Turner, 2012). Besides, the campaign resulted in
the dropping of customer turnover rates by 1.8 % in 2001
compared to 2.5% in 2000. The actor, Paul Marcarelli parted
ways with the Verizon company.
The second marketing campaign ran by the Verizon company
was controversial one because it pitted Verizon against the
AT&T company. The campaign (there’s a map for that) was
launched in the year 2009, and designed to counter the market
influence of Verizon’s main operation rival, AT &T Company
(Hopkins & Turner, 2012). The campaign depicted a broad side
by side comparison of the two companies; an act that made the
AT& T company file a lawsuit against the Verizon in Atlanta
federal court. AT&T company claimed that the comparisons

made by the Verizon company in this campaign were misleading
its customers. The lawsuit was dropped later the same year after
an agreement by the two companies to settle the case.
The latest marketing campaign launched by the company was
the human ability campaign which was established in 2017. By
undertaking this campaign, Verizon aimed for this
advertisement to showcase its diversification of technology
services to customers and investments; technological
diversification that was beyond the production of smartphones
only. The human ability campaign covered data collection,
telematics, media, and online advertisement.
Marketing Problem facing the Verizon Communication
Company
Verizon communication international company has dominated
the USA’s wireless market for an extended period. But now it is
on its hard time caused by the fall in the profit and the
company’s stock. A recent report shows the company has shed
more than 20% of its real value. The marketing challenge facing
the company is due to the current saturation of the USA
wireless network by various companies. Significant companies
are locked in a battle of trying to control the wireless networks
in the USA. New wireless network companies are wrestling
customers away from giant companies like the Verizon and
AT&T. completion of these companies has spurred growth in
the wireless network.
The struggle for customers has also resulted in a vicious price
war regarding wireless services and products. For example,
Verizon company initially resisted pressure from T-Mobile to
offer unlimited network plan, but it finally relented in the wake
of significant customers loses. Initially, Verizon boosted its
strength regarding wireless network but this competitive
advantage reduced due to the entry of T-Mobile in the wireless
network. Recent studies have placed T-Mobile company at par
with the Verizon company on matters wireless network
provision (Musonera, 2019). Therefore, Verizon is now forced
to offer wireless network customers what they crave most for,

which is data for fewer charges.
Unfortunately, the provision of cheap data has dented the
average revenue per use collected by the Verizon company; this
is despite the increment in the company’s customer base. The
loss is because most customers of Verizon who opted for the
new unlimited data plan paid less for this new data option
provided by this company; in return, the Verizon’s revenue and
profitability have shrunk. The marketing plans and strategies of
Verizon are also negatively impacted by the growing
cancellation of wireless network cables. However, the
revocation does not adversely affect the operations of the
Verizon company because procedures done through accounts for
only 10% of the company’s total revenue. Acceleration of cord-
cutting is also negatively impacting the gains of the Verizon
company. Development of online video streaming applications
such as Netflix, Hulu, and Amazon Video prime has made it
possible for people to view videos without necessary using
Television cables. This situation is likely to make things worse
for companies that provide lines (Yankelevich, Shapiro &
Dutton, 2017). Close to 10.8 cable users are likely to cut the
cord in a period of five years, rising the figures of customers
opting for cord cut significantly; this is terrible news to Verizon
company whose TV segments have been for long considered as
the source of growth. Cord-cutting has made things terrible for
Verizon company until recently it started to bleed customers.
In response to the cord-cutting, Verizon has sold some of its
FiOS assets; with the recent sale coming being effected in April
2017. An action that has made some people think that it will be
better for the Verizon company to exist in the TV business
industry. However, the management of the Verizon company has
assured its customers that it intends to keep the remain FiOS
assets. Verizon Company has developed the interest of
countering the cord-cutting by establishing its own online video
streaming services. However, its previous attempts to develop
these services have not gone on well. Again, video streaming
services have lower profit margins compared to the use of

traditional TV cables. On a positive note, the online video
streaming services won’t be disrupted by the constraints
resulting from the company’s FiOS infrastructure. Therefore, it
will offer online streaming services on larger basis. However, it
is still expected to face stiff competition from its rivals like the
Sling TV and Direct TV who now have a sizeable head start.
References
Hopkins, J., & Turner, J. (2012). Go mobile: location-based
marketing, apps, mobile-optimized ad campaigns, 2D codes and
other mobile strategies to grow your business. John Wiley &
Sons.
King, D. L., Case, C. J., & Premo, K. M. (2012). An
International Mission Statement Comparison: United States,
France, Germany, Japan, and China. Academy of Strategic
Management Journal, 11(2), 93.
Musonera, E. (2019). Marketing Strategies in the
Telecommunication Industry and Network Services: A Case
Analysis of Wireless Carrier T-Mobile. Journal of Marketing
Perspectives, 1, 18-37.
Yankelevich, A., Shapiro, M., & Dutton, W. H. (2017).
Reaching beyond the wire: Challenges facing wireless for the
last mile. Digital Policy, Regulation and Governance.
Running Head: MARKETING PLAN MILESTONE-2
1
MARKETING PLAN
8
Marketing Plan Milestone-2 – Koza Shack Enterprises
Saiteja Mundru
New England College
Date: 11/05/2020

Professor: Joanne Randall
Marketing Plan Milestone-2 – Koza Shack Enterprises
Koza Shack Enterprises is a food firm located in Hicksville,
USA. It is an organization that has more than 30 employees at
the Hicksville location. Within this enterprise, more than 466
companies are mostly family corporates dealing with various
foodstuffs. Working at Koza enterprises has been viewed by
many employees as a pleasant experience that enables them to
develop multiple skills, build lasting relationships with fellow
workers, and create a collegial working environment.
Everybody in this organization is willing to help one another,
including the leaders who have built their leadership around
serving employees' needs first; servant leadership. The working
environment is favorable; thus, employees work with a lot of
confidence. Employees also work independently but are offered
help immediately they ask for it. Then, the fresh coffee
provided to the employees is breakfast; it is delicious and
stimulates the workers to have a lot of energy and work while
motivated. However, like other organizations, Koza Shack is
affected by its low marketing strategies; this work will review.
Koza Shack Enterprises are struggling with providing enough
traffics and leads to their food products. Foodstuffs produced by
the Koza Shack are highly demanded, for example, chocolate
and coffee. The organizations are struggling to make enough
products to meet this demand. As the business year progresses,
competition arises where other organizations providing the same
foodstuffs offer stiff competition to this organization. With so
many options available for Koza Shack enterprises, they
publicize the contents of the products and even create other
ways of promoting them. Still, it is becoming hard for the
organization to determine where they will focus their strength

on. Koza Shack organizations are also suffering from the
challenge of providing a return on investment of most of their
activities year in, year out (Guoqiang, Huimin & Yingdong,
2018). Marketers need to understand the various marketing
campaigns for the different products produced by these
enterprises. To prove the return on investment of any
organization goes with an increment of organizations' operating
budgets, which is why most organizations are avoiding the
whole issue of return on investment. Yes, return on capital is
crucial for any organization's marketing, but tracking the
investment return on the various marketing activities is not
easy, mostly if two-way communication lacks the multiple
market activities and the sales reports.
Koza Shack Enterprises are suffering from their inability to
secure enough marketing budget. The truth is carrying
marketing is hard, mostly where organizations lack enough
funds. The whole issue can be avoided by developing significant
revenue-generating ideas that will push the operational budget
high. But the point of securing enough funding even with great
ideas is almost affecting all the business organizations globally.
Organizations getting sufficient funds is an issue that is easier
said than done primarily for the small organizations within the
Koza shack that are operating with limited budgets. Koza Shack
enterprises are finding it hard to secure their marketing
websites. Threats to their marketing websites are rapidly
growing. Several organizations within these enterprises are
worried about this challenge compared to other marketing
challenges, such as identifying the right marketing technologies.
The chances of the organization's marketing website succeeding
depend on the list of priorities developed by the same
organization. A marketing website is an asset in an organization
that draws investors and visitors who are later converted by the
organizations to help them hit their marketing objectives and
goals. Website management is affected by various issues that
include; the writing and optimization of the marketing content
and designing the web page. Targeted marketing is also another

critical issue affecting the operations of Koza Shack enterprises.
These operations have most of their operations targeting
international communities; therefore, global marketing
strategies should also be developed. Identification of the buye r
persona, who is the buyer they are marketing their products to.
The main challenge regarding the international expansion of
Koza Shack enterprises is figuring out the best way to sell their
products to the global audience. There are also facing the issue
of optimizing and organizing their sites to reach various
countries' markets. Training of the marketing team is also
another issue affecting the marketing strategies of these
enterprises. It has become an expensive activity that is too time-
consuming. The training challenge is across the board of all
organizations of the Koza Shack Enterprise. The enterprises
face the challenge of hiring top and competent talents (Banu,
Rahman & Khan, 2018). The enterprises have allocated more
resources to inbound marketing, which requires a high demand
for marketing talents, but the talents' supply is not matching the
demand. Sourcing the right marketing candidate is not easy, and
it is taking long. The marketing skills required to convince the
new customers are soft, creative, and technical skills lacking in
most marketing candidates. Therefore, there is also a gap in the
marketing skill. This work's marketing objective is devising
ways of eliminating the various challenges facing the Koza
Shacks enterprises.
The creation of marketing content that matches the traffics and
the leads should be based on two questions; is the content
created of high quality? What is the target audience, and will
they understand it? And does the enterprise organization know
the type of content that the customers in the market are
interested in? For example, studies done by HubSpot Research
center showed that 53% of customers are interested in seeing
more videos than pictures in the marketing content. Only 14%
of customers want to see blog posts on marketing strategies.
The ways that customers are reading and interacting with the
content is changing. When an organization creates and designs

content as required by the customers, the focus now will shift to
the various ways of promoting the content in ways that will
make the audience take note (Lee, 2018). Many contents are
flooding marketing websites more than before; potential
consumers will not have to use search engines to answer
different questions about specific products. Instead, they need
to view the articles about the products received as notifications
on their mobile phones.
More time and resources need to be dedicated to creating a link
joining the marketing activities and sales results; this means
applying the various marketing and the CRM solution software
to close the gap between marketing and sales services. By doing
this, the number of leads and the generated customers can be
determined. A combination of service bound level and inbound
marketing strategies misaligns organizations with its marketing
strategies. The key to unlocking the budget difficulties
experienced by the various Koza Shack enterprises is proof of
the value of return investment relating to marketing. Studies
have shown that organizations that quickly calculate their return
on investment have a higher marketing budget. The second
aspect that drives more increased marketing is inbound
marketing success (Nelson, 2016). Effective use of inbound
marketing drives up the sales of products. Inbound marketing is
its operation time; it is a long marketing strategy. If an
organization gets off to a slow start, it will find it challenging
to achieve marketing strategies.
The challenge of managing the marketing website can be solved
by reviewing the leading cause of this challenge. The primary
source of this challenge for various organizations lies within the
skills and resources used. Marketing talents and inbound
marketing is required to secure these websites. Business
freelancers and agencies are also necessary to ensure marketing
websites. Overall, the marketing website can be secured by
hosting it on a platform that integrates all its marketing
strategies. Access to marketing playbooks enables enterprises to
determine the content to be used in the marketing strategies

depending on the targeted audience. The playbook includes the
directions being taken by the global market, including the
various ways of identifying the different growth markets and
how to explore trends in the local markets. Tips for choosing
the best localization providers are also contained in this book.
When the enterprises are marketing their products to new
regions, the standard tactic that they use is shifting their
product offerings (Shaltoni, 2017). The marketing website's
design speaks a plethora of various languages, and therefore it
should be effectively designed. The marketing websites' content
should also be appealing to potential customers; this is why
global visitors need to be on top of creating the marketing
website. Lastly, the marketing website should also be optimized
to cater to international visitors.
Before offering training to the marketing team, the enterprise
must determine each team member's strengths and weaknesses.
It is also vital to assess their expertise and commitment to
achieving the organization's objectives and goals. The
companies may also be requiring the team members to rack up
some certificates on online marketing. Before being issued with
these certificates, the team members are introduced to some
aspects of inbound marketing. A training plan for the recruits
should be created to equip the new members with essential
marketing skills. During the training, the new members are also
introduced to their objectives, goals, and plans (Pefanis Schlee
& Harich, 2010). Most enterprises are also looking for diverse
marketing skills such as digital, content, and social media
marketing skills. The organizations' first considerations before
their hiring process include deciding what the recruits will have
to do to achieve the sales objects of the organization; this
consists of the duties and responsibilities of the new marketer.
Most people consume foodstuffs supplied by Koza Shack
enterprises; hence, it only gives special attention to a particular
group of people based on the food type provided. For example,
the target customers for chocolate products such as Cadbury are
children aged 5 to 10; this is when children prefer chocolate

over any other foodstuff. Chocolate is also required for the
satisfaction of their needs. The target customers for the coffee
products are the adults because statistics have shown more than
77% of the adult population in the USA consumes coffee.
References
Banu, N. T., Rahman, S., & Khan, R. (2018). Freddy's coffee
shop: Expanding the coffee business in Bangladesh. SAGE
Publications: SAGE Business Cases Originals.
Lee, S. C. (2018). The Social Life of Human Capital: The Rise
of Social Economy, Entrepreneurial Subject, and Neosocial
Government in South Korea (Doctoral dissertation, Columbia
University).
Guoqiang, S., Huimin, Z., & Yingdong, J. (2018). A Review of
Theoretical Research Frontier of Enterprise Network
Upgrading and Prospects. Foreign Economics &
Management, 40(03), 54-66.

Nelson, V. (2016). Food and image on the official visitor site of
Houston, Texas. Journal of Destination Marketing &
Management, 5(2), 133-140.
Pefanis Schlee, R., & Harich, K. R. (2010). Knowledge and skill
requirements for marketing jobs in the 21st century. Journal
of Marketing Education, 32(3), 341-352.
Shaltoni, A. M. (2017). From websites to social media:
exploring the adoption of internet marketing in emerging
industrial markets. Journal of Business & Industrial Marketing.
MARKETING PLAN MILESTONE-3
1
MARKETING PLAN MILESTONE
2
Marketing Plan Milestone-3
Saiteja Mundru
New England College
Date: 01/14/2021
Professor: Joanne Randall

Marketing Plan Milestone-3
A marketing plan is a document that indicates a business
trading policy for the coming month or year. It describes the
actions a business project will take to achieve specific retailing
intentions. The strategy combines purchasing activities with
imperative destinations. Marketing plan milestones are targets
that display the company`s progress as the shopping team
performs every step of the approach. Milestones additionally
submit relevant dues that the retailing agents must match the
budget for a specific piece of the project, the supervisor in
command of every perspective, and commerce goals for various
aspects (Peter et al., 2019). A marketing mix pertains to the set
of steps or fashion that a corporation applies to promote its
label or goods plus services in the exchange. The four Ps that
form a conventional marketing mix -are place, product, price,
and promotion. Nowadays, the marketing mix frequently
involves various extra Ps like people positioning, packaging,
and politics as essential mix ingredients.
Price
It points to the cost of a product. Pricing is of various
strategies. It can be used as a boundary to contrast and heighten
the representation of a product or service. Price is also among
the most fundamental ingredients of is determining the
acquisition and continuation of a project. The value of a good or
service influences the whole marketing plan. It as well affects
the trades and desire for the stock. If a business is brand-new to
the exchange and has not presented a title yet, it is
inconceivable that the intended setting will be ready to spend a
high amount. Although people may be willing in eternity to
deliver above enormous quantities of capital, it is necessarily
more difficult to get them to prepare so during the beginning of
a project. Pricing continually maintains the shape of the plan of
one’s` stock in the eyes of clients. Therefore, too high charges
will execute the burden of the expense and the interests in
shoppers, and they will consider their capital over the product.

A trader should ensure to examine the prices of their rivals
subsequently. When installing the commodity value, marketers
should reflect the observed result that the merchandise grants
(Peter et al., 2019). There are three fundamental pricing
policies. These are; exchange entrance pricing, store skimming
charging and unbiased costing. Some essential factors to
consider when setting the product price are. The cost of
production, the customers’ regarded product price. Besides, one
may focus on the impacts of a price increase or decreases in the
market. One should also consider whether to up with the current
price of the goods from the opponents?
Product
A product can be either tangible or intangible. A
commodity is also a piece or service developed or designed to
serve the necessities of a particular gathering of characters. One
must ensure to have the top sort of goods and service. So
During the commodity expansion stage, a merchant must do
extensive analysis on the growth sequence of the commodity
designed (Peter et al., 2019).
Placement/Distribution
Position or distribution is an essential component of the
commodity mix description. As a trader, one has to place and
administer the stock in a site that is available to possible
clients. It begins with a broad perception of one`s target
individuals. Understanding them eternally and internally, plus
discovering the most productive positioning and shipping ways
that immediately articulate with the market. Some distribution
policies includes; intensive delivery, scrupulous placement,
exclusive dispersal, and franchising distribution (Peter et al.,
2019). A trader should consider the following factors when
developing an effective distribution plan, the places where
shoppers view services or goods. The kind of stores needed. The
way these clients do their shopping and where. Way to access
the various circulation systems. He should also consider his
competitors distribution strategy. One should also considers the
market security, and among other factors.

Promoting
Advertising is also a significant element of the marketing
mix as it can heighten trademark perception and businesses. It
comprises of numerous components like sales order, public
associations promoting, and sales advancement. Various
marketing strategies concentrate on the evolution of media
broadcasting. Television advertisements, transistor scenes, and
print ads contact millions of possible consumers each
anniversary (Peter et al., 2019). The discoveries for media
promotion can be split feather into the time span every ad will
surface, the resources or per advertisement, and the likely
conference capacity for that commercial. At the edge of the
announcement operations, the administrator can review the
information on various announcements to decide if every notice
reached its ends and which commercials were most productive.
Public connections individuals, either outsourced or in-
house, operate toward expanding the organizational perception
of merchants, business directors, possible investors, and press
associates. Public bonds projects entail drafting announcements,
talking to media vents, and interacting with council bureaus
(Peter et al., 2019). As the federal association staff creates
communications coverage for the firm, their struggles raise the
general likeness. Government connections supervisors can
estimate how the extended clarity in the country focus affects
economics as a purchasing program anniversary.
Direct retailing techniques can rank from lists and letters
to and manuscript broadcasts and email (Peter et al., 2019).
Each style tries to offer the corporation`s information directly
to the possible client, preferably via a channel like TV or print.
Straight shopping operations typically operate for a short period
and can have approximations extending from several numbers to
numerous thousand bucks. The project administrators then
measure the response to every direct selling tactic and
determine if the discoveries got achieved.
Web shopping warfare is the measure of facts that can get
accumulated. Unique visitors, notice banner presses, and

YouTube views are all metrics that marketing projects directors
utilize to count their effectiveness. Network shopping
specialists can apply such criteria to decide which commercial
standards earned the most maximum subscribes, which websites
generated the most commerce, and which elements produced the
most utmost downloads.
Importance of a Marketing Mix
A marketing mix assists in polishing a mixed invention. It
should have all the 4P’s cooperative with one another. The
value should be agreeable with the distribution of the
commodity. The good should be congruous with the
advertisements. In general, each P is intrinsically connected to
the others. A marketing mix is a bond a chain of strong
relationships. These links guide us in getting the chain extended
(Peter et al., 2019). When one considers joining a new piece or
modifying enduring ideas, he addresses the bond, which
supports in building a complete marketing mix for the stock. A
marketing mix assists in brand news commodity expansion.
While creating an actual good, a number of concepts can grow
up for a similar commodity to get produced by a business. The
price, promotion, and place, and promotions might be
unconventional for such produce.
Nevertheless, it can be categorized as a fresh output, and
therefore while composing the shopping mix, the organization
can develop immeasurable opinions for NPD too. Besides, a
marketing mix improves the output selection. Whenever one
needs to improve the output measurement he can execute
insignificant modifications to the property. As a result, by
adjusting the shopping mix and special hallmarks inside it can
conclude with an expanded asset portfolio. Additionally, it is a
design to promote a market. Substantial data is an essential P in
the aid marketing plan. For instance, if an establishment or an
internal perspective institution recognizes its value, then
generally it can work on it and advance the concrete indication
of its establishment thereby drawing in added sales (Peter et al.,
2019). The value of the purchasing mix is apparent in more than

unique P. Personalities and strategies are essential to the
business too and increasing both can enhance the entire
performance of the industry. Therefore, the mix is an
incomparable pattern if one requires developing a market.-
References
Peter, J. P., & Donnelly, Jr., J. H. (2019). A preface to
marketing management (15
th ed.). Columbus, OH: Irwin/McGraw-Hill

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