Module 4 Assignment: Flexible Budgets
Please read the article in Forbes “Research Sheds New Light On How Corporate Fraud Is Perpetuated”, (February 28,2020) (Note: This article is located in the Readings & Resources section of this module).
The article discusses “managers attempting fraud strategically choose to omit expenses because they believe this type of manipulation will be easier to explain away as a simple mistake if detected”. This strategy appears to work as the article goes on to state “the auditors were more likely to classify omitted expenses as unintentional errors and active manipulations of revenue as fraud attempts”.
Corporate fraud has been responsible for the loss of a company’s reputation, employees losing their jobs, investor losses and companies going out of business. When a company’s earnings are likely to fall short of analyst expectations executives may risk engaging in fraudulent activities, such as omitting expenses.
Why do you think executives are willing to engage in fraud rather than admitting the company is not performing up to expectations with the potential risks involved if their fraud is discovered?
Capital concept.
In your readings you’ve been introduced to the Cost of Capital concept. Capital for a firm comes in many forms (Debt and Equity are the 2 main categories). Capital structure refers to the mix of debt and equity financing that a firm uses to fund its operations and investments. The choice of capital structure can have important implications for a firm’s financial performance, risk, and value.
Part A: Conduct additional research (using the NLU library) and respond to the following discussion prompts. In your answer be sure to draw on all relevant readings and videos in this week’s materials. Also, be sure to provide examples to support your answers.
What are some of the factors that influence a firm’s choice of capital structure, such as its size, industry, growth prospects, profitability, tax environment, and investor preferences? How do these factors affect the cost of capital, the risk profile, and the financial flexibility of a firm? How do firms balance their need for financing with their desire to maintain control and flexibility over their operations and investments?
What are some of the common sources of equity financing, such as common stock, preferred stock, and warrants, and how do they differ in terms of cost, ownership rights, and liquidity? How do firms manage their equity structure, such as dividend payments, share buybacks, and stock option plans, and what are some of the considerations and trade-offs they face, such as dilution, signaling, and shareholder activism?
How do firms measure and evaluate their capital structure, and what are some of the financial ratios and metrics they use, such as debt-to-equity ratio, interest coverage ratio, and return on equity? How do these metrics vary across different industries, sectors, and countries, and what are some of the limitations and challenges of using them to compare and benchmark firms?
Can you think of any examples of firms that have faced challenges or opportunities related to their capital structure, and how did they address them?
How do changes in the financial markets, such as interest rate fluctuations, credit cycles, or regulatory reforms, affect the practice of capital structure management, and what are the implications for firms and their stakeholders? How can firms stay agile and adaptable in the face of these changes and continue to optimize their capital structure over time?”
Part B: While capital structure is often associated with for-profit firms, non-profit organizations also need to consider how they fund their operations and investments.
What are some of the sources of capital that non-profit organizations can use? How do these sources differ from those available to for-profit firms, and what are some of the advantages and disadvantages of each?
What are some of the risks associated with non-profit capital structure management, such as over-reliance on a single donor or funding source, lack of financial transparency, or inadequate financial controls? How do non-profit organizations mitigate these risks and ensure that they are using their financial resources in the most effective and responsible way possible?
“Your first posting should be approximately 400 words. You post your message by clicking on the “Create Message” button below. See the deadline for a first posting and instructions for your response posts in your syllabus. The deadlines can be found in your syllabus, at which time the discussion topic will be locked. Grading for this topic will be via the attached discussion rubric. Please cite scholarly references formatted in the most current APA format.
