Pangloss and Martin: Fate and Reality

As far as my simple self could deduce from Voltaire's Candide, Pangloss and Martin are as different as they are wise when it comes to the brightness or, in Martin's case, the darkness with which they view the world. Pangloss is evidently a man of knowing and has put much thought Into his philosophy that â€Å"everything Is for the best In the physical as well as the moral universe and nothing could be otherwise†¦ Quite the optimist, he went about life accepting things the way they were, putting up little fight nd attributing everything to the will of God or whatever higher power runs this universe (fate). I'd Ilke to think that Pangloss even looked forward to living life, gathering experiences even If they werent exactly Ideal. Martin on the other hand, finds life very depressing what with having no one to love and nothing to look forward to; he sees no goodness in his fellow man and no happiness in any situation and often expresses exasperation with life.The Interesting thing about him however Is that he carries still this energy, an angry passion if you will. o live as well as he can (i. e. Martin decides to hang around with Candide because he has nothing to his name while Candide is flowing with riches and people treat the rich much better than those who have none); he's actually a dark version of a realist, I think. Personally, find Martin to be a much better companion to be with for rather than Just placidly allow things to run way they do, he decides to take action and make things better in spite of his supposedly being fed up with the way the universe is.

Factors affecting Talent Planning Essay

There are many different factors that affect an organisations approach to attracting talent and are both internal and external factors. Some examples of internal factors are the size of a business. A larger business would find it much easier to source this could be because they are more well-known to the public and they would also be more financially able to advertise a post to get a larger range of applicants. Recruitment policies also have an effect ie recruiting from internal sources and external sources can affect the recruitment process. Generally recruitment through internal sources is preferred because own employees know the organisation and can fit well into the culture. The Image of the company has influence on the recruitment process. Good image of the company earned by the actions of management helps attract potential candidates. Managerial actions like good public relations can help earn image. Image of the job also has an affect such as better salaries and good working conditions are considered the characteristics of good image of a job. Also, promotion and personal development policies of an organisation also attract potential candidates. Some examples of external factors are Demographic factors; employees have a big influence on the recruitment process. Demographic factors include, age, sex, literacy, economic status etc. Labour market conditions have an affect ie supply and demand of labour is a huge importance in affecting recruitment process. If the demand is for more than one particular skill recruitment will be relatively easier. Unemployment situation has an effect. When the employment rate in an area is high, the recruitment process tends to be simpler. The number of applications is higher which makes it easier to attract the best qualified applicants. With a low rate of unemployment, recruiting process tends to become more difficult. Labour laws that cover working conditions, compensation, retirement benefits. This report identifies and assess factors that affect an organisations approach to both attracting talent and recruitment and selection. It also identifies and explains benefits of attracting and retaining a diverse workforce, describes methods of recruitment and methods of selection. Factors that affect an organisations approach to attracting talent For an  organisation to attract talent successfully, as part of the talent planning policy it needs to identify and assess what factors affect its approach to attracting talent. For example: 1. Economic Environment – An organisation needs to consider what money is available to spend and this will depend on the current climate at the time. This in turn, will have an effect on how and where the company advertises externally, in addition to the salary and benefits offered. 2. Laws – There are laws that affect the way an organisation attracts talent. For example; the Equality Act 2010 protects again discrimination and affects how the organisation words adverts, application forms, job description, person specifications and questions asked during interviews. Wording must not be discriminative and this can be done by ensuring it does not contain personal prejudice, is not being objective, unfair or showing less favourable treatment for an unlawful reason e.g. Age, gender or disability. 3. Branding – A company with a good reputation, is more likely to successfully attract the right talent to its organisation. To do this, an organisation relies heavily on being perceived as being known as a good employer and needs to take a proactive approach by offering career development, in addition to remuneration and rewards. 4. Culture – The culture of the organisation can be part of what keeps employees engaged and makes the organisation differ positively from competitors. For example, an organisation may be friendly or collaborative – something that new talent†¦

Tishman Speyer Property Research Paper Example | Topics and Well Written Essays - 750 words

Tishman Speyer Property - Research Paper Example In times gone by, gooseneck fixtures, large vents, and deck chairs were fitted on the 70th floor for purposes of giving the center a resemblance of stacks 0n the decks of a ship. The original architectural elements, panels of cast-aluminum fleur, and limestone shot-sawn were included in the restoration undertaken in the twenty-first century. The Gabellini Associates LLP architectural firm was retained by Tishman Speyer Properties for purposes of achieving the rejuvenation as well as the design of the observatory, making sure that the historical veracity of the location remains in one piece. The design adopted by Gabellini involved contemporary forms blending with reference to the 1930’s building Art Deco tradition. The company offers a multi-level top of the rock art features, for instance, a viewing area which is completely indoor, multi-media exhibits, panels of safety glass that are transparent and which allows a magnificent view of various landmarks in the city such as statue of liberty, East and Hudson Rivers, the central park, Chrysler Building among others. Individuals visiting the Top of the Rock at the Rockefeller Center observation desk can enter the complex using the storefronts which are located on the 50th street which is neighboring the well-known marquee. Top of the Rock at the Rockefeller Center opens on a daily basis from 8:30 in the morning to around midnight. Each night at about 11 PM, the sky ferry make a final run. The ticket prices are categorized into three: those for children aged between 6-11 years cost 9 dollars, for seniors cost 12 dollars, and those for adults cost 14 dollars. Visitors at the Top of the Rock are provided with a rare opportunity to appreciate and celebrate the architecture found at Rockefeller Center, as well as appreciate the importance of such architecture in the development of New York City.

The Social Impact of the Industrial Revolution Essay

The Social Impact of the Industrial Revolution - Essay Example lution.   In reality, this eve began more than two centuries before this date.   The late 18th century and the early l9th century brought to fruition the ideas and discoveries of those who had long passed on, such as, Galileo, Bacon, Descartes and others. The birthplace of the industrial revolution was eighteenth century England, blessed with people, natural resources, inventions, and money, all of which were needed for industrialization.   The industrial revolution required both workers and consumers, both of which were supplied by Englands rapidly expanding population.   Prior to the eighteenth century, population growth in England had been slow.   In 1700, England had less than seven million people, and its population was growing very slowly.   But by the first decade of the nineteenth century, its population had reached an unexpected eleven million.   Although the number of births rose during this period, the more dramatic change was in the death rate which dropped sharply.   The death rate dropped because of reasons such as more babies surviving child-birth, reduction in deaths due to epidemics and increase in availability of food.   The growing number of people created an expanding market for all kinds of goods.   English industry met this demand first by finding ways to speed up the manufacture of the desired wares and second by building more factories to turn out more goods.   The growth of industry meant that more workers were needed.   The population that gave rise to increased business also provided the labor force to generate that increase (Corrick, 1998, pp.15-19). The industrial revolution gradually began to spread to other parts of the world.   Countries such as France, Holland and Belgium also possessed some of the elements that triggered the industrial revolution in England.   Like England, Belgium had a growing population, good supplies of coal and iron, and centuries-old weaving industry ripe for mechanization.   Belgium used English technology

The benefits of increasing womens participation in top management Essay

The benefits of increasing womens participation in top management teams - Essay Example However, more importantly, there is the question of the reasons as to why women are still assuming relatively fewer of these critical positions in corporations. Despite the fact that women account for about 33.3 percent of the players occupying managerial positions, in general, the 2007 survey by the bureau of labor statistics gave surprising statistics (Bureau of labor Statistics, 2007). The statistics include that, from the statistics of 2006, less than a third of the top one thousand and five hundred firms in American had one woman player as a top managerial executive. Further, less than 6 percent of the top firms reported having more than one woman in executive position, and less than 3 percent had a female CEO (Bureau of labor Statistics, 2007). Through this paper, the writer will review the arguments reported through different sources that women are better at executive management than their male counterparts, which will amplify the question of the huge gender gap (Castanias and Helfat, 2001). Through the review of the subject, and reviewing the factual nature of the information showing that women make better executive managers, recommendations will be offered – which are expected to improve the management of different firms and organizations. These aims will be realized through the essay, through reviewing available data, to verify whether the more effective executive managerial capacities can be verified – which will lead to the formulation of recommendations to remedy the situation (Deszo and Ross, 2008). Through the recommendations advanced, the executive managerial staffs of firms and organizations will seek to exploit the varied managerial outlook of male and female executives, which is anticipated to improve the performance of these organizations (Castanias and Helfat, 2001). This paper will cover a literature review, which will give account of sources supporting the excellent managerial outlook of female players, and then offer a case study of an organization that has benefited from female participation in managerial practices. Precisely, the paper will use the case study to support the information supporting the standpoint of the discussion, while at the same time integrating theory into the discussion, towards the formulation of informative inferences and conclusions (Deszo and Ross, 2008). Theoretical background Castanias and Helfat (2001) argue that there is a wide range of literature and research reports giving the information that female managers are not only as good at performance as their male counterparts, but are also more effective in the executive management of organizations. The arguments go ahead to discuss that woman executive managers tend to be less hierarchical in their management of organizations, and their managerial outlook is often found to be more interactive, which increases the engagement and the output of employees (Carter, Simkins and Gar, 2003). Apart from increasing the possible effe ct of increasing the productivity of the organization, the role of executive female managers is likely to increase the levels of teamwork realized across the organization, and is likely to increase the intrinsic motivation of employees – and the two lead to an increase in the creativity of the workers of the organization, at their different roles (Book, 2000). Eisenhardt, Kahwajy and Bourgeois (1997) support the same point of view that having female members in the executive managerial function is likely to improve the performance and the outcomes of an organization. They discuss that female participat

What are the factors that influence effective discharge from hospital Literature review

What are the factors that influence effective discharge from hospital of older people - Literature review Example The discussion aimed at analysing and investigating factors that influence effective discharge from hospital of older people. For this purpose, literature analysis pertaining to the research topic was conducted. After filtering more than 500 research papers of the period 2008-13; a total of 15-20 were selected with the criteria of focusing on the strategies related to the effective discharge of older people. Based on the results, it was found that effective discharge of older people depends on a number of internal and external factors. In this regard, system and healthcare environment, patients’’ knowledge, social factors, healthcare policies, effective communication, and planned policies play an important and decisive role. Additionally, it was found that hospitals need to focus more on understanding the needs and demands of older people and accordingly planning the assessment and discharge policies leading to mutual value. Finally, it was concluded that effective disc harge policies require proper planning, transparent assessment, and effective policies and communication for creating better results. Exclusion criteria were kept simple and precise and thus, articles, research papers, journals, and irrelevant academic books were excluded from the selection criteria. Articles accused of duplication and offering little understanding over the research topic were also not included. Additionally, studies conducted outside the UK and Western countries were also not included in the assessment and analysis process. Articles adding little value in terms of offering information on discharge policies of hospitals were excluded. Information through conferences and other proceedings were not used for the assessment process. 20 Stuen believed that effective discharge is a process used to decide the requirements of patients in terms of moving from one stage to another. In the healthcare industry, effective discharge of

Nursing and scarce resources Essay Example | Topics and Well Written Essays - 1000 words

Nursing and scarce resources - Essay Example Indeed, there have been numerous studies on the allocation of scarce resources in nursing. However, Health care administrators face numerous challenges in making wise decisions that relate to allocation of scarce resources in nursing. Ideally, the issue in this context involves the complexity and challenges of making ethical resource allocation decisions about health care. Describing Five Influencing Factors Notably, there are six factors which influence allocation decisions in the distribution of scarce resources in the health care system. These factors include need, contribution, equity, patient effort, ability to pay, and merit. Indeed, while most patients suffer from situations that warrant a known medical need for treatment or service, different persons may perceive need differently from the health care providers. As such, the professional justification of need defines the amount of resources required for a certain treatment (Maddox 1). However, this justification may vary with that of a patient. Hence, need influences the allocation decisions that impact the patient although it is not a good basis for such decisions. Additionally, contribution also influences allocation decision making for scarce resources as the health providers seek to establish the significance of an individual to the society in the future. Indeed, young children, professionals, and skilled personnel may attract considerable allocation of resources compared to the older, unskilled, and poorly educated individuals (Maddox 1). However, this criterion is unfair and thus not the best for allocating scarce resources in nursing. Another factor that influences decisions in allocating scarce resources is equity which seeks to achieve equitable allocation of resources in health care. As such, as administrators seek to achieve equity, they influence their allocation decisions. However, although this criterion is relevant, it is not effective in that individuals have a wide range of demand for he alth care services and thus do not require equal allocation of health care resources (Maddox 1). Moreover, the ability to pay also influences allocation of resources where individuals choose their health plan (Maddox 1). Hence we will consider the individuals’ ability to pay for the chosen health plan. However, this criterion limits the benefits accrued from decisions made on allocation of resources especially on those who cannot afford to pay for health care. Ultimately, merit also influences decision making on the allocation of resources to the health care where allocation is based on merit (Maddox 1). The criterion is ethically correct and derives numerous benefits as the administrators seek to be ethically right and fair in the decision making process. However, this criterion requires data to define the merits and conflicting data may demean the positive influence of merit in making allocation decisions. Citing the Data That Supports the Importance of the Issue We have a sample of 109 managers, 269 clinicians working in one of four VA medical centers which sought to characterize the staff members' perceptions on regarding the fairness of healthcare ethics practices. Generally, the clinicians were more critical on allocation processes and the impact of resource decisions on patient care. Moreover, clinicians and managers stated that they insufficient information on ethics used in addressing ethical problems that

Performance management systems Essay Example | Topics and Well Written Essays - 2750 words

Performance management systems - Essay Example The causes and issues related to rewards and performance management system shall also be outlined in this particular study. There are two important components included within performance management system such as employee development and performance appraisal. It can be denoted as a mechanism to motivate employees so as to ensure that they perform well. In every organization there is a need to perform well and accomplish set organizational goals. To be more precise employees have to be highly motivated in order to reach targets and generate high profit margins for the company. Performance management system encompasses a wide array of activities required to address goals in most effective and efficient manner. This approach enables management to well align employees, resources and systems with strategic objectives. Performance management system comprises of multiple values like motivated workforce, improved control of management (2008) and generating high financial gains. Rewards or p erformance appraisal system ensures high degree of employee engagement. In this study, the first part will be literature review on performance management systems, its link to rewards and its possible strategic value. The second part shall be a reflective summary centered towards implications of findings on professional practice. Literature ReviewAccording to Zanko (2008), organizations basically witness various competitive conditions and this in turn requires continuous improvement in the workplace.

Business Ethics Essay Example | Topics and Well Written Essays - 750 words - 2

Business Ethics - Essay Example The organizations are required to perform their activities for the welfare of humans. An organization has two common approaches for business ethics which are from shareholder and stakeholder viewpoints (Johnson and Abramov, â€Å"Business Ethics†). CSR is the responsibility of an organization for providing fair profits to the shareholders keeping in consideration the societal perspective of providing greater benefits to the communities as well. The decisions as well as activities which are performed should be beneficial for the society and stakeholders. An organization should perform operations in a transparent way in accordance with laws as well as standards for the benefit of the society (Catalyst Consortium, â€Å"What is Corporate Social Responsibility†). Business ethics and CSR are essential elements for an organization for providing fair returns to the shareholders as well as making decisions which are to be beneficial for the stakeholders and society. The shareho lder as well as stakeholder viewpoints of business ethics for an organization are the essential elements for implementing appropriate ethical values. From the perspectives of the shareholders, the decisions are made to provide a fair profit on investment. Shareholders are considered as stakeholders of an organization. These ethical values will help an organization to maintain a healthy relationship with the shareholders. Stakeholder perspective of business ethics is to perform activities or operations for the benefits of employees as well as society. The decisions of an organization are to be made for satisfying the needs of the stakeholders as well as these decisions have an impact on the people who are involved with the organization. Stakeholders are included among all those people who are a part of an organization. The key motives of an organization are to provide fair returns to the shareholders as well as to perform its activities with ethical values which are beneficial for al l those who are involved with the organization. Therefore, it is apparent that appropriate ethical decisions can be made through shareholder or stakeholder perspective of business ethics (Pfarrer, â€Å"What is the Purpose of the Firm?: Shareholder and Stakeholder Theories†). Shareholder perspective is mainly focused on the notion of generating profit for the organization. An organization is functioning with the motive of generating profit and the effectiveness of the organization is determined with the quantity of profit earned as well as on other economic factors. The primary aim of an organization is to enhance the values of the shareholders. The stakeholder perspective should be to serve the people who are involved with the organization with due consideration to the notion of improving the health of the society. This viewpoint of stakeholder should be considered as a top priority above profitability for an organization. There is a vast ethical decisions difference in term s of the perspectives of shareholders and stakeholders which clashes with profitability and responsibility of an organization (Value Based Management.net, â€Å"Shareholder Value versus Stakeholders†). The ethical values as well as CSR of an organization are to perform activities or operations with the motive of providing fair profit to the shareholder as well as serving an organization in accordance with the appropriate ethic

To change the culture of the Baltimore Police Department Research Paper

To change the culture of the Baltimore Police Department - Research Paper Example Indeed prompt restructuring of the institutional framework governing the activities of police officers is needed. However, the commissioner and his team of experts are going to be faced with a number of challenges, prime of which is going to be dealing with the deep rooted culture of institutional racism among the police officers, which has been passed on from one generation to the other. Police departments have over the years adopted policing that is racially biased to such an extent that even African American police officers correlate the concept of crime with African Americans, and are more inclined to be suspicious of a fellow African American committing a crime than a Caucasian civilian. This is evidenced by the fact that of the six police officers charged with the murder of Freddy Gray, an African American youth, half of them were African Americans as well. According to Levine et al., the tactics employed by the police gradually enhance racial bias among the police officers, even those that were initially unbiased. Police officers are urged to intensely patrol the unprivileged neighbourhoods comprised mainly of African Americans, where crime is likely to be higher, which is a by-product of poverty. Therefore, due to their constant presence in black neighbourhoods, police officers record higher arrests in these neighbourhoods, further perpetuating the notion that African Americans are criminals and contributes to police officers associating crime with black civilians. In addition, in the past, local police departments used to receive federal grants to motivate local officers to make drug related arrests, a crime that is a by-product of the prevalent poverty among the black community. Deprogramming police officers to stop associating crime with African Americans is going to be very hard for Commissioner Batts (Levine,

Competition Bikes, Inc. (CBI) Financial Analysis Report Essay Example for Free

Competition Bikes, Inc. (CBI) Financial Analysis Report Essay In order to determine a company’s performance, analysis must be done for key metrics, including the ability to pay debts, how much cash or other liquid assets are available, and the company’s viability to continue operations. These analyses involve the review of income statements and balance sheets, where current and past performance will be studied with the goal of predicting how the company will perform in the future. Upper-level management at CBI can use this information to make decisions in line with the company’s goals. This report for CBI will include four sections. First, I’ll analyze the company’s financial strengths and weaknesses by doing a horizontal analysis, vertical analysis, trend analysis, and ratio analysis of CBI financial results for years 6, 7, and 8. The second section will include an analysis of the company’s working capital, including suggestions on ways to improve working capital and use excess working capital to increase profits. The third section will note any weaknesses in the company’s internal controls, and how those can be corrected. The fourth and final section details Sarbanes–Oxley requirements and how the company can mitigate risk and ensure compliance with the requirements within that legislation. A1a. Horizontal Analysis Horizontal analysis is defined as the â€Å"comparative study of a balance sheet or income statement for two or more accounting periods, to compute both total and relative variances for each line item† (businessdictionary.com, n.d.). For CBI, we will be comparing years 6 and 7, then years 7 and 8. This will allow us to gauge the performance over a three year period of time to see if the organization’s business is rising, staying steady or falling. Net sales for CBI products increased 33.8 percent between years 6 and 7. This is a sign of strength for the company and a signal that their bikes are well received by customers. However, net sales dropped by 15% between years 7 and 8. This is a weakness for CBI, as net sales affect the bottom line, and they will have to find a way to make up for this sales shortfall elsewhere in their budget (such as cutting expenses). This shortfall is due to the fact that the niche market that purchases the majority of the bikes, professional riders, experienced a reduction in sponsorships due to the economic situation. Therefore they purchased fewer bikes than in previous years. The company expects to recover from the current year sales decline within three years. The cost of goods sold includes all direct costs attributable to the production of goods sold by the company. Cost of goods sold and sales revenue move in tandem. In this case, the cost of goods sold increased 31.8 % between years 6 and 7. The cost of goods sold increase was slightly lower than the net sales increase of 33.3%, which is a sign of strength for CBI as it indicates that management is doing a good job keeping production costs at a manageable level. In years 7 and 8, the cost of goods sold decreased by 14.5%, which is similar to the decrease in net sales, down 15% in that same time period. Gross profits, which is net sales less the cost of goods sold, increased by 37.5% between years 6 and 7. This is a strength for CBI. An increase such as this signals that management has made a strong commitment to growth while at the same time controlling the operational and production costs. Gross profit was down by 16.3% between years 7 and 8. This is a result of falling sales in the current year. Under General and Administrative expenses, there are two areas of interest that warrant further analysis executive compensation and utilities. Executive compensation rose by 29.4% in years 6 and 7, which makes sense given the strong sales increase during that period. Executives made good business decisions during this time and should be compensated for these results. However, executive compensation stayed flat during years 7 and 8. Granted, sales and profits were down for the year, so a large increase would not be warranted. However, no increase in compensation could be considered a weakness for CBI, as salaries and compensation are a significant tool to keep talent. Morale may suffer if after a year’s worth of hard work, they get no increase at all. Utilities were up a modest 3.8% between years 6 and 7, with an increase to 11% between years 7 and 8. With CBI building fewer bikes in year 8, a reasonable assumption is that utility usage would decrease also. Therefore this increase in utilities should be examined further. Some of this increase could be beyond CBI’s control (such as rate adjustments by the utility company) but a couple of options for the company to explore to manage this expense and be more efficient would be an energy audit, and/or negotiating with the utility company to pre-pay their utilities for a certain time period to get a discount. Operating income is the amount of profit realized from operations after removing operating expenses such as the cost of goods sold and employee salaries. For CBI, operating income increased strongly (154.6%) between years 6 and 7. However, operating income between years 7 and 8 is strongly negative, with a 69.1% decrease. This is due to the fact that gross profits dropped by 16.3% during this time period, but total operating expenses decreased by only 3.6%. This is not sustainable over the long term and is a weakness for CBI. They need to reduce their production expenses wherever possible, become more efficient in their operations, and find ways to increase sales revenue – ideally, a combination of these. The last item on the income statement is net earnings – the so-called ‘bottom line’ both as a reference to its position on the income statement, and a reflection of the fact that total revenues minus total expenses. CBI’s net earnings rose a remarkable 313.4% between years 6 and 7, which is a reflection of the fact that profits grew at a much higher rate than expenses during that period. Net earnings declined by 81.6% between years 7 and 8, which is due to total revenues dropping to a greater extent than total expenses. This is a weakness for CBI as it is not sustainable for long before the company runs out of money. As mentioned previously in the operating income section, this is an issue that CBI’s management team must address if they want to stay in business. Cash and cash equivalents declined 64.6% between year 6 and year 7. This is a weakness for CBI, particularly in light of the fact that sales were up during that period. The company should have more cash or cash equivalents on hand, not less. In years 7 and 8, cash and cash equivalents increased by 348.2% this during a period where net sales were down by 15% compared to the previous period. While this appears on the surface to be a positive – as cash and cash equivalents help with the company’s liquidity – it can actually be interpreted as a weakness as CBI’s large amount of cash and cash equivalents may make some analysts question the company’s ability to manage their cash flow in a way that maximizes profits and efficiency. CBI’s accounts receivable, which represents money owed to them by their customers, increased by 164.3% in years 6 and 7. While accounts receivable are classified as assets, this is a potential weakness for CBI as it signals that a lot of the assets they are claiming on the balance sheet are tied up in receivables that are not as liquid – they have not yet received payment. Accounts receivable was -15% in years 7 and 8. This reduction is a strength for CBI as it signals that they are improving their cash flow by more effectively collecting money owed to them. The large scale change in numbers year over year for both cash/cash equivalents and accounts receivable at CBI signal volatility year over year. This could be a red flag for investors looking for consistent levels of performance. CBI also might find it difficult to continue to hire the best salespeople, who work on commission and are likely looking for a company with solid sales that will provide a steady paycheck. Total current assets, or those that are reasonably expected to be converted to cash within one year in the course of business, include cash, inventory, accounts receivable, marketable securities, prepaid expenses and other liquid assets. CBI’s current assets rose 31.5 percent from year 6 to year 7. Growth in current assets is generally regarded as a strength and a sign the company is growing. However the picture changes when current liabilities for the same period are analyzed, which I will do in the next section. Total assets represent total current assets plus net property and equipment and give a complete picture of all short term and long term assets. Total assets for CBI increased by 2.2% between years 6 and 7, due in large part to the large increases in accounts receivable and work in process inventory. When a large amount of accumulated depreciation was factored into assets, it brought the total assets figure down substantially. Between years 7 and 8, total assets decreased by 0.2%. After reviewing the balance sheets I noted that while current assets decreased substantially between years 6 and 7, then 7 and 8 (down 15%), long term assets stayed flat (down 0.5% over the same period). Overall, assets, liabilities and stockholder’s equity were all down between years 6 and 7. This is a weakness for CBI as investors will review these negative numbers and question the company’s ability to be profitable and grow. Total current liabilities are debts that are due within one year in the course of business. They include accounts and notes payable, accrued salaries, and other accrued expenses. Current liabilities increased by a whopping 122.4% between years 6 and 7, largely in part to the large increase (192%) increase in accounts and notes payable. Between years 7 and 8, accounts and notes payable increased by 33.3%.This is a serious weakness for CBI, as it signals that they are taking on a disproportionate amount of debt compared to their sales growth rate. CBI would need to generate substantial sales increases in future years to pay the interest on this debt and continue to cover their expenses. The fact that total current liabilities continue to trend upward year over year while sales actually went down between years 7 and 8 is a warning sign. CBI could have trouble meeting its debt obligations (and getting any further funding from creditors) if sales are flat or continue to trend downward. Total long term liabilities – those that come due more than one year in the future – are holding steady at CBI, decreasing 5.6% between years 6 and 7, and decreasing by 5.9% between years 7 and 8. This is a sign of strength for CBI as it shows they are managing their long term debt responsibly. Retained earnings represent the amount of assets created through profits that are retained in the business and are part of owner’s equity. Retained earnings increased by a healthy 17.4% between years 6 and 7, which makes sense given the strong sales results. Retained earnings rose by only 2.7% between years 7 and 8, which is not surprising in light of the fact that sales are down in the current year. This decrease is a weakness for CBI, as retained earnings is part of stockholder’s equity. Those invested in the company (or those considering doing so) will note the sharp decrease in funds available for reinvestment in the company and possibly question the prospects for growth unless the company can turn things around quickly. A1b. Vertical Analysis Through a vertical analysis, we review entries for assets, liabilities and equities. These are represented as a percentage of the totals for any given year. The main advantage of a vertical analysis is that it is easy to read, clearly understandable and charts changes in the operations of a business on a yearly basis. By reviewing vertical analysis data, a person can see financial performance over a set period of time. Cost of goods sold decreased from 73.4% of net sales in year 6 to 72.6% in year 7. This is a strength for CBI because a reduction in CGS leads to higher profit. This is evidence that management is doing a good job controlling product costs. In year 8, CGS increased slightly to 73% a minor increase but this could be considered a weakness for CBI as it signals that the costs to produce their bikes are going up. Gross profit was 26.6% of net sales in year 6, and increased to 27.4% in year 7. This is a strength for CBI as it signals that the company is doing a good job of selling their product and keeping costs at a manageable level. In year 8, Gross Profit dipped slightly to 27%. This is because the cost of goods sold went up slightly during this time, and sales were down. A gross profit reduction is normally a weakness; however, in light of the 15% decrease in sales in year 8, the fact that gross profit only decreased by 0.4% from the previous year should be considered a strength for CBI as it indicates that the company has minimized the impact of the sales downturn on their gross profit margins. Upon reviewing the general and administrative expenses, all of the line items followed the trend of decreasing as a percentage of the total in year 7, and then increasing as a percentage of the total in year 8. This makes sense given that these expenses are part of the cost of goods sold figure. One example is the ‘Other general and admin expenses’ which was 2.7% of the operating expenses total in year 6, decreasing to 2.6% in year 7 and then increasing to 3.3% in year 8. While these make up small percentages in the company’s overall operations budget, this is a weakness for CBI, as these types of expenses should not be going up if there are not sufficient sales to support the increase. CBI management should keep an eye on these expenses to ensure they do not creep up year over year, which would have a negative effect on their profit margins. When looking at the individual numbers, for example administrative salaries, we see that there is no change in the percenta ge of the total between year 7 and year 8. Administrative salaries did not increase at all in year eight, and neither was executive compensation. This could be a weakness from an employee morale standpoint, as they worked hard all year and did not see any raise in their pay. However, this data is not surprising given the difficult economic conditions in year 8. There was a purchase of 25,000 shares treasury stock in year 7, and it’s possible that management offered this stock to employees in lieu of a pay increase. Operating income was 2.8% of the total in year 6, increased to 5.3% in year 7 and decreased to 1.9% of the total in year 8. The decrease in year 8 is largely due to the increase in operating expenses, which factors into the operating income equation. The fact that CBI’s operating expenses are trending up year over year without accompanying sales increases is a negative trend for CBI and should be considered a weakness. This is something the company’s management should be monitoring closely and taking action to control expenses and promote sales. Net earnings were 0.9% of the total in year 6, rising to 2.8% in year 7 (not surprising given the increase in sales) and decreasing to a three year low of 0.6% in year 8. Since this bottom line number is a key indicator of a company’s profitability, this decrease should be something that the company’s management should make a top priority to fix. Cash/cash equivalents were 6.2% of total assets in year 6, decreasing to 2.2% in year 7. This is a weakness for CBI as this is a sign that the company may have trouble paying their debts and expenses. In year 8 this figure improved substantially to 9.7% of total assets. However, the company needs to make sure they are not sitting on too much cash, but investing it to grow the company and maximize profits. Accounts receivable represented 6.5% of total assets in year 6, and increased dramatically to 16.7% in year 7. Although accounts receivable is considered an asset, it should be noted that the cash is not collected right away. This asset is less liquid than cash or other short term assets and CBI should ensure that they are collecting payment from customers in a timely manner. Accounts receivable decreased slightly to 14.2% in year 8, which would be interpreted as strength as it indicates that CBI is doing a good job collecting payments from customers. Total current assets represented 24.5% of total assets in year 6, rising to 31.5% in year 7 and 36.8% in year 8. Reviewing the line items for current assets, this increase is attributable to the increase in accounts receivable as well as cash/cash equivalents. This could be interpreted as a strength for CBI, as an increase in current assets means the company is in a better position to pay debt obligations and use assets to grow the company. However, it’s worth noting that the majority of CBI’s current assets are tied up in less liquid assets – accounts receivable and inventory. These are more difficult to convert to cash should the need arise. Total long term liabilities (mortgage payable and other long-term liabilities) decreased steadily year over year at CBI. In year 6 they represented 45% of total liabilities and equity, decreasing to 41.6% in year 7 and 39.2% in year 8. This is a strength for CBI as it shows they are paying down their long-term liabilities. A reduction in liabilities improves liquidity ratios and the company’s ability to pay operational expenses as well as their debt obligations. Total current liabilities for CBI followed the trend of current assets and rose steadily year over year – 2.5% of total liabilities and equity in year 6, 5.4% of total liabilities and equity in year 7, and 7% of total liabilities and equity in year 8. Looking more in-depth at CBI’s current liabilities shows that this increase year over year is due to the rise in accounts and notes payable. The other line items (accrued salaries and other accrued expenses) held steady. I interpret this as a weakness for CBI, and should analyze why their current liabilities were rising when they were collecting more cash, particularly in year 8. The cash flow increase in year 8 was substantial and could have been used for accounts payable obligations. It’s possible that the company was holding on to cash/cash equivalents in year 8 to weather the economic downturn. Retained earnings represent earnings not paid out as dividends, but retained by CBI for reinvestment in the company. Retained earnings represented 23.3% of total liabilities and equity in year 6, rising to 26.8% in year 7 and 27.5% in year 8. This is a strength for CBI as it shows that management is committed to retaining earnings in order to grow the company. A1c. Trend Analysis Trend analysis involves the usage of past figures for comparison. For trend analysis, information for a number of years is compared to a base year. Each item of the base year is represented as 100% and on that base, the percentage for the other years are computed. This analysis determines the percentage of increase or decrease in each item with respect to the base year and helps analysts make forecasts for future years. For CBI, net sales have been provided for year 6 (the base year) as well as years 7 and 8. The historical trend analysis figures for CBI are shown below, based on net sales and establishing year 6 as the base year. Year 6: $4,485,000 (100% trend percentage) Year 7: $5,980,000 (133.3% trend percentage) Year 8: $5,083,000 (113.3% trend percentage) This trend analysis does not show any surprises. The horizontal and vertical analysis clearly showed that various metrics (net sales, operational expenses, net income, etc.) showed a large increase from year 6 to year 7, followed by a decrease between years 7 and 8. The trend here shows a large net sales increase, followed by a decrease. The large swings in sales seem to indicate volatility for CBI. This is a weakness because it’s more difficult to forecast accurately, which can lead to inaccurate resource planning and negative stock price impacts if performance does not meet stated expectations. The forecasted trend analysis for CBI, using year 8 as the base year is shown below: Year 8: $5,083,000 (100%) Year 9: $5,247,450 (103.2%) Year 10: $5,471, 000 (107.6%) Year 11: $5,681,000 (111.8%) There’s no information given on how these forecasted trend numbers were calculated. It’s a positive sign that the sales increases are only a few percentage points each year, as this is much more sustainable and likely than a large increase such as between years 6 and 7 (which is generally not sustainable in the long run). This forecast would seem to indicate that the outlook is positive for CBI for the next few years. It’s likely that one of the underlying assumptions is that the economic situation will improve, and the company will sell more bikes. However, given the operational weaknesses pointed out in the horizontal, vertical and ratio analysis, if I were an investor or analyst I would want to know more about the company’s plans to address the se weaknesses before taking these figures at face value. A1d. Ratio Analysis As part of the ratio analysis, two important ratios to consider when analyzing a company’s liquidity are: Current Ratio Acid-Test Ratio The current ratio is current assets divided by current liabilities, and measures a company’s ability to pay their short-term liabilities. In theory, the higher the ratio the better. However, there are some limitations to the current ratio as I’ll note in the next section. CBI’s current ratio in year 7 was 5.79, and in year 8 was 5.25. Stated another way, CBI could use their current assets to pay their current liabilities 5.25 times over in year 8. This would seem to be a strength for CBI, and in fact this ratio is higher than their competitor Two Wheel Racing (with a ratio of 4.20). However, this ratio has one fundamental flaw its conceptually based on the liquidation of all of a companys current assets to meet all of its current liabilities. In reality, this is not likely to occur. Its the time it takes to convert a companys working capital assets into cash to pay its current obligations that is the key to its liquidity. Much of CBI’s current assets are tied up in accounts receivable, as well as work in progress inventory and raw inventory. These assets are not as liquid as cash, but are figured into the current ratio calculation. So CBI’s high current ratio looks strong on the surface, but upon further analysis there is a weakn ess in the somewhat large proportion of less liquid assets CBI holds that factor into the equation. The acid test ratio is another measure of liquidity, and more stringent than the current ratio in that it measures a company’s ability to cover their short term liabilities without selling inventory to do so. Looking at CBI’s numbers, the acid test ratio in year 7 was 4.41, and in year 8 it was 4.14. These numbers are higher than that of their competitor Two Wheel Racing (3.40) and that represents strength for CBI. However, I’ll note once again that the company will need to monitor and manage their current assets to ensure that the proportion of less liquid assets (accounts receivable and inventory) does not greatly outweigh their more liquid assets (such as cash). Average collection period is the time that it takes CBI to collect accounts receivable payment from customers. This number held steady at 43.8 days in years 7 and 8. However, it’s higher than that of competitor Two Wheel Bikes (32.5 days). This is a weakness for CBI, as it signals that the company may be too lax in collecting what’s owed to them and may eventually have difficulties meeting their short-term and long-term obligations. CBI should focus on strategies to reduce the time it takes to collect on accounts receivable. The debt ratio represents the total percent of assets financed by debt, and is calculated by dividing total liabilities by total assets. In year 7, 47% of CBI assets were financed by debt, which decreased slightly in year 8 to 46.2%. However this number is still substantially higher than that of their competitor, Two Wheel Bikes, at 38%. This is a weakness for CBI, and if they cannot bring this ratio down by increasing sales and profits to pay down some of their debts, they may have trouble paying their debt obligations. Gross profit margin for CBI was 27.4% in year 7 and 27% in year 8. This is lower than that of their competition, Two Wheel Racing at 32.1%. This is a weakness for CBI, as it signals that they are not as efficient as their competitors. CBI could improve this ratio by decreasing expenses, which would in turn decrease the cost of goods sold. Another way to improve this ratio would be to increase revenues. The operating profit margin for CBI differed substantially from year 7 to year 8. In year seven the figure was a healthy 5.3%, but in year 8 it dropped sharply to 1.9%. This is a weakness for CBI as this is a lot lower than that of Two Wheel Bikes (5.2%) and this signals that CBI is not doing a good job generating cash flow and providing shareholder value. One way CBI could improve their operating profit margins is by auditing their operating expenses and trimming costs wherever possible. An example would be adopting lean work processes with as little waste as possible. The raw materials inventory in particular should be reviewed to see if efficiencies could be gained by improved internal controls for inventory. Net profit margin is the percentage of each dollar earned that is translated into profits. CBI’s net profit margin in year 7 was 2.8%, and a dismal 0.6% in year 8. These numbers are much lower than those of the competition (Two Wheel Racing had a margin of 5.2% in year 8) and are a definite weakness for CBI, as companies with low net profits can go bankrupt in the event of a sustained downturn. This low number signals that the company is not running their operations efficiently and would be a red flag for investors. Earnings per share is an indicator of a company’s profitability and ability to generate shareholder wealth, and is the most important factor when determining the company’s share price. As the name suggests, it’s the earnings that the company generates per share outstanding. In year 7, CBI’s EPS was 0.17, or 17%. In year 8 that figure declined to 0.03%, which is nearly zero. This is a serious weakness for CBI as it suggests that the company is not doing a good job of generating wealth for shareholders, and this could lead to a selloff of the stock. In a worst case scenario, the stock price would decrease and the company could go out of business. Return on total assets is an indicator of how effectively a company is using its assets to generate earnings before contractual obligations must be paid (Investopedia.com, n.d). In year 7 CBI had a 4% return on assets, slightly lower than that of their competitor Two Wheel Bikes (at 4.8%). In a year where sales were up 33.3% from the year before, investors might expect a higher return. As I’ve pointed out in other sections, the reason this number is not higher is because CBI did not do the best job keeping their expenses under control. In year 8 the number is even worse – a dismal 0.7%. This is a weakness for CBI overall as it shows the company has some work to do to control expenses and use their assets effectively. Return on common equity measures how much profit a company generates with the equity shareholders have invested. This ratio is calculated by subtracting preferred dividends from net income, then dividing that number by common equity. CBI’s return on common equity was 7.5% in year 7, and decreased sharply to 1.4% in year 8. This is much lower than that of the competition – Two Wheel Racing’s ratio was 8.1% and is a weakness for CBI. This signals that the CBI is not doing a good job generating profit from the equity shareholders have invested, and it could lead to a stock sell off or investors demanding that measures be taken to increase equity returns. Financial analysts and investors would likely not have much confidence in these numbers. The price/earnings (P/E) ratio is a measure of the valuation of a company’s share price compared to its per-share earnings. Price/earnings ratios are tied to investor expectations. Investors are willing to pay more if they believe that future earnings will be substantially higher. On the other hand, if a company is stagnant and investors dont believe that future earnings will be going up, they will not want to pay as much and the P/E ratio will be lower. CBI’s P/E ratio in year 7 was 29.41. This means that investors would be willing to pay $29.41 in share price for every $1 in earnings. This is a strength for CBI because it suggest investor confidence in the company, which typically leads to an increase in share price. However, in year 8, the P/E ratio declined to 23.33. This is due to the company’s lackluster sales and operational performance in year 8. This is definitely a weakness for CBI – if investor confidence continues to decline, the share price will decline also. Times interest earned represents the number of times operating income can cover interest expense. CBI generated enough profits in year 7 to cover their interest expense 5.27 times. This number is a strength for CBI as it demonstrates that the company is doing a good job of generating income while keeping expenses at a manageable level, and is higher than the 4.24 figure from their competitor, Two Wheel Racing. However, the times earned interest ratio in year 8 is only 1.77, mainly due to the large drop in net income in year 8. This is a weakness for CBI as sales and profits decreased, while interest expenses did not drop in proportion. CBI needs to do a better job managing their operating expenses, which will improve this ratio. A2. Working Capital Analysis for CBI An important measure of a company’s efficiency and short-term financial health is the amount of working capital they have on hand. This is one measure of the company’s liquidity, and the ability to meet short-term (current) debt obligations with current assets. Working capital is used for day to day operational expenditures to pay bills of the business including employee wages, utilities, and rent, among others. This number is calculated by subtracting current liabilities from current assets. Investors view working capital as measure of a company’s operational efficiency. In general, companies with greater amounts of working capital are better able to achieve success by investing assets back into the business, rather than hanging on to non-cash assets in large amounts. While a business may have a large amount of assets, it may be very difficult to convert them into cash in order to take advantage of opportunities that require fast action – an example of this is an asset such as land or buildings. If current liabilities are greater than current assets, a working capital deficit is created, and a business cannot survive long-term in this scenario. Working capital numbers for CBI: Year 6 1,029,303 – 105,080 = 924,223 (9.79 current ratio) Year 7 1,353,044 – 233,700 = 1,119,344 (5.79 current ratio) Year 8 1,575,831– 300,200 = 1,275,631 (5.25 current ratio) CBI has been steadily increasing their working capital in years 6-8, with a 21.1% increase from year 6 to year 7, and a 14% increase from year 7 to year 8. This consistent rise in working capital confirms that the business has sufficient working capital to cover their short-term liabilities and invest for future growth of the company. One thing to note here is the large increase in current liabilities from year 6 to year 7 (82%) when assets rose by only 21.1%. This is largely due to the large increase in accounts and notes payable. Large increases in liabilities such as this are not a negative per se and can signal that the company is investing for growth, but should be monitored over time to make sure the company does not become overleveraged. The ideal scenario is if the increases in assets and liabilities are more proportionate (rising at a similar rate). Working capital is related to the current ratio, which measures the company’s ability to pay current liabilities with current assets. It’s calculated by dividing total current assets by total current liabilities. This ratio should be at least 1, which means the company has exactly enough capital to pay its short term liabilities, with no excess cash. It’s preferable if the ratio is higher than 1. However, a ratio that is much higher than the average could be considered a weakness, as it may signal that the company has too much inventory on hand, is slow to collect on accounts receivable, or that they are hanging on their excess cash rather than investing it for future growth. It’s important to note that working capital ratios vary widely between industries; when analyzing a company’s working capital ratio, a comparison to the average ratios for the overall industry should be included in the analysis. CBI’s current ratio was very high in year 6 – 9.79. This means for every $1 in liabilities, the company had $9.79 in assets. On the surface this appears to signal strength, but this could actually be considered a weakness for CBI as it suggests that they are holding on to cash and liquid assets and not investing to grow the company to its full potential. In years 7 and 8, the current ratios decreased to 5.79 and 5.25, respectively. This is largely due to taking on additional short term liabilities (accounts and notes payable). The ratio in years 7 and 8 is much closer to the ratio of their closest competitor, Two Wheel Racing and suggests that the company is moving toward using their current assets more effectively. If CBI can keep operating and goods costs under control and not overleverage themselves, the taking on of additional debt could be considered part of the cost of doing business and part of their growth strategy, i.e. a positive development. Working capital could be improved in the following ways: 1. Decreasing the amount of liabilities in short term debts such as accounts and notes payable. 2. Converting short term debt to long term debt to free up funds for investment. 3. Increasing efficiency via internal process improvements, thereby reducing expenses and increasing profits. Examples include shortening accounts receivable collection periods (CBI’s are longer than that of their closest competitor) and consolidating sales offices. 4. Issuing stock to generate capital for investment in assets that will help the company grow, such as the purchase of a new distribution center or bike assembly location. Excess working capital (liquid assets) could be invested in the following ways to increase profits: 1. Internal systems updates such as new, faster computer systems for employees or manufacturing equipment. This investment has the benefit of improving efficiency. 2. Investing in people – hiring new talent as well as training the salespeople already working for the company. 3. Investing in marketing and advertising to create compelling sales promotions and get the word out about CBI. Since the company’s sales are largely through word of mouth advertising, there is considerable untapped sales potential. A3. Evaluation of the internal controls for the purchasing system at CBI After reviewing the purchasing system for CBI, there are a few weaknesses in the internal controls that the company should address to mitigate risk and increase efficiency. 1. No receiving department currently exists to monitor incoming shipments from suppliers. Having no internal controls in place for this step in the supply chain is a weakness for CBI. This can result in an increased risk of incorrect orders being processed, resulting in unused parts being sent to the raw materials inventory stores as noted in the storyline. These parts must be written off the books if they are not used in the current year, and this costs the company money. The other impact is damaged orders being accepted by the company. If orders are monitored upon arrival and found to be damaged, CBI can contact the supplier immediately to remedy the situation. This will minimize costly delays in production since errors are caught earlier in the supply chain, and the company can save money if they have ensured that all orders are accurate and undamaged before payment is sent to the supplier. 2. The purchasing department’s procedure for selecting suppliers is not as robust as it should be. Checking for three sources of similar quality, as noted in the storyline, is a good start but not sufficient to ensure good internal controls. Suppliers should be vetted in a selection process using criteria defined and documented by CBI. If this is not done, it could lead to increased risk of fraud (collusion between the CBI Purchasing manager and the supplier, for example). 3. The purchasing manager is responsible for multiple related responsibilities; in this example, selecting the supplier, placing the order and sending the supplier’s invoice to the accounting department. There is not sufficient separation of duties throughout the purchasing process. A3a. Weakness Corrective Actions The following scenario illustrates what a purchasing procedure policy with good internal control procedures in place could look like for CBI. 1. The production department evaluates existing inventory of raw materials, then creates a list of raw materials they need for the next month and sends it to the purchasing manager. 2. The purchasing manager gets the list and consults with the policies and procedures manual for the raw materials. The manual instructs the purchasing manager to consult the trade journal for the industry, which contains a list of suppliers for the raw materials requested. 3. The purchasing manager should review the supplier list to ensure there’s no conflict of interest (such as close friends/relatives working for any of the suppliers on the list, stock ownership in any of the companies, no gifts accepted from the companies). If there are conflict(s) of interest for any of the suppliers, they should be removed from the list. 4. The purchasing manager should then review the Better Business Bureau (BBB) list for the remaining suppliers to see if any complaints have been registered during the past y ear. Suppliers with complaints registered with the BBB should be removed from the list. 5. The purchasing manager should contact the remaining suppliers to request competitive bids. Once they are submitted, the bids should be reviewed and the lowest competitive bid selected. 6. Once the bid is selected, the purchasing manager should send a purchase order to the selected bidder. Once this is done, the purchasing manager’s job is complete. 7. The supplier sends the shipment to the company; upon arrival it is taken in by the CBI receiving department for inspection and documentation. A shipping note is generated by the receiving department which details each item and can be used to confirm that all items that were ordered actually arrived. 8. A copy of the shipping note is sent from the receiving department to the accounting department, and accounting will compare that note with the invoice from the supplier requesting payment. They cross check these two documents to ensure they match. 9. Once accounting has ensure these documents match, they write a check to the supplier and the process is complete. A3b. Risks All of the weaknesses, if not remedied, increase the risk of fraud. An example of this would be the purchasing manager colluding with the supplier to send an invoice with inflated numbers to accounting, which would result in overpayment to the supplier that does not reflect an accurate order. In a worst case scenario, if the record keeping is weak and the employees are able to subvert the system and falsify the documents, then financial statements based on numbers in these documents are no longer accurate. Experienced financial analysts who review the company’s financial statements will immediately know that something isnt right with the numbers, and will sell the stock, leading to a drop in stock price. If this is left unchecked it can result in the downfall of the company and/or criminal prosecution of the company’s financial executives. Given these risks, it would be very prudent for CBI’s management team to take an in-depth look at the internal controls for p urchasing and make adjustments to correct the weaknesses. A3bi. Risk Mitigation In the proposed purchasing system in section A3a, there are two ways that the identified internal control risks are mitigated. First, there’s a good separation of duties – this avoids the situation where one employee is responsible for multiple related responsibilities (which can lead to greater temptation for fraud). An example of this is in step #7. The purchasing manager is not involved in this step; they were directly involved in the placement of the order and so should not also be in charge of receiving the order or generating the shipping note (therefore maintaining separation of duties). Second, there are also multiple checks and balances to ensure accuracy for orders, as well as documentation for each step to ensure good records are kept. Accounting will then have accurate numbers on which to base their financial reporting, minimizing the risk of material misstatements on their annual or interim financial statements. A4. Analysis of compliance with Sarbanes–Oxley requirements An important piece of legislation related to financial reporting and internal controls for publicly traded companies is the Sarbanes-Oxley Act (SOX). After several highly publicized accounting scandals among corporations in the US in the 1990s, SOX was enacted to â€Å"reform companies’ financial reporting processes, as well as the internal and external auditing of the financial reporting process† (Hilton, 2011). It’s very important that companies understand and comply with the rules laid out within this legislation, as the penalties for not doing so are severe. Top executives including the CEO and CFO can be held criminally responsible and go to prison if their company’s financial statements are fraudulent or misstate the firm’s financial condition. There are two sections within SOX that are of particular relevance – sections 302 and 404. Section 302 requires the signing officers of a company’s financial reports (such as the CEO and CFO) to establish, maintain, and monitor the effectiveness of internal controls over financial reporting. In other words, these executives are ultimately responsible for the accuracy of the company’s financial documents, and must disclose to the company’s auditors any weaknesses or changes in the company’s internal control system. Section 404 requires a company include an internal control report for financial reporting within its annual report. This internal control report must contain two key elements – a statement of managerial responsibility for establishing and maintaining an effective internal control structure for financial reporting, as well as an assessment of the effectiveness of the defined internal control structure. A4. Compliance In regard to CBI and its compliance with SOX, the company believes they are adequately addressing the requirements of the legislation. CBI’s internal audit stated that internal controls over financial reporting are accurate based on criteria set forth by the Committee of the Sponsoring Organizations of the Treadway Commission (COSO). However, the annual report issued by the auditors to the shareholders noted that the company’s internal control over financial reporting could lead to a possibility of a misstatement in the company’s annual or interim financial statements that would not be detected or corrected in a timely manner. This will be noticed by financial analysts and investors, and could affect the company’s stock prices as well as the increase the likelihood of close financial scrutiny and audits by the Public Company Accounting Oversight Board (PCAOB), whose mission is to â€Å"oversee and investigate the audits and auditors of public companies, and sanction both firms and individuals for violations of laws, rules, and regulations† (Hilton, 2011). A4a. Noncompliance Corrective Actions Based on this information, CBI should take immediate actions to ensure compliance with SOX, including reassessing and addressing weaknesses in their internal controls over financial reporting, possibly consulting with the Public Company Accounting Oversight Board to do so. When CBI’s annual report is published, it should include an internal control report with the elements noted in Section 404 (statement of managerial responsibility over financial reporting internal controls, and an assessment of the effectiveness of the defined internal structure). The statement should clearly state any and all corrective action taken to bring the company’s financial reporting into compliance with SOX regulations. The company’s auditors need to be able to vouch for the effectiveness of the implemented internal controls. RESOURCES Hilton, R. (2011). Managerial accounting: Creating value in a dynamic business environment (9th ed.). McGraw-Hill. Hardcover ISBN: 9780073526928. What is Horizontal Analysis? Definition and Meaning (n.d.). Retrieved from Business Dictionary: http://www.businessdictionary.com/definition/horizontal-analysis.html Definition of ‘Return on Total Assets – ROTA (n.d.). Retrieved from Investopedia: http://www.investopedia.com/terms/r/return_on_total_assets.asp