Select a publicly held company to use as the basis for this assignment.
Research your selected company and acquire the company's most recent financial statements using the Internet.
Write a 700-word paper analyzing the disclosures contained within the notes to the financial statements related to cash and cash equivalents, receivables, and inventories. Include a list identifying the components of the organization's cash and cash equivalents.
Format your paper consistent with APA guidelines.
In past classes, students have had some difficulties with the disclosure analysis paper. Below is an example of a well-written paper for your review:
Disclosure Analysis Paper
Publicly traded companies are required to disclose relevant financial information within the financial statements. These disclosures, often found in the notes to the financial statements, provide detailed information about various aspects of a company's financial position, such as the methods used to value assets. This paper will focus on the disclosures that pertain to the cash and cash equivalents, receivables, and inventories of Coca-Cola Enterprises (CCE).
Cash and cash equivalents, a popular classification of current assets, decreased by $48 million in 2005. In addition to cash and commercial paper, CCE includes various cash equivalents into this classification. "Cash equivalents are short-term, highly liquid investments that are both readily convertible to known amounts of cash, and so near their maturity that they present insignificant risk of changes in interest rates" (Kieso, Weygandt, & Warfield, 2006, p317). CCE classifies as cash equivalents those investments which are highly liquid and have maturity dates of less than three months. Financial derivatives, investments whose value depends on the value of an underlying security, account for a substantial portion of CCE's cash equivalents. These derivatives are reported on the balance sheet at an estimated fair value based on market rates. CCE, like many other international businesses, uses cash equivalents such as interest rate swap agreements, currency swap agreements, forward agreements, options, and other derivatives to minimize the impact of currency exchange rates and to protect the value of our net investments in foreign operations (Coca-Cola Enterprises, 2005, p43).
The accounts receivable for CCE are extended to customers generally without collateral and are based on the individual customer's financial condition. The trade receivables, which decreased by $82 million in 2005, are reported on the balance sheet at net realizable value using the percentage of receivables method. "The allowances are determined by evaluating the aging of receivables, analyzing the history of sales adjustments, and reviewing high-risk customers" (Coca-Cola Enterprises, 2005, p40). In addition, an agreement to sell revolving pools of receivables to a Canadian special purpose trust was terminated.
The inventories of CCE are reported at the lower value of cost or market. The cost of inventories is determined by using the FIFO (first in, first out) method (Coca-Cola Enterprises, 2005). The inventories are classified as either finished goods or raw materials and supplies. In 2005, the inventories of CCE increased $23 million. The increase was primarily due to the increase in the cost of goods on hand. The increase in inventory value was offset partially by lower inventory levels and currency exchange rates. Without reading the disclosure, a reader might mistakenly assume that CCE had an increase in inventory levels at the end of 2005.
In addition to other categories, Coca-Cola Enterprises provides disclosures for cash and cash equivalents, receivables, and inventories within their financial statements. Disclosures often report the accounting method used in valuation and the market factors which affected specific figures. Disclosures provide users detailed and relevant information regarding the values reported on the financial statements.
Coca-Cola Enterprises. (2005). 2005 annual report. Retrieved December 14, 2006 from http://www.cokecce.com/srclib/OnlineAR05/assets/pdfs/CCE_2005_10K_Full.pdf
Kieso, D., Weygandt, J., & Warfield, T. (2007). Intermediate accounting. [University of Phoenix Custom Edition e-text]. New York: Wiley. Retrieved November 2, 2006, from University of Phoenix, Resource, ACC422- Intermediate Financial Accounting II Web site.
Remember, that it is important to have a strong intro and conclusion. Please provide your feedback on the above example. Do you think this is a strong disclosure analysis? Would you add information to the above example? What are some questions that have been answered in the above example?
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