University Finance Assignment 1: Carol Jones Case Analysis

This report presents an analysis of Carol Jones's financial situation, focusing on the principles of financial planning and asset management. It examines the benefits of financial planning, including financial security, risk management, and improved investment returns. The report details strategies Carol can use to increase her net worth, such as debt reduction and diversification of income sources. It includes the preparation of a balance sheet and a cash flow statement based on Carol's financial data, demonstrating the application of financial planning concepts. The analysis also covers asset management strategies, including investments in stocks, bonds, and insurance to protect her assets. The report concludes by emphasizing the importance of financial statements in managing personal finances and protecting assets through insurance. The report includes relevant references to support the findings and recommendations.

FINANCE
ASSIGNMENT

1
By student name
Professor
University
Date: 25 April 2018.
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Contents
Background and Abstract............................................................................................................................3
Introduction.................................................................................................................................................3
Discussion and Analysis...............................................................................................................................3
Conclusion...................................................................................................................................................6
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Background and Abstract
A report has been prepared on cash management and financial management as to how the financial
planning is necessary in effective in maintaining the good financial position of the company. The report
highlights the benefits of the financial planning and also how the strategies can be used to increase the
net worth of the company. It also shows the sources of asset management and how the assets can be
legally protected (Alexander, 2016). Finally, based on the finances of the Carol, the balance sheet and
the cash flow statement has been prepared.
Introduction
In the given case, Carol Jones is one of the business representatives who is working for an import/export
company. She travels as a part of the business and as such does not get sufficient time to manage her
finances and therefore she has decided to visit the financial advisor who has prepared the balance sheet
and the cash flow statement based on here inputs and has also given her suggestion on how to manage
the personal finances (Heminway, 2017).
Discussion and Analysis
Financial Planning is very necessary and critical in the era which is ever changing. Some of the benefits of
using the financial planning are as follows
1. It gives the financial security to the person and helps in forecasting for the future and arrange
the necessary finances, if any.
2. It helps to improve the risk management as there may be an immediate need of funds any time.
3. Continuous tracking of the financials helps improving the portfolio’s return on investment and
thereby earning good profits (Linden & Freeman, 2017).
4. It helps in segregating the good and not so good areas for investment.
5. It also aids in reducing the costs of the personal finances.
6. It helps the individual in the asset management and improving the allocation of the money
amongst the assets such that the productivity of the assets is improved.
7. It helps in having the professional approach across financial management in having the plan and
tracking it.
There are multiple benefits of having the financial statements in the financial planning such as they help
in materialising the plans, they help in tracking the actual status vs budget. They also help in knowing
what would be the income and expense for the given period and hence what would be the tax liability to
be paid. It also shows the business trend and helps in getting the necessary credit when required. It is
effective in terms of compliance and helps to know the overall status of the assets, the receivables, cash,
loan and liabilities (Choy, 2018).
There are a few financial strategies which can be used by Carol to increase her Net worth. She can repay
all the debt capital in the form of personal loan, auto loan, the master card dues, the VISA card dues and
the Bloomingdale Card. This will help in reducing the debt liability and will improve the net worth of
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Carol. She is already using some of the ways to improve the net worth like investing in 401K which is a
retirement fund, buying a house however, she also needs to find new sources of income and reduce the
expenses, buy insurance and invest in stocks (Belton, 2017). This will also have an impact in raising the
cash flow in the long term and thus having more liquid cash for future security and liquidity.
Asset management is very significant from long term personal finances perspective and it is necessary to
allocate the same in the best possible manner so that the adequate and sufficient returns are reaped.
Some of the sources available for asset management include investing in the stocks and the insurance as
this helps in building capital over the period of time (Jefferson, 2017). Furthermore, she has invested in
house and invest furthermore in the equities and bonds depending on the risk appetite. If she is
apprehensive of fluctuating returns and wishes of fixed returns with less risk, she can invest in bonds
whereas if she can take risk and expects higher returns, she can invest in equities and mutual funds. She
should keep an eye on the bank statement and track her incomes and expenses and try to lower down
her expenses.
Carol can legally protect her assets with the taking a home insurance, car insurance, and life insurance.
This will help in protecting her assets in case something happens to this or it meets with fire or burglary.
This will help Carol to be protected and insured in the event of loss and she will not fall in debt in such a
case (Goldmann, 2016).
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The Balance sheet and the cash flow statement of Carol has been shown below.
In the books of Carol
Balance Sheet
Particulars Amt ($) Amt ($)
Assets
Non-Current Assets
Home 100,000
Car 20,000
Carol's 401K 50,000 170,000
Current Assets
Savings 500 500
Total Assets 170,500
Non-Current Liabilities
Mortgage 95,000
Auto Loan 15,000
Personal Loan 5,000 115,000
Current Liabilities
MasterCard 5,000
Visa Card 3,000
Bloomingdale Card 1,500 9,500
Total Liabilities 124,500
Net Assets 46,000
Equity 46,000
Total Equity 46,000
In the books of Carol
Cash Flow Statement
Particulars Amt ($) Amt ($)
Cash Inflows
Carol's Salary 2,000
Total Cash Inflows 2,000
Cash Outflows
Gas/Heating 100
Electric 125
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Water 60
Internet/Cable 150
Phone 50
Cell Phone 200
Food 250
Mortgage Payment 796
Car Insurance 165
Checking 1,000
Lawn Service 100
Auto Payment 262
Interest - MasterCard 750
Interest - Visa card 450
Interest - Bloomingdale card 435
Interest - Personal Loan 250
Gym Membership 20
Personal Loan Payment 94
Visa Payment 60
Bloomingdale Payment 30
MasterCard 100
Total Cash Outflows 5,447
Net cash inflow / (outflow) (3,447)
The net worth of Carol is $46000 as can be seen above from the calculation of equity.
Conclusion
From the above discussion and analysis, we can see how important and critical the financial statements
are better management of personal finances. We also saw that insurances are the best way to protect
the assets and there are numerous way for assets management. The net worth of Carol was also
calculated above.
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References
Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-
431.
Belton, P. (2017). Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat
International ltd. Retrieved from https://www.routledge.com/Competitive-Strategy-Creating-
and-Sustaining-Superior-Performance/Belton/p/book/9781912128808
Choy, Y. K. (2018). Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview
Analysis. Ecological Economics, 145. doi:https://doi.org/10.1016/j.ecolecon.2017.08.005
Goldmann, K. (2016). Financial Liquidity and Profitability Management in Practice of Polish Business.
Financial Environment and Business Development, 4, 103-112. Retrieved from
https://doi.org/10.1007/978-3-319-39919-5_9
Heminway, J. (2017). Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and
Organic Documents. SSRN, 1-35.
Jefferson, M. (2017). Energy, Complexity and Wealth Maximization, R. Ayres. Springer, Switzerland .
Technological Forecasting and Social Change, 353-354.
Linden, B., & Freeman, R. (2017). Profit and Other Values: Thick Evaluation in Decision Making. Business
Ethics Quarterly, 27(3), 353-379. doi:https://doi.org/10.1017/beq.2017.1
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