Assignment 2 - Step 1. Key Concepts and Questions.

ASS #2 - Step 1.

I must say, this reading took me some time. It took time for me to read some parts, re-read and then even re-re-read (just created a word!!). I do feel as though I’ve enhanced my understanding.

One of the key concepts I took was the importance of social learning. It has been absolutely true within my life that once I start a conversation about something, I learn and understand more. So, I will continue to use Facebook and Peerwise as thus far, I’ve found them to be of great assistance.

This social learning is a key component of our course and I would think that all those involved with designing the course have seen the benefits. I can see that by involving yourself in discussion, forums, and questions, we ‘add value’ to our learning opportunities and our understanding.

Another key concept was, in my opinion, is that we need to look at the history of the firm in order to make educated guesses about its future. The fact that capital markets trade in expectations does make me uneasy. I think of ‘it takes money to make money’, in the sense that taking risks, is often needed in business.

Initially through the readings, I wonder what are the drivers for a firm? I am interested to learn about this. Are we going to get these answers? I begin to understand after reading on about the restating of financial statements. It makes sense to me to do this. I relate this to many situations but for example work, you enter a new job, get information on how it operates but until it’s in your own hands, you don’t ‘really’ understand.

I am beginning to understand some concepts throughout this chapter such as free cash flow, operating assets and how to create value. I feel more confident as I read through the chapter in relation to these principles as they make sense to me. I relate it to a previous work situation where I fought tooth and nail to have an Occupational Therapist employed (in direct relation to my operating programs). Once the OT (capital) was employed, the organisation was very pleased with the return on operating cash flow that was produced from this investment. She made the company well above what the company paid her.

Analysing the drivers is also starting to gel with me. It has still been elusive to me, lets be honest, as to how I’m going to have a ‘real’ understanding of a firm based on their annual report. Up until now, I have felt as though I am very unprepared and perhaps being lulled into their very alluring marketing plans. I am starting to see that once we restate the financials,, look into the history, see what is driving the profits and see what choices a company is making as far as capital, we can make an educated guess as to what the future might hold. I like the information about capital not being free and the alternative investments that could be. It seems a good point to make that by looking at what a company invests in, will show where it wants to go.

Drivers are – profitability, efficiency and return on net operating costs.

I also note that it’s important to focus on areas that are not affected by organisational policy (eg. Dividends). Focusing on what IS making profit and what is NOT, will improve our understanding of the firm.

The importance of separating Operating activities and financial activities is crucial. This information and including how to apply tax is initially a bit over my understanding. I do see the examples though and believe once I look into restating my firms reports, I will be able to reference the examples and once I can apply the information, I’m confident I will understand.

Another key concept I have noted is the relationship between profit margins and efficiency. I am assuming this is all about the ‘bottom line’ and look forward to further understanding this.