Financial Analytical For Managerial Decisions

Depreciation refers to the decrease in value of assets used in an entity in the quest to accomplish the profits goals of an entity (Atrill et.al, 2014).  Assets such as cars and machinery wear out on daily basis since they are actively involved in production of products.  Depreciation belong to the non-cash class of expenses since the tear and wear affiliated with machinery is not in form of cash. The argument that depreciation is an ‘add back’ item used to reconcile net profit with cash flow operation is quite in order.  These machines depreciate in the production and delivery of products to the end user. The end user in return pays for these services and hence depreciation in a way becomes source of income. If an organization but a delivery truck and park the truck in the parking lot for years, then the truck never deprecates on grounds f tear and wear and subsequently the organization does not earn any profit from the new truck parked in the parking lot. I completely agree with the argument that depreciation is a source of indirect cash income.

 Question 5.

Netflix might be recording negative financials ratios of profitability but still it belongs to the unique class of firms that does not necessarily have to rely on these ratios to maximize the profits of the investors. The entertainment industry is  quite an interesting  area of investment simply because this industry survives even in the worst economic  times since it is purely an industry built on the tertiary class of needs that belong to a certain class of consumers who have to their entertainment needs no matter how expensive or  scarce they might be. (Atrill et.al, 2014).  The investors will therefore tend to favor this industry since it guarantees them of business continuity and progressive profit margins no matter how small they might be. The continuity of profit even in economically harsh conditions is the unique reason why Netflix and other entities of this nature are bound to attract greater numbers of investors regardless of their financial ratios of profitability.

 

 

 

References.

Atrill, P. et.al. (2014). accounting: An introduction, 6th ed. Pearson Higher Education AU.

All Rights Reserved, Essaysland.com
Disclaimer: