Pre-Tax Net Income: Year Plan vs. Actual + SRO” Chart Discussion
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Prior to beginning work on this discussion thread, read How healthy is your business? 6 ways to take its ‘temperature’ and Why 70% of companies paid zero in corporate taxes: They had zero profits. Hisco’s owner, Stan Sloane, would like to know what you’ve learned so far in the process of running the company that might benefit other employees/students concerning pre-tax income and its importance. Meet with two other employees/students and share ideas that could help others in a similar employment position as you. (Pre-Tax Net Income Chart Explanation)
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Required Resources
Text
There is not an official text for this course. Instead, there is a variety of selected reading materials that will be reviewed to ensure your success and meeting the learning objectives of the capstone.
• Selected TRI Corporation Critical Equations for Business Leaders
• Selected videos on strategy, developing an annual plan/budget, and variance analysis
• Selected MBA materials in prior classe
Articles
Biery, M. E. (2013, September 1). How healthy is your business? 6 ways to take its ‘temperature.’ (Links to an external site.) Forbes. Retrieved from https://www.forbes.com/sites/sageworks/2013/09/01/how-healthy-is-your-business-using-industry-data-to-check-the-temperature/#26ca43e1704a
• The full-length version of this article is available through the www.forbes.com database. This article provides information about financial metrics that indicate the overall health of the company and will assist you in your Pre-Tax Net Income: Year Plan vs Actual + SRO” chart discussion this week. In particular the article also gives consideration to ratio analysis.
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Mathur, A. (2016, April 20). Why 70% of companies paid zero in corporate taxes: they had zero profits (Links to an external site.). Forbes. Retrieved from https://www.forbes.com/sites/aparnamathur/2016/04/20/why-70-of-companies-paid-zero-in-corporate-taxes-they-had-zero-profits/#7a02689c56e3
• The full-length version of this article is available through the www.forbes.com database. This article provides information about profitability of companies before paying taxes and the benefit of having a zero-net income for the company and will assist you in your Pre-Tax Net Income: Year Plan vs Actual + SRO” chart discussion this week.
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Multimedia
Cadrain, S. (2017). Pre-Tax Net Income Chart Explanation [Presentation Slides]. Retrieved from https://ashford.instructure.com
• This PowerPoint presentation covers information about how to analyze HISCO’s financial metrics specifically pre-tax and after-tax income. The presentation can be used as a tool to better understand the “Pre-Tax Income: Year Plan vs. Actual” graph located in the Grow Your Business” (GYB) simulation.
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Required Technology
Website
“Growing Your Business” – A Management Simulation. (https://ashford.trisimulation.com/canvas)
• This website is where you will conduct your readings and work to complete the Decisions for Quarter Three assignment and the Third Quarter Quarterly Business Review (QBR) assignment.
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Please note that if you are experiencing technical issues with the Growing Your Business Simulation, you will need to contact the help desk within the simulation.
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Learning Outcomes
This week students will:
1. Balance managing for the short-term and leading for the long-term to ensure you not only meet or exceed your financial targets within your budget/plan, but are creating shareholder value for the long-term.
2. Discuss the “Pre-Tax Net Income: Year Plan vs Actual + SRO” chart.
3. Prepare and submit decisions for Qtr. 3.
4. Prepare and submit Q3 Quarterly Business Review (QBR).
5. Complete Journaling Activity.
Introduction
In Week 4 we will consider the profitability (Net Income) of HISCO as a company before taxes are paid. At some point the more profitable a business is the more taxes it will need to pay. An important point in the operations of the business is being able to control company expenses in weekly monthly and quarterly operations. This week you will also assess outcomes from the first and second quarters of the year so that you can submit your third quarter decisions. Often when a company progresses to the third quarter it is time not only to look forward to the fourth quarter of the year, but also to the next year. Keep track of the various career impacting lessons from operations that are continually developing as you progress through the simulation.
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Week 4 Guidance for BUS687
Here we are at Week 4. Each week will build upon the previous weeks’ material. So, if you have neglected some area, please go back and review it to make the most of your learning for the course.
The learning objectives this week will deal with the pre-tax income, your yearly plan, and the actual short-range outlook (SRO). Many of your decisions will come from balancing your short and long-term decisions.
For example, you could cut advertising expenses for one quarter and hope that sales will remain high in the next quarter. You could cut research on your medical device and hope your competitors do not come out with a better product before you do. Hopes may not transform into profits. In the real world our plans to not always come out in our favor.
Imagine that there was no improvement in the original telephone. We may still have to call the operator to put in a call or use the old rotary dial phones. Cell phones happened because companies were free to innovate. Profit motives inspired inventors to come up with better products. Capitalism has risen the standard of living for millions of us who enjoy so many modern conveniences.
Rich people invest not only to make great new products but also to make a good net income return on their investment. The Wright Brothers invented the airplane with very little capital. They saved money from their bicycle shop to invest in the airplane. Their motive was to invent a plane they could sell instead of just selling bicycles.
Hisco makes a medical device that they want to sell. Rich people may invest in the company if they feel it will make a good return on their investment. If the financial statements do not indicate the sales will occur that result in high net income, they will stop investing. Management at Hisco will have to show the investors that Hisco is a safe and beneficial investment. They can do this by improving their products and increasing sales either by selling more products or the same number at higher prices. Another way to increase net income is to reduce basic expenses by getting less expensive facilities or materials or cheaper labor.
Pre-tax income is a nice number to evaluate, but in reality, taxes have to be paid. It is a necessary expense. But thanks to the tax reform and reduction of 2017, corporate and business taxes were greatly reduced. This has allowed businesses like Hisco (or real medical device makers) to make more investments with a better return, pay more bonuses, and increase salaries. It has stimulated the economy like nothing else in the last few decades.
Business decisions are focused on profitability. Without profitability, jobs would go away, donations to charities would dry up, poverty would prevail, and misery would set in. Tax cuts actually result in higher tax revenue because more workers are paying income tax and fewer people are on welfare. Companies pay business taxes, sales taxes, property taxes, and fees. They take about 12% out of our pay to pay for social security. Then they take out Medicare and income taxes. Stockholders receive dividends and appreciation which results in more taxes for them. It all adds up. So, pre-tax is just a number to analyze before getting the bottom line of net income after taxes.
As you assess income, you may need to review past quarters, compare the numbers to when decisions were made and estimate the cause and effect of decisions. Ratios on various numbers can help, such as quick ratios of current assets to current liabilities, or profitability ratios, or comparisons to salaries and net income, or turnover ratios. There are many categories to evaluate.
One article I would recommend is the one below which goes over ways to evaluate the health of a business:
“Biery, M. E. (2013, September 1). How healthy is your business? 6 ways to take its ‘temperature.’ (Links to an external site.)Links to an external site. (Links to an external site.)Links to an external site. (Links to an external site.) Forbes. Retrieved from https://www.forbes.com/sites/sageworks/2013/09/01/how-healthy-is-your-business-using-industry-data-to-check-the-temperature/#26ca43e1704a (Links to an external site.)
The full-length version of this article is available through the www.forbes.com database. This article provides information about financial metrics that indicate the overall health of the company and will assist you in your Pre-Tax Net Income: Year Plan vs Actual + SRO” chart discussion this week. In particular, the article also gives consideration to ratio analysis.
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Spend some time evaluating your results for Hisco. The more you analyze it, the better your decisions will be for the future of the company.
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