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July 14, 2005
What is management accounting?
1. What is a CMA?
2. Why did you choose getting the CMA over the CPA?
These questions often arise during job interviews. Below you can find excellent explanation of the differences between the CMA and the CPA from Steve Colton:
My undergraduate days were spent at Iowa State University which had, and still has, a highly regarded College of Engineering. Many of my friends were engineering students and knowing them made me keenly aware of the many different flavors of engineering that existed. Some of my friends were civil engineers; others electrical engineers and still others mechanical engineers, chemical engineers and so on. While freshmen, all shared a common curriculum, but as upperclassmen, they branched off into the specialized studies that gave each engineering discipline its uniqueness.In much the same fashion, the field of accounting has underlying specialties built upon a common foundation. At the highest-level, the field of accounting is subdivided into two specialties: financial accounting and management accounting.
Continue reading "What is management accounting?"
Posted by mazoo at 4:56 PM
July 12, 2005
CMA, CPA, MBA. What and Why. Part 1
I am going to publish a couple of posts about CMA/CFM certification. You can find many questions about differences between CMA, CPA and MBA degree on the accounting forums. You can find many controversies which degree is the best.
If you want to improve yourself and get finance certification, you should know the answers: "What is your purpose in getting certified?", "What kind of job do you prefer to have?", "How many time do you have?", "What kind of employers do you want to impress?" etc.
Preparation for exams is a hard work, your aims should inspire you, but your expectations should be realistic and practicable unless you want to be disappointed. Job-market is not optimistic for non-certified professionals and for certified professionals too.
Good quote: "Goals should be SMART: Specific, Measurable, Assignable (who does what), Realistic and Time-Related"
Do not overestimate the value of certification and do not think that all doors should open for you. Do not underestimate the value of certification, it helps you find and open the right door.
I am preparing for CMA part 2 and do not have experience to share. However, the information regarding CMA, CPA, and MBA is very interesting for me. That is why I have asked the permission from several top-level professionals to publish their opinions about differences in these financial certifications and job opportunities for certified professionals. I hope this information will be helpful not only for me.
In conclusion of this preliminary article, I would like to quote Larry White, the IMA Chair, CMA, CFM, CPA, CGFM:
"I tell all accounting students and professionals that certifications are a must. When you're searching for a job or when you're seeking to improve your career, you want to have discussions about what you can strategically contribute to an organization you want to work for. Certifications help get you past the discussion of technical qualifications and allow you to talk more about what makes you unique. Getting a certification at any point in your career shows that you are an energized professional, you are improving yourself, and you are interested in and committed to ongoing professional improvement."
It is late. We will continue this theme tomorrow.
UPD 07/13/05: No, tomorrow :-)
Posted by mazoo at 11:54 PM | Comments (3)
July 1, 2005
Ratio Analysis. Liquidity Index. Part 3.
Liquidity Index is a weighted-average measure of the liquidity of current assets stated in days. Liquidity Index is the amount of time it is expected to take for Current Assets to be converted into cash. Liquidity Index equals the sum of weighted noncash Current Assets divided by Current Assets.
What does "weighted-average" mean? We want to find the average number of "days until cash", and we need to take into account the weight of each component of Current Assets (Cash, Cash Equivalents, Net Accounts Receivables, Marketable securities, Inventories and Prepaid Items).
For example, if a company has $1000 cash (0 days until cash) and $100 accounts receivable with average collection period 20 days, that the weighed-average is 1000*0 + 100 * 20 = 2000, where 1000 and 100 are "weights". Liquidity Index is 2000 / 1100 = 1.82 days
The numerator of Liquidity Index formula includes only noncash items because it takes zero days to convert Cash into cash. The assumption for the Cash equivalents and Marketable securities is the same.
Average collection period (or Days sales in receivables) is the average number of days to collect a receivable, i.e. to convert Accounts Receivables into cash.
Operating cycle uses as the average number of days to convert Inventory into cash. We need Days sales in inventory to held inventory until sale plus Days sales in receivables to collect cash from sale.
Example:
Mazoo Company reported the following account information (all amounts are year-end balances in millions of dollars):
Cash, Cash equivalents and Marketable securities: $100
Accounts Receivable: $400
Inventories: $600
Land: $800
Net Sales: $2400
Cost of Goods Sold: $2000
Let's find Mazoo's Liquidity Index assuming 365-day year.
Liquidity of current assets in days:
1) Cash, Cash equivalents and Marketable securities: 0 days.
2) Accounts Receivable:
Days sales in receivables = (400/2400)*365 = 60.8 days
3) Inventories:
Operating cycle = (600/2000)*365 = 109.5 + 60.8 = 170.3 days
4) Land is not a current asset.
As we can see, Liquidity Index can range from a minimum of zero to a maximum equal to the operating cycle.
Note: if we don't know Average Inventory and Average Accounts Receivable, we can use Year-End Balances for Liquidity index calculation.
Note 2: By convention, Prepaid Expenses are excluded from Liquidity index calculations.
Posted by mazoo at 2:30 PM | Comments (2)