PORTABLE MBA IN FINANCE AND ACCOUNTING CHAPTER 5 pptx

More than 90% of all personal computers use the Wintel standard,affecting both the hardware marketplace and the applications software that isdeveloped.. Currently, Dell and Compaq are th

“techie” at the other end Where you fall in this range will dictate what yougain from this chapter If you are fortunate to fall near the techie side, skimthis chapter for ideas which you might find interesting.

Technology has changed the way people conduct business Computershave replaced pencil and paper in contemporary business life In the past,when a new employee was hired, he or she was shown to a desk and given pen,pencil, paper, and a telephone Today, the new hire is given a computer, usuallyattached to a network; a cellular phone; a beeper; and possibly a laptop com-puter for portable use People’s lives have been turned upside down as theylearn to manage the latest technology E-mail is replacing U.S Mail Secre-taries are being replaced by personal productivity technology such as voice

mail and Internet-based calendaring People question how much more tive they as workers can be Technology will allow managers’ and workers’ pro-ductivity to reach the next plateau and enable them to find better andalternative modes for working and succeeding.

produc-Information technology has changed not only the way people work butalso in some cases the venue from which they perform their work No longer

are workers chained to their desks The number of telecommuters—people

who work from home via computer and telephone communications—is ing dramatically Business people who travel with their portable computershave become so prevalent that hotels have installed special hardware on theirhotel room telephones that allows guests to plug their computers into the tele-phone system and communicate with their home offices Sometimes peopleeven connect their laptop computer modems to the airline telephones at theirseats!

increas-How much do you need to understand about the technology to becometechnologically enabled? The answer to this question will depend in part on thejob you hold and the organization for which you work However, at this time,when information technology is having a dramatic impact on the very definition

of many industries, the material covered in this chapter and in Chapter 16 has

to be considered essential

HARDWAR E

Computer hardware comes in several shapes and sizes This chapter trates on personal computers (PCs) Over the past 15 years, Microsoft and Intelhave become so dominant in the software and hardware ends of the PC busi-ness that they have, de facto, set the worldwide standard for PCs, which is re-

concen-ferred to as the Wintel standard, short for Microsoft Windows and the Intel

CPU chip More than 90% of all personal computers use the Wintel standard,affecting both the hardware marketplace and the applications software that isdeveloped Currently, Dell and Compaq are the largest producers of personalcomputers, with Gateway, Hewlett-Packard, and IBM following closely.Personal computers come in two basic shapes: desktop and laptop Re-gardless of their shape, all PCs have the same basic components When youbuy a computer, you usually have a choice on the size, speed, or amount of anygiven component that will be a part of your system The basic componentswith which users must concern themselves are the CPU, RAM, hard disk, CDROM/DVD ROM, modem, various adapters, and the monitor Most of the rest

of this section deals with the basic options you will have to choose in selectingthese components

However, beyond personal computers, we are also seeing the emergence

of a whole range of small digital products for supporting effective managers.These products as a group are called personal digital assistants, or PDAs, andwill be discussed brief ly

Information Technology and You 151

Desktop Computers

Underneath their covers, most desktop computers are very similar Many ofthe various manufacturers of desktop machines use parts from the same sup-pliers because there are only a handful of companies that manufacture harddisk drives and many other desktop components Before buying a machine,compare the attributes and capabilities of many different ones Also, check thewarranty offered by the different manufacturers Though one-year warrantiesare fairly typical, some computers come with two- or three-year warranties.Beware of hype advertising and read the fine print Most advertised specials

do not include the monitor, which will cost upward of $200 depending on thesize and quality

Laptop Computers

The laptop has become a mainstay for the traveling worker It provides all thefunctionality and most of the power of most desktop units, in a package thatweighs approximately six pounds Laptops are powered by standard electricity

or, for about two hours, by their self-contained batteries Unlike desktop units,under the covers all laptops are not the same While they all utilize either anIntel or Intel clone chip, the majority of the electronics are frequently customdesigned Consequently, servicing laptops is more complicated and more ex-pensive, and laptop parts are not necessarily interchangeable

The display screen is one of the most important features of the laptopcomputer Display quality and size are rapidly approaching that of desktopmachines

Although laptops provide the luxury of portability, that is their only

ad-vantage over desktop machines Desktops offer better displays, more memory,and higher speed—higher performance for far less money A laptop computerwill cost between twice and three times as much as a comparable desktop unit

Personal Digital Assistants (PDAs)

PDAs are small digital devices that can be used to take notes, to manage tasks,

to keep track of appointments and addresses, and even to send and receive mail Similar to PCs, PDAs have CPUs, RAM, displays, and keyboards of sorts,and some even have modems However, a PDA can typically fit easily into apocket or purse Today, the most popular PDA is made by Palm Inc and has its own proprietary software However, there are a number of competingPDAs, some of which use a stripped-down version of Windows software calledWindows CE As miniaturization continues to develop and as cellular and com-puter technologies continue to be woven together, we can expect a furtherblurring of the line between PDAs and PCs

e-Probably the two most popular capabilities of PDAs are their ability tokeep track of appointments and to store and retrieve contact information such

as phone numbers and addresses These same capabilities are also available onPCs, most typically in software products such as Microsoft Outlook, which alsoincludes e-mail Most PDAs come with the ability to transfer appointments andcontact information bidirectionally between the PDA and a PC.

Computer Components

Exhibit 5.1 shows a schematic rendition of the components in a computer tem This section of Chapter 5 will explain the basic functioning of these com-ponents and present some of the tradeoffs that you will face in making anintelligent decision to buy a computer system

sys-CPU

All basic computers have a central processing unit (CPU) The CPU is the basic

logical unit that is the computer’s “brain.” As mentioned earlier, it is usuallyprovided by Intel Corporation or one of the clone-chip manufacturers such asAMD While Intel enjoys the lion’s share of the market, the clones haverecently made significant inroads by offering lower prices for comparableproducts State-of-the-art CPUs manage to integrate onto one thumbnail sizedsilicon chip tens of millions of electronic components CPUs such as the Pen-tium come in different speeds, expressed in megahertz or gigahertz (millions

or billions of cycles per second) Speed represents how fast the CPU is capable

of performing its various calculations and data manipulations A typical CPUtoday operates at between 800 MHz and 1.5 GHz

EXHIBIT 5.1 Layout of a personal computer.

CPU

RAM

Hard drive

CD ROM/

DVD drive

Monitor

Phone jack

Keyboard Mouse

Disk controller Display adapter

Modem Sound card

Speaker Speaker Network adapter Network

jack

Information Technology and You 153

RAM

Random access memory (RAM) is the space that the computer uses to execute

programs The amount of RAM required is dictated by the number of tions that the computer is asked to run simultaneously as well as by the systemssoftware in use (e.g., Windows 98, Windows XP) For most average users, 128megabytes of RAM is an appropriate amount (a megabyte is 1,048,576 bytes ofdata) You can never have too much RAM, though, so the more, the better.While RAM prices f luctuate widely with supply and demand, you should plan

applica-on spending about a dollar per megabyte

Hard Disk

All programs and data are stored on the hard disk Disk technology has

ad-vanced greatly in the past five years Recording density has enabled disk pacity to approach numbers previously unheard of except in large mainframecommercial systems In 1992 the typical disk stored 80 megabytes Today typ-ical disk capacity on desktop machines ranges from 10 to 20 gigabytes Al-though it seems unimaginable to fill up an entire 10-gigabyte disk, it happensfaster than one might think Typical office applications require 100 megabytes

ca-of storage for the application alone, not including any associated data media applications (sound and video) are very data intensive and quickly con-sume disk space For example, CD-quality music recordings consume roughly

Multi-10 megabytes per minute! Again, the more storage the better

Reminder: Hard disk failures do occur Always back up your data onto aremovable disk or tape!

CD ROM/DVD ROM

Today an increasing amount of data and number of applications are being plied on digital, compact disk (CD) technology Using this technology, large

sup-amounts of data can be stored inexpensively CD ROMs, which have the

stor-age capacity for approximately 700 megabytes of data, are usually sold as “readonly.” Recently, however, inexpensive recordable CD drives have become pop-ular, allowing people to store massive databases or record music on their own.Other than the speed at which they access and transfer data, all CD ROMs arevery similar Speed is expressed as a multiple of the speed of the original CDROMs, which were produced in the early 1990s Today, typical CD ROMstransfer data 32 or 48 times faster than the original CD ROMs and are referred

to as 32X or 48X CD ROMs Again, the faster, the better

There are numerous information databases available on CD that wouldinterest the accountant or finance executive For example, most census data isavailable on CD Also, historical data on stock and bond prices, copies of mosttrade articles, IRS regulations, state tax regulations, tax forms, recent court

decisions, tax services, accounting standards (GAAP and GAAS), continuingeducation courses, and many other topics are available on CD.

Today, DVD ROMs, which have roughly ten times the capacity of CDROMs, are becoming popular and in many cases replacing CD ROMs DVDpopularity is being driven at least in part by the fact that a single DVD can ac-commodate the massive amount of data necessary to digitally store the soundand pictures of a full-length feature movie Recordable DVD drives are nowbecoming reasonably priced With their ability to read both CDs and DVDsand their ability to record DVDs, one would expect that recordable DVDdrives will soon replace CD drives in new computer systems

Modems

Modems are devices that allow computers to communicate with each other

using standard telephone lines In the past few years, modem technology hasincreased the speed of data communications over standard telephone lines tospeeds more than 10 times higher than in 1990 However, there is a practicallimit to how fast computers can transmit data over ordinary telephone lines—currently about 56 KB (kilobit—a thousand bits) per second

Because of the limitations of telephone lines, alternatives have been andare being developed Cable modems, which use cable television wires, andDSL connections, which use regular telephone wires but with a new technol-ogy, both have the capability of transmitting data at rates higher than 1 MB(megabit) per second While both technologies are spreading quickly, neither isyet available in all geographic locations In addition, satellite data service, sim-ilar to satellite television service, is an available high-speed possibility for datacommunications

Network Adapter

Whereas modems connect computers using phone lines, network adaptersallow computers to directly communicate with each other over wires or cablesthat physically connect the computers In most office environments, the vari-ous computers are interconnected through a local area network (LAN) so thatthey can share printers, data, access to the Internet, and other capabilities.Today, the dominant type of LAN is called an Ethernet network, and most net-work adapters are Ethernet adapters In addition, Ethernet adapters are themost common form of hardware connection between PCs and cable modems

or DSL connections An Ethernet network adapter typically costs between

$30 and $50

Multimedia

By the latter half of the 1990s, most new personal computers came equipped

for multimedia, the ability to seamlessly display text, audio, and full-motion

Information Technology and You 155

video To be capable of multimedia, a computer must be equipped with a high-resolution monitor and a CD or DVD drive and have audio capabilities.Because of the amount of storage that video requires, full-motion video issomewhat difficult to accomplish on a personal computer For it to looksmooth, video requires roughly 30 frames (pictures) per second, and eachframe requires about 500,000 characters of information In other words, oneminute of smooth video could require as much as 900,000,000 characters ofstorage In order to manage the large amount of storage that video processingrequires, the video data is compressed Data compression examines the dataand, using an algorithm or formula, reduces the amount of storage spaceneeded by eliminating redundancies in the data Then, before the data is dis-played, it is inf lated back to its original form with little or no loss of picturequality

Printers

Printer technology has stabilized in recent years, with two standards having

emerged, laser printers and inkjet printers Laser printers offer the best

qual-ity and speed They are, for the most part, black-and-white and offer high printresolution There are several speed and memory options, and models range inprice from $400 for the individual user to several thousand dollars for a fastunit that offers printer sharing and color Inkjet printers offer the lowest price.Models cost as little as $100 In higher-priced inkjet printers, print quality isexcellent in black-and-white and color Today many people are using high-endinkjet printers to print pictures taken with digital cameras With high-endinkjet printers and digital cameras, the results can be virtually indistinguish-able from prints produced from film cameras

Laser printers are the clear choice for network sharing, whereas inkjetshave become the mainstay of the individual user In either case Hewlett-Packard is the market leader in the development of printers

Monitors

The most common type of computer monitor is a cathode ray tube, or CRT,which physically resembles a television In recent years, however, f lat-panel orLCD (Liquid Crystal Display) have emerged The major advantage of the f lat-panel display is that it takes up much less space on a desktop than does theCRT This advantage comes at a cost roughly three times as much as a compa-rably sized CRT Whether CRT or f lat panel, there are significant advantages

to having a display that is as large as space and budget allow Some of the realpower of windowing software is the ability to view several windows of data atthe same time Small displays make such windowing much more difficult A17-inch display (the screen measured diagonally) is about the minimum ac-ceptable size

OPER ATING SYSTEMS

The operating system is the basic software that makes the computer run

Ap-plications software is the software that runs a particular user function Some

say that the operating system is the software closest to the machine, while theapplications software is the software closest to the user

Microsoft Windows is the predominant operating-system software forthe personal computer In the past 10 years, Microsoft has become the ac-knowledged leader in the development of both operating-system and office-automation software The Windows operating system provides a graphicalformat for communicating between the computer and the user, while a point-ing device, such as a mouse, is used to point to the icon of the folder or appli-cation that the user wishes to open

APPLICATIONS SOFTWAR E

Applications software is the personal computer’s raison d’être Although thereare a multitude of applications available for the PC, this chapter focuses on thefollowing personal-productivity programs:

in-of the PC revolution and was called VisiCalc It was later replaced by Lotus 1-2-3, which became the standard until the tremendous success of MicrosoftOffice and Excel

Word Processing

One of the two most popular applications, word processing and spreadsheets,word processing has increased people’s ability to communicate more effec-tively With word processing software, the user can create, edit, and produce ahigh-quality document that appears as professional as that of any large organi-zation Thus, word processing has become the great business equalizer, making

Information Technology and You 157

it difficult to decipher a small company or single practitioner from the large,Fortune 500 company with a dedicated media department

Today’s word processing is as powerful as most desktop publishing ware, and it is so simple to use that any novice equipped with simple instruc-tions can master the software Not only can documents include text, but theycan also contain spreadsheet tables, drawings, and pictures; be specially for-matted; and be black-and-white or color Most word processing applicationscome with clip art, which consists of drawings, cartoons, symbols, and /or cari-catures that can be incorporated into the document for emphasis

soft-Spreadsheet Sof tware

For the accounting and finance executive, spreadsheet software has had thegreatest impact on productivity Imagine a company controller who has beenasked to prepare the budget for the coming year The company manufactures inover a thousand products with special pricing depending on volume The con-troller not only has to make assumptions about material costs, which mightchange over time, but also has a history of expense levels that must be factoredinto the analysis Using pencil and paper (usually a columnar pad), the con-troller calculates and prepares all of the schedules necessary to produce thefinal page of the report, which contains the income statement and cash f low.Confident that all calculations are complete, the controller presents the find-ings to management, only to be asked to modify some of the underlying as-sumptions to ref lect an unexpected change in the business As a result, thecontroller must go back over all of the sheets, erasing and recalculating, thenerasing and recalculating some more

Computer spreadsheets rendered this painful process unnecessary sheets allow the user to create the equivalent of those columnar sheets, but withembedded formulas Consequently, any financial executive can create a financialsimulation of a business Thus, merely by changing any of a multitude of assump-tions (formulas), one can immediately see the ramifications of those changes.Spreadsheets allow for quick and easy what-if analyses What if the bankchanges the interest rate on my loan by 1%? What impact will that have on mycash f low and income? In addition, most of the packages provide utilities forgraphing results, which can be used independently or integrated into a wordprocessing report or graphics presentation

Spread-A spreadsheet is composed of a series of columns and rows The

intersec-tion of a row and column is referred to as a cell Columns have alphabetic

letters, while rows have numbers Cell reference “B23” indicates the cell incolumn B and row 23

Exhibit 5.2 provides an example of a simple spreadsheet application Acompany’s pro forma income statement, the sample spreadsheet is a plan forwhat the company expects its performance to ref lect In this example, thecompany expects to earn $275,475 (cell H18) after tax on $774,000 (cell H3) ofsales revenues At the bottom of the exhibit, there is a series of assumptions

that govern the way the calculations are performed in this spreadsheet For ample, cost of goods sold is always equal to 32.75% of sales, and advertising isalways equal to 12% of sales Likewise, the income tax rate for this company

ex-is set at 25%

Looking behind the cells (Exhibit 5.3), you can see the spreadsheet’s mula infrastructure For example, cell B4, which calculates the cost of goodssold for the month of January, contains the formula that requires the spread-sheet to multiply the cost-of-goods-sold percentage that is shown in cell B21

for-by the sales shown in cell B3; the formula in cell B5, which calculates thegross profit, subtracts the cost of goods sold in cell B4 from the sales in cellB3; and cell H5, which calculates the total gross profit for the six months ofJanuary through June, contains the formula that adds the contents of cells B5through G5

The spreadsheet is set up so that, should the user wish to change any ofthe assumptions, such as the cost-of-goods-sold-percentage, the contents ofcell B21 would be changed to a new desired value, and any other cell that wasaffected by this change would immediately assume its new value As mentionedearlier, most spreadsheet packages provide excellent facilities for displaying

EXHIBIT 5.2 Pro forma income statement (in dollars).

Pro Forma Income Statement

Year

Sales 100,000 125,000 135,000 127,000 132,000 155,000 774,000 Cost of goods sold 32,750 40,938 44,213 41,593 43,230 50,763 253,485 Gross profit 67,250 84,063 90,788 85,408 88,770 104,238 520,515

Operating Expenses

Salaries 22,800 28,500 30,780 28,956 30,096 35,340 176,472 Benefits 11,200 14,000 15,120 14,224 14,784 17,360 86,688

Utilities 4,300 4,750 3,790 4,100 3,100 2,800 22,840 Advertising 12,000 15,000 16,200 15,240 15,840 18,600 92,880 Supplies 1,300 1,400 1,270 1,500 1,550 1,600 8,620 Total operating expenses 54,800 66,850 70,360 67,220 68,570 78,900 406,700 Net profit before taxes 45,200 58,150 64,640 59,780 63,430 76,100 367,300 Income taxes 11,300 14,538 16,160 14,945 15,858 19,025 91,825 Net profit after taxes 33,900 43,613 48,480 44,835 47,573 57,075 275,475

data in a graphical format Exhibit 5.4 presents a graph of the information inour demonstration spreadsheet It contrasts sales and net profit over the sixmonths.

Presentation Graphics Sof tware

Presentation graphics software is used to create slide presentations These

pre-sentations can include a variety of media through which information can bepresented to an audience, such as text, graphs, pictures, video, and sound Spe-cial effects are also available, meaning animation can be incorporated as thesystem transitions from one slide to the next Slides can be printed, in black-and-white and color, for use on overhead projectors Alternatively, the com-puter can be directly connected to a system for projection onto a screen or atelevision monitor, allowing the presenter to utilize the software’s animationand sound features Most of the software comes equipped with various prede-veloped background formats and clip art to help simplify the process of creat-ing the presentation Also, these software packages allow the user to importboth graphs and text from other software packages, such as word processingand spreadsheets

EXHIBIT 5.4 Pro forma sales and income.

Sales Net profit after taxes