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1. What is the purpose of financial statement analysis? The purpose of financial statement analysis is to provide information used by the business, potential creditors and investors.
2. If a company had sales of $2,587,643 in 1998 and sales of $3,213,456 in 2003, by what percentage did sales change during this time period? 24.18%
a. If the company had a goal of increasing sales by 25% over a five-year period, did it meet its objectives? No
b. If the company had set a goal of increasing sales by 28% during the next five years, what should be the sales goal for 2008? 4,113,223.68
3. List and briefly describe the five categories of business ratios.
a. Liquidity ratios: Used to determine the company’s ability to pay off short-term debts.
b. Activity ratios: The ability to convert different accounts into cash or sales
c. Leverage ratios: Used to get an idea of a company’s method of finance or measures it’s ability to meet financial obligations.
d. Market ratios: A ratio of a company’s book value to the market value.
4. Why might a company have a high current ratio but a low quick ratio (acid test ratio)? A company may encounter this when the current assets are dependent on inventory. (http://www.investopedia.com/university/ratios/liquidity-measurement/ratio2.asp#axzz2LMPGyktQ)
5. If a company has beginning inventory of $30,000 and ending inventory of $55,000, compute its average inventory. If the cost of goods sold is $140,000, compute its inventory turnover and determine how many days the average item is in stock. The average inventory would be 42,500, and average...
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