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Topics: Financial ratios, Financial ratio, Generally Accepted Accounting Principles Pages: 3 (739 words) Published: March 1, 2013

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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