# Web Search 2

Topics: Financial ratios, Financial ratio, Generally Accepted Accounting Principles Pages: 3 (739 words) Published: March 1, 2013
WEB SEARCH 2

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.
(http://www.investopedia.com/terms/l/liquidityratios.asp#axzz2LMPGyktQ)

b. Activity ratios: The ability to convert different accounts into cash or sales
(http://www.investopedia.com/terms/a/activityratio.asp#axzz2LMPGyktQ)

c. Leverage ratios: Used to get an idea of a company’s method of finance or measures it’s ability to meet financial obligations.
(http://www.investopedia.com/terms/l/leverageratio.asp#axzz2LMPGyktQ)

d. Market ratios: A ratio of a company’s book value to the market value.
(http://financial-dictionary.thefreedictionary.com/Book-to-Market+Ratio)

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...