Web Search 2 Essay

743 Words Mar 17th, 2013 3 Pages

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:
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A company computes its accounts receivable turnover to be 20. Based on this information, find the average collection period. If the company has a credit collection period of 30 days, explain the relationship between the credit collection period and the average collection period. Average collection period is 18.25. The relationship between the credit collection period and the average collection period is very good for this company. This company will receive payments owed to them prior to them having to pay whom they owe. (http://www.cliffsnotes.com/study_guide/Ratio-Analysis.topicArticleId-21248,articleId-21213.html) (http://www.investopedia.com/terms/a/average_collection_period.asp#axzz2LMPGyktQ)
7. A company finds that its fixed asset turnover (net sales/fixed assets) has fallen below one. What does this indicate?

8. If a company has $181,000 in total liabilities and $225,000 in total assets, what percentage of total assets is being financed with the use of other people’s money? 80.4 (http://www.cliffsnotes.com/study_guide/Ratio-Analysis.topicArticleId-21248,articleId-21213.html)
9. Distinguish between gross profit margin, operating profit margin, and net profit margin and provide the formula for each ratio. (http://www.investinganswers.com/financial-dictionary/ratio-analysis/gross-profit-margin-2076)

10. Why is the operating return on assets ratio also referred to as the operating return on investment?
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