(a) Jose Ramirez believes that the analysis of financial statements is directed at two characteristics of a company: liquidity and profitability. Is Jose correct? Explain. (b) Are short-term creditors, long-term creditors, and stockholders interested primarily in the same characteristics of a company? Explain.

Question

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Answer 1

Textbook Question

Chapter 14, Problem 1Q

(a) Jose Ramirez believes that the analysis of financial statements is directed at two characteristics of a company: liquidity and profitability. Is Jose correct? Explain.

(b) Are short-term creditors, long-term creditors, and stockholders interested primarily in the same characteristics of a company? Explain.

(a)

Expert Solution

To determine

Financial Analysis: Analysis of financial statements of the firm helps to frame policies and plans. The financial analysis determines the financial situation of the firm. It can be used for comparison.

To explain: Whether Mr. J correctly analyzes the financial statements based on liquidity and profitability.

Explanation of Solution

No, Mr. J is not correctly analyzed the financial statements based on liquidity and profitability because the financial statements must be analyzed based on liquidity, profitability, and solvency.

Liquidity refers to the ability to pay short-term liabilities. Profitability refers to the earning capacity of the firm. Solvency determines the ability to pay long-term liabilities of the firm.

Conclusion

So, Mr. J was incorrect in the analysis of the financial statements based on liquidity and profitability only.

(b)

Expert Solution

To determine

Financial Analysis: Analysis of financial statements of the firm helps to frame policies and plans. The financial analysis determines the financial situation of the firm. It can be used for comparison.

To explain: The interest of short-term creditors, long-term creditors, and stockholders in the company.

Explanation of Solution

Short-term creditors: Short-term creditors are interested in liquidity ratio as they want to know whether their funds are safe or not.

Short-term creditors are the current liability of the company and must be paid within a short period of time. So, they are interested in the company’s short-run performance of the company.

Long-term creditors: Long-term creditors are interested in solvency ratio as they want to know whether their funds are safe or not in long run.

Long-term creditors are the non-current liability of the company and paid after a long period of time. So, they are interested in the company’s long-run performance of the company.

Stockholders: Stockholders are interested in all the three characteristics that are liquidity, profitability, and solvency to know the overall performance of the company.

Stockholders have significant influence over the company’s activities and operations; therefore, they are interested in the overall performance of the company.

Conclusion

No, the short-term creditors, the long-term creditors, and the stockholders do not have same primary interest in characteristics of the company.

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Students have asked these similar questions

A business will construct its financial statements in a particular order because they are interrelated. This means that items formulated in an earlier statement feed into the subsequent statements, and changes to items on one financial statement can have compounding effects on the overall financial position of a company. 1. Which of the following is one reason the statement of owner's equity is prepared after the income statement? 2. Which of the following is one reason the statement of owner's equity is prepared before the balance sheet?

Factors that reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred to as solvency, profitability, and liquidity. O True False 00

THIS IS ALL ONE QUESTION, Thanks! The income statement, also known as the profit and loss (P&L) statement, provides a snapshot of the financial performance of a company during a specified period of time. It reports a firm’s gross income, expenses, net income, and the income that is available for distribution to its preferred and common shareholders. The income statement is prepared using the generally accepted accounting principles (GAAP) that match the firm’s revenues and expenses to the period in which they were incurred, not necessarily when cash was received or paid. Investors and analysts use the information given in the income statement and other financial statements and reports to evaluate the company’s financial performance and condition. Consider the following scenario: Cold Goose Metal Works Inc.’s income statement reports data for its first year of operation. The firm’s CEO would like sales to increase by 25% next year. 1. Cold Goose is able to achieve this level…

Answer 2

Textbook Question

Chapter 14, Problem 1Q

(a) Jose Ramirez believes that the analysis of financial statements is directed at two characteristics of a company: liquidity and profitability. Is Jose correct? Explain.

(b) Are short-term creditors, long-term creditors, and stockholders interested primarily in the same characteristics of a company? Explain.

(a)

Expert Solution

To determine

Financial Analysis: Analysis of financial statements of the firm helps to frame policies and plans. The financial analysis determines the financial situation of the firm. It can be used for comparison.

To explain: Whether Mr. J correctly analyzes the financial statements based on liquidity and profitability.

Explanation of Solution

No, Mr. J is not correctly analyzed the financial statements based on liquidity and profitability because the financial statements must be analyzed based on liquidity, profitability, and solvency.

Liquidity refers to the ability to pay short-term liabilities. Profitability refers to the earning capacity of the firm. Solvency determines the ability to pay long-term liabilities of the firm.

Conclusion

So, Mr. J was incorrect in the analysis of the financial statements based on liquidity and profitability only.

(b)

Expert Solution

To determine

Financial Analysis: Analysis of financial statements of the firm helps to frame policies and plans. The financial analysis determines the financial situation of the firm. It can be used for comparison.

To explain: The interest of short-term creditors, long-term creditors, and stockholders in the company.

Explanation of Solution

Short-term creditors: Short-term creditors are interested in liquidity ratio as they want to know whether their funds are safe or not.

Short-term creditors are the current liability of the company and must be paid within a short period of time. So, they are interested in the company’s short-run performance of the company.

Long-term creditors: Long-term creditors are interested in solvency ratio as they want to know whether their funds are safe or not in long run.

Long-term creditors are the non-current liability of the company and paid after a long period of time. So, they are interested in the company’s long-run performance of the company.

Stockholders: Stockholders are interested in all the three characteristics that are liquidity, profitability, and solvency to know the overall performance of the company.

Stockholders have significant influence over the company’s activities and operations; therefore, they are interested in the overall performance of the company.

Conclusion

No, the short-term creditors, the long-term creditors, and the stockholders do not have same primary interest in characteristics of the company.

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Answer 3

Textbook Question

Chapter 14, Problem 1Q

(a) Jose Ramirez believes that the analysis of financial statements is directed at two characteristics of a company: liquidity and profitability. Is Jose correct? Explain.

(b) Are short-term creditors, long-term creditors, and stockholders interested primarily in the same characteristics of a company? Explain.

(a)

Expert Solution

To determine

Financial Analysis: Analysis of financial statements of the firm helps to frame policies and plans. The financial analysis determines the financial situation of the firm. It can be used for comparison.

To explain: Whether Mr. J correctly analyzes the financial statements based on liquidity and profitability.

Explanation of Solution

No, Mr. J is not correctly analyzed the financial statements based on liquidity and profitability because the financial statements must be analyzed based on liquidity, profitability, and solvency.

Liquidity refers to the ability to pay short-term liabilities. Profitability refers to the earning capacity of the firm. Solvency determines the ability to pay long-term liabilities of the firm.

Conclusion

So, Mr. J was incorrect in the analysis of the financial statements based on liquidity and profitability only.

(b)

Expert Solution

To determine

Financial Analysis: Analysis of financial statements of the firm helps to frame policies and plans. The financial analysis determines the financial situation of the firm. It can be used for comparison.

To explain: The interest of short-term creditors, long-term creditors, and stockholders in the company.

Explanation of Solution

Short-term creditors: Short-term creditors are interested in liquidity ratio as they want to know whether their funds are safe or not.

Short-term creditors are the current liability of the company and must be paid within a short period of time. So, they are interested in the company’s short-run performance of the company.

Long-term creditors: Long-term creditors are interested in solvency ratio as they want to know whether their funds are safe or not in long run.

Long-term creditors are the non-current liability of the company and paid after a long period of time. So, they are interested in the company’s long-run performance of the company.

Stockholders: Stockholders are interested in all the three characteristics that are liquidity, profitability, and solvency to know the overall performance of the company.

Stockholders have significant influence over the company’s activities and operations; therefore, they are interested in the overall performance of the company.

Conclusion

No, the short-term creditors, the long-term creditors, and the stockholders do not have same primary interest in characteristics of the company.

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Answer 4

Textbook Question

Chapter 14, Problem 1Q

(a) Jose Ramirez believes that the analysis of financial statements is directed at two characteristics of a company: liquidity and profitability. Is Jose correct? Explain.

(b) Are short-term creditors, long-term creditors, and stockholders interested primarily in the same characteristics of a company? Explain.

(a)

Expert Solution

To determine

Financial Analysis: Analysis of financial statements of the firm helps to frame policies and plans. The financial analysis determines the financial situation of the firm. It can be used for comparison.

To explain: Whether Mr. J correctly analyzes the financial statements based on liquidity and profitability.

Explanation of Solution

No, Mr. J is not correctly analyzed the financial statements based on liquidity and profitability because the financial statements must be analyzed based on liquidity, profitability, and solvency.

Liquidity refers to the ability to pay short-term liabilities. Profitability refers to the earning capacity of the firm. Solvency determines the ability to pay long-term liabilities of the firm.

Conclusion

So, Mr. J was incorrect in the analysis of the financial statements based on liquidity and profitability only.

(b)

Expert Solution

To determine

Financial Analysis: Analysis of financial statements of the firm helps to frame policies and plans. The financial analysis determines the financial situation of the firm. It can be used for comparison.

To explain: The interest of short-term creditors, long-term creditors, and stockholders in the company.

Explanation of Solution

Short-term creditors: Short-term creditors are interested in liquidity ratio as they want to know whether their funds are safe or not.

Short-term creditors are the current liability of the company and must be paid within a short period of time. So, they are interested in the company’s short-run performance of the company.

Long-term creditors: Long-term creditors are interested in solvency ratio as they want to know whether their funds are safe or not in long run.

Long-term creditors are the non-current liability of the company and paid after a long period of time. So, they are interested in the company’s long-run performance of the company.

Stockholders: Stockholders are interested in all the three characteristics that are liquidity, profitability, and solvency to know the overall performance of the company.

Stockholders have significant influence over the company’s activities and operations; therefore, they are interested in the overall performance of the company.

Conclusion

No, the short-term creditors, the long-term creditors, and the stockholders do not have same primary interest in characteristics of the company.

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Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

(a)

Expert Solution

To determine

Financial Analysis: Analysis of financial statements of the firm helps to frame policies and plans. The financial analysis determines the financial situation of the firm. It can be used for comparison.

To explain: Whether Mr. J correctly analyzes the financial statements based on liquidity and profitability.

Explanation of Solution

No, Mr. J is not correctly analyzed the financial statements based on liquidity and profitability because the financial statements must be analyzed based on liquidity, profitability, and solvency.

Liquidity refers to the ability to pay short-term liabilities. Profitability refers to the earning capacity of the firm. Solvency determines the ability to pay long-term liabilities of the firm.

Conclusion

So, Mr. J was incorrect in the analysis of the financial statements based on liquidity and profitability only.

(b)

Expert Solution

To determine

Financial Analysis: Analysis of financial statements of the firm helps to frame policies and plans. The financial analysis determines the financial situation of the firm. It can be used for comparison.

To explain: The interest of short-term creditors, long-term creditors, and stockholders in the company.

Explanation of Solution

Short-term creditors: Short-term creditors are interested in liquidity ratio as they want to know whether their funds are safe or not.

Short-term creditors are the current liability of the company and must be paid within a short period of time. So, they are interested in the company’s short-run performance of the company.

Long-term creditors: Long-term creditors are interested in solvency ratio as they want to know whether their funds are safe or not in long run.

Long-term creditors are the non-current liability of the company and paid after a long period of time. So, they are interested in the company’s long-run performance of the company.

Stockholders: Stockholders are interested in all the three characteristics that are liquidity, profitability, and solvency to know the overall performance of the company.

Stockholders have significant influence over the company’s activities and operations; therefore, they are interested in the overall performance of the company.

Conclusion

No, the short-term creditors, the long-term creditors, and the stockholders do not have same primary interest in characteristics of the company.

Answer 8

(a)

Expert Solution

To determine

Financial Analysis: Analysis of financial statements of the firm helps to frame policies and plans. The financial analysis determines the financial situation of the firm. It can be used for comparison.

To explain: Whether Mr. J correctly analyzes the financial statements based on liquidity and profitability.

Explanation of Solution

No, Mr. J is not correctly analyzed the financial statements based on liquidity and profitability because the financial statements must be analyzed based on liquidity, profitability, and solvency.

Liquidity refers to the ability to pay short-term liabilities. Profitability refers to the earning capacity of the firm. Solvency determines the ability to pay long-term liabilities of the firm.

Conclusion

So, Mr. J was incorrect in the analysis of the financial statements based on liquidity and profitability only.

Answer 9

(a)

Expert Solution

Answer 10

(a)

Expert Solution

Answer 11

Expert Solution

Answer 12

To determine

Financial Analysis: Analysis of financial statements of the firm helps to frame policies and plans. The financial analysis determines the financial situation of the firm. It can be used for comparison.

To explain: Whether Mr. J correctly analyzes the financial statements based on liquidity and profitability.

Answer 13

Explanation of Solution

No, Mr. J is not correctly analyzed the financial statements based on liquidity and profitability because the financial statements must be analyzed based on liquidity, profitability, and solvency.

Liquidity refers to the ability to pay short-term liabilities. Profitability refers to the earning capacity of the firm. Solvency determines the ability to pay long-term liabilities of the firm.

Answer 14

Conclusion

So, Mr. J was incorrect in the analysis of the financial statements based on liquidity and profitability only.

Answer 15

(b)

Expert Solution

To determine

Financial Analysis: Analysis of financial statements of the firm helps to frame policies and plans. The financial analysis determines the financial situation of the firm. It can be used for comparison.

To explain: The interest of short-term creditors, long-term creditors, and stockholders in the company.

Explanation of Solution

Short-term creditors: Short-term creditors are interested in liquidity ratio as they want to know whether their funds are safe or not.

Short-term creditors are the current liability of the company and must be paid within a short period of time. So, they are interested in the company’s short-run performance of the company.

Long-term creditors: Long-term creditors are interested in solvency ratio as they want to know whether their funds are safe or not in long run.

Long-term creditors are the non-current liability of the company and paid after a long period of time. So, they are interested in the company’s long-run performance of the company.

Stockholders: Stockholders are interested in all the three characteristics that are liquidity, profitability, and solvency to know the overall performance of the company.

Stockholders have significant influence over the company’s activities and operations; therefore, they are interested in the overall performance of the company.

Conclusion

No, the short-term creditors, the long-term creditors, and the stockholders do not have same primary interest in characteristics of the company.

Answer 16

(b)

Expert Solution

Answer 17

(b)

Expert Solution

Answer 18

Expert Solution

Answer 19

To determine

Financial Analysis: Analysis of financial statements of the firm helps to frame policies and plans. The financial analysis determines the financial situation of the firm. It can be used for comparison.

To explain: The interest of short-term creditors, long-term creditors, and stockholders in the company.

Answer 20

Explanation of Solution

Short-term creditors: Short-term creditors are interested in liquidity ratio as they want to know whether their funds are safe or not.

Short-term creditors are the current liability of the company and must be paid within a short period of time. So, they are interested in the company’s short-run performance of the company.

Long-term creditors: Long-term creditors are interested in solvency ratio as they want to know whether their funds are safe or not in long run.

Long-term creditors are the non-current liability of the company and paid after a long period of time. So, they are interested in the company’s long-run performance of the company.

Stockholders: Stockholders are interested in all the three characteristics that are liquidity, profitability, and solvency to know the overall performance of the company.

Stockholders have significant influence over the company’s activities and operations; therefore, they are interested in the overall performance of the company.

Answer 21

Conclusion

No, the short-term creditors, the long-term creditors, and the stockholders do not have same primary interest in characteristics of the company.

Answer 22

Ch. 14 - (a) Jose Ramirez believes that the analysis of...Ch. 14 - (a) Distinguish among the following bases of...Ch. 14 - Prob. 3Q Ch. 14 - Prob. 4Q Ch. 14 - Prob. 5Q Ch. 14 - Prob. 6Q Ch. 14 - Prob. 7Q Ch. 14 - What do the following classes of ratios measure?...Ch. 14 - What is the difference between the current ratio...Ch. 14 - Hizar Company, a retail store, has an accounts...

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