In Unit 1, you were introduced to critical thinking which entails “looking beyond the obvious.” In this unit you have learned to identify financial analysis tools and when to use them. Now you will apply these concepts to look at certain financial analysis ratios explained in your book.
Scenario: Imagine you have passed your CPA exam and are now employed by a Fortune® 500 company. Your boss tells you that as part of your new responsibilities you are to create pertinent ratios from the comparative financial statements. Address the checklist items based on the ratios below:
|| 4.1 times
|| 3.1 times
| Acid-test ratio
|| .9 times
|| 2.8 times
| Asset turnover
|| 4.8 times
|| 4.4 times
| Net income
|| increased 40%
|| down 8%
|Earnings per share
- Explain what tools you would use to analyze the following data, and why?
- Then discuss who would use this information.
- Which data illustrates the firm’s solvency?
- Which data relates to the firm’s going concern?
- Discuss the usefulness as well as limitations of the data.
This will have to be done with a least 150 words. Answers will need to be explained on how you got them if necessary.