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Financial Statement Analysis 621

Five Key Questions Ratios used to analyze and make the decision

Is the business Use liquidity ratios to determine the following:

a going concern?
Net Working Capital  Current Assets  Current Liabilities
Current Assets
Current Ratio 
Current Liabilities
Quick Assets (Cash  Net Current Receivables  Short-Term Investments)
Quick Ratio 
Current Liabilities

Cash Conversion Cycle  (Days-Sales-In-Inventory)  (Receivable Collection Period)

 (Accounts Payable Payment Period)
Average Inventory
Days-Sales-In-Inventory 
(Cost of Goods Sold/365 Days)
Average Net Accounts Receivable
Receivable Collection Period 
(Net Credit Sales/365 Days)
Average Accounts Payable
Accounts Payable Payment Period 
(Cost of Goods Sold/365 Days)

How is the business Use profitability ratios to determine the following:

earning a net
income or loss? Gross Profit
Gross Profit Percentage 
Net Sales
Net Income
Net Income Percentage 
Net Sales

Where is the business Use solvency ratios to determine the following:

getting its money and
can it pay its debt Total Liabilities
Debt Ratio 
obligations? Total Assets
EBIT
Interest Coverage Ratio 
Interest Expense

How is the business Use asset management ratios to determine the following:
investing its money
and is it using its Net Credit Sales
Accounts Receivable Turnover Ratio 
assets efficiently? Average Net Accounts Receivable
Cost of Goods Sold
Inventory Turnover Ratio 
Average Inventory
Sales
Fixed Asset Turnover Ratio 
Average Fixed Assets
Sales
Total Asset Turnover Ratio 
Average Total Assets
Net Income
Return on Assets 
Average Total Assets

Is the business Use market analysis ratios to determine the following:

generating enough net
income to reward the Net Income
Earnings per Share (EPS) 
stockholders for the Average Number of Common Shares Outstanding
use of their money?
Dividends
Dividends per Share (DPS) 
Average Number of Common Shares Outstanding
Dividends
Dividend Payout Ratio 
Net Income
Net Income
Return on Equity (ROE) 
Average Stockholders’ Equity

Exhibit 12-10

M12_KEMP9543_03_GE_C12.indd 621 03/04/14 2:44 PM