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Business Accounting Loose Leaf for Financial Accounting: Information for Decisions

Ratios are used in accounting as a quantitative method to calculate the operational efficiency, liquidity, and profitability of a company. The data is taken from the financial statements of a company to conduct the ratio analysis. To compare: The data of two companies by writing a small report. Asset turnover ratio is the measurement of the efficiency with which a company utilizes its assets to generate the revenue for the business. Return on total asset ratio measures the ability of a company to use its investment to generate value for a business. The asset turnover ratio of R Company decreased from 2016 to 2017 from 3.0 to 2.8 and then increased in 2018 to 3.1. The asset turnover ratio of C Company increased from 2016 to 2017 by 0.4 and by 0.2 from 2017 to 2018. The return of total asset ratio of R Company is fluctuating as it increased from 8.8% in 2016 to 9.6% in 2017 and then again decreased to 9.0% in 2018. In the case of C Company, the total asset ratio is increasing at a constant rate of 0.3%. However, while comparing the ratios of the two companies, the asset turnover ratio and return on total assets ratio of Company R of each year is higher than that of Company C which states that the ability of Company R to use its assets effectively is better than that of Company C. Profit margin ratio is one of the most simple and widely used profitability ratios as it measures the ratio of net profit of a company with its sales. The ratio of R Company increased by 0.2% from 2016 to 2017 and then decreased by 0.1% from 2017 to 2018. The ratio of Company C increased by 0.1% from 2016 to 2017 and then decreased by 0.2% from 2017 to 2018. While comparing the data of the two companies, the profit margin ratio of Company C is higher than that of company R. Company C is creating higher profit than Company R. Financial leverage refers to the amount of money borrowed to support the purchase of assets or in other words, it includes the use of debt to procure additional assets in a company. The companies pay 7% interest to their creditors. A company to effectively utilize its financial leverage, the return on total assets must be greater than the amount of interest paid on the debt. The ROA of company R is greater than 7% and of Company C is less than 7% which suggest that Company R has successfully employed the financial leverage.

Ratios are used in accounting as a quantitative method to calculate the operational efficiency, liquidity, and profitability of a company. The data is taken from the financial statements of a company to conduct the ratio analysis. To compare: The data of two companies by writing a small report. Asset turnover ratio is the measurement of the efficiency with which a company utilizes its assets to generate the revenue for the business. Return on total asset ratio measures the ability of a company to use its investment to generate value for a business. The asset turnover ratio of R Company decreased from 2016 to 2017 from 3.0 to 2.8 and then increased in 2018 to 3.1. The asset turnover ratio of C Company increased from 2016 to 2017 by 0.4 and by 0.2 from 2017 to 2018. The return of total asset ratio of R Company is fluctuating as it increased from 8.8% in 2016 to 9.6% in 2017 and then again decreased to 9.0% in 2018. In the case of C Company, the total asset ratio is increasing at a constant rate of 0.3%. However, while comparing the ratios of the two companies, the asset turnover ratio and return on total assets ratio of Company R of each year is higher than that of Company C which states that the ability of Company R to use its assets effectively is better than that of Company C. Profit margin ratio is one of the most simple and widely used profitability ratios as it measures the ratio of net profit of a company with its sales. The ratio of R Company increased by 0.2% from 2016 to 2017 and then decreased by 0.1% from 2017 to 2018. The ratio of Company C increased by 0.1% from 2016 to 2017 and then decreased by 0.2% from 2017 to 2018. While comparing the data of the two companies, the profit margin ratio of Company C is higher than that of company R. Company C is creating higher profit than Company R. Financial leverage refers to the amount of money borrowed to support the purchase of assets or in other words, it includes the use of debt to procure additional assets in a company. The companies pay 7% interest to their creditors. A company to effectively utilize its financial leverage, the return on total assets must be greater than the amount of interest paid on the debt. The ROA of company R is greater than 7% and of Company C is less than 7% which suggest that Company R has successfully employed the financial leverage.

Solution Summary: The author explains that ratios are used in accounting to calculate the operational efficiency, liquidity, and profitability of a company.

Loose Leaf for Financial Accounting: Information for Decisions

Loose Leaf for Financial Accounting: Information for Decisions

9th Edition

ISBN: 9781260158762

Author: John J Wild

Publisher: McGraw-Hill Education

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Conversion Cycle

Conversion cycle is also known as cash cycle or net operating cycle. Conversion cycle refers to how much time a company takes to turn its investments which is done from stock or any other financial resources into cash flows from sales.

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Chapter 13, Problem 10E

Chapter 13, Problem 13E

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Chapter 13 Solutions

Loose Leaf for Financial Accounting: Information for Decisions

Ch. 13 - Explain the difference between financial reporting...Ch. 13 - Prob. 2DQ Ch. 13 - Prob. 3DQ Ch. 13 - Prob. 4DQ Ch. 13 - Prob. 5DQ Ch. 13 - Prob. 6DQ Ch. 13 - Prob. 7DQ Ch. 13 - Prob. 8DQ Ch. 13 - Prob. 9DQ Ch. 13 - Prob. 10DQ

Ch. 13 - Prob. 11DQ Ch. 13 - Prob. 12DQ Ch. 13 - Prob. 13DQ Ch. 13 - Prob. 14DQ Ch. 13 - Prob. 15DQ Ch. 13 - Prob. 16DQ Ch. 13 - Prob. 17DQ Ch. 13 - Prob. 1QS Ch. 13 - Prob. 2QS Ch. 13 - Prob. 3QS Ch. 13 - Prob. 4QS Ch. 13 - Prob. 5QS Ch. 13 - Prob. 6QS Ch. 13 - Prob. 7QS Ch. 13 - Prob. 8QS Ch. 13 - Which of the following gains or losses would...Ch. 13 - Prob. 1E Ch. 13 - Prob. 2E Ch. 13 - Prob. 3E Ch. 13 - Prob. 4E Ch. 13 - Prob. 5E Ch. 13 - Prob. 6E Ch. 13 - Prob. 7E Ch. 13 - Prob. 10E Ch. 13 - Prob. 12E Ch. 13 - Prob. 13E Ch. 13 - Prob. 14E Ch. 13 - Prob. 15E Ch. 13 - Prob. 16E Ch. 13 - Prob. 1PSA Ch. 13 - Prob. 2PSA Ch. 13 - Prob. 3PSA Ch. 13 - Prob. 5PSA Ch. 13 - Prob. 6PSA Ch. 13 - Selected comparative financial statements of...Ch. 13 - Prob. 2PSB Ch. 13 - Prob. 3PSB Ch. 13 - Prob. 5PSB Ch. 13 - Prob. 6PSB Ch. 13 - Prob. 13SP Ch. 13 - Prob. 2FSA Ch. 13 - Prob. 3FSA Ch. 13 - Prob. 1BTN Ch. 13 - Prob. 5BTN

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