Chapter 14, Problem 14.45ACT

Discussion & Questions

1. 1. Describe horizontal analysis. Describe vertical analysis. What is each technique used for? How are the two methods similar? How are they different?
2. 2. How is the current ratio calculated? What is it used to measure? How is it interpreted?
3. 3. Assume a company has a current ratio of 2.0. List two examples of transactions that could cause the current ratio to increase. Also list two examples of transactions that could cause the current ratio to decrease.
4. 4. What does the accounts receivable turnover measure? What does a relatively high accounts receivable turnover indicate about a company?
5. 5. Describe the set of circumstances that could result in net income increasing while return on investment (ROI) decreases.
6. 6. Suppose a company has a relatively high inventory turnover What does the high inventory turnover indicate about the company s short-term liquidity?
7. 7. Describe at least four financial conditions that may signal financial trouble.
8. 8. Describe at least two reasons that a company’s ratios might not be comparable overtime.
9. 9. Compare and contrast the current ratio and the quick ratio.
10. 10. Describe why book value per share of common stock may not be useful for investment analysis.
11. 11. Find a recent annual report for a publicly held company in which you are interested. Summarize what sustainability information is provided in that annual report. Based on the sustainability information provided in the annual report, what measurements do you think the company might use to track its sustainability efforts? (You can use your imagination here; the actual sustainability measures are unlikely to be in the annual report.)
12. 12. There are three components in the triple bottom line; people, planet, and profit. Which component do you think is most important? Why?