Chapter 3, Problem 1SE

a)

Summary Introduction

To discuss:

Income statement and Common size Income statement.

Introduction:

Income statement shows the financial operation of an organization that is the net income earned or net loss suffered by a firm through reporting all the revenues earned and expenses (including taxes) incurred by the firm during a specific period of time.

b)

Summary Introduction

To discuss:

Balance sheet and Common size balance sheet.

Introduction:

The balance sheet reveals the financial status by depicting the summary of available assets (both owner’s equity and outsider’s equity) from investing and owed liabilities from its financial activities at a given point of time.

c)

Summary Introduction

To discuss:

Financial ratios and performance.

Introduction:

Financial ratio analysis: It is a tool for analyzing the relationship between two or more items of the financial statement. It can be divided into following areas.

Liquidity Ratios: The liquidity ratios gives the idea of about a firm whether it has the ability to pay back its liabilities or short term obligations, which has less than one year maturity.

Activity ratio: An activity ratio assesses the efficiency of a firm in converting various accounts into cash or sales.

Debt ratio: Debt ratio measures the degree of indebtedness that is the company’s amount of debt financing and its ability to meet fixed charges.

Profitability ratio: The profitability ratio focuses on the ability of the firm to make a profit on sales, assets or equity and shows the total effect of other ratios on the operating results.

Market ratios: Market ratios provide investors insight into the firm’s business in terms of return and risk.