Managers, investors, and creditors usually have a specific focus when making decisions about a business.
Required:
Each of the following independent cases asks one or more questions. Identify the ratio or ratios that would help the user answer the question and/or identify areas for further analysis:
a. A company's net earnings have declined. Is the decrease in net earnings due to
i. A decrease in sales or an increase in cost of goods sold?
ii. An increase in total operating expenses?
iii. An increase in a specific expense, such as tax expense?
b. Is the company collecting its accounts receivables on a timely basis?
c. Does the company rely more heavily on long-term debt financing than other companies in the same industry?
d. In a comparison of two companies, which company is using its assets more effectively?
e. In a comparison of two companies, which company has used the capital invested in it more profitably?
f. Has the decline in the economy affected the company's ability to pay its accounts payable?
g. Has the company been successful in reducing its investment in inventories as a result of installing a new ordering system?