Question: 1. The income statement captures a companys performance over time, while the balance sheet captures its status at a point in time. What does this

1. The income statement captures a companys performance over time, while the balance sheet captures its status at a point in time. What does this mean?

2. How does depreciation create a difference between earnings and cash flows? Are there any other ways/reasons in which accounting earnings can be different from cash flows?

3. Company A has a ROA of 8% and a ROE of 12%. Company b has a ROA of 7% and a ROE of 15%. What does this tell about the relative levels of debt financing between these two companies? Which companys approach is better? Why?

4. What do we mean by trend analysis and comparative analysis? Why are these tools more useful than looking at the ratios for a single period in isolation?

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