Please read the following question and answer i wrote and what would be your response?

3-4

Explain the following statement: Although the balance sheet can be thought of as a snapshot of a firms financial position at a point in time, the income statement reports on operations over a period of time.

To explain this statement, it is easier to first understand the purpose of a balance sheet and an income statement.

A balance sheet reports a companys assets and claims to those assets in the form of liabilities and stockholders equity at a specific point in time. Creditors use the balance sheet to determine the likelihood that they will be repaid, while investors may use it to determine the debt-to-equity ratios and evaluate how a company is managed.

An income statement reports a companys revenues, operating expenses, and the resulting gain or loss to net income over a period of time. Investors are interested in this data because evaluating past operations gives them an idea of a companys future earning potential.

4-2

Why would the inventory turnover ratio be more important for someone analyzing a grocery store chain than an insurance company?

A grocery store operates in the retail industry and therefore primarily earns sales revenue. Much of a grocery stores inventory has a shelf life and a higher turnover is not only necessary for higher profits, but also to reduce waste from expired, unsold merchandise.

An insurance company operates in the services industry and therefore primarily earns service revenues. While they may have some merchandise available for sale most of their inventory is primarily intangible, in the form of policy contracts. In this case, inventory turnover ratios are less important.