Q3 A. (20 Marks) a) Why ratio analysis is important in order to understand financial performance of companies? What are the potential problems of ratio analysis? (10 Marks) b) Here are the simplified financial statements of X Corp. from a recent year: (10 Marks) INCOME STATEMENT (Figs in $ Mil.) Net Sales Cost of Goods Sold Other Expenses Depreciation Earning Before Interest & Taxes Interest Expenses Income Before Tax Taxes Net Income Dividend 13,194 4,060 4,049 2,518 2,566 685 1,882 570 1,311 856 230 Balance Sheet (Figs in $ Mil.) End of the Start of the year year Cash & marketable Securities 89 158 Receivables 2,382 2,490 Inventories 187 Other Current Assets 867 932 Total Current Assets 3,524 3,818 Net Property & Plants Equipment 19,973 19,915 Other Long Term Assets 4,216 3,770 Total Assets 27,714 27,503 Liabilities & Shareholders Equity Payables 2,564 3,040 Shirt Term Debt 1,419 1,573 Other Current Liabilities 811 787 Total Current Liabilities 4,795 5,400 Long Term Debt & Leases 7,018 6,833 Other Long Term Liabilities 6,178 6,149 Share Holders Equity 9,724 9,120 Total Liabilities & Equity 27,714 27,503 Calculate the following finansin 01.12 27,503 Calculate the following financial ratios: Show definition, formula and calculation 1. Quick ratio 2. Inventory Turnover 3. Return on Equity