CH 7 Homework Solutions (All)

CH 7 Homework Solutions (All) - Chapter 7 Using Analytical...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 7 Using Analytical Review for Internal Financial Decisions and Cash Management Review of Concepts A. The internal users of analytical review techniques are primarily the management of an entity. The first objective of management is to ensure the integrity of the financial statements. The second objective in analyzing the company’s financial statements is to monitor the overall performance of the business. B. Analytical review techniques are tools used to identify relationships among financial data. Such relationships can become early warning signals to help managers discover impending problems or the beginning of negative trends. C. Trend analysis is a technique that indicates the amount of changes in key financial data over time. Common-size statement techniques convert each element of the balance sheet from dollar amounts to a percentage of total assets and each element of an income statement from dollar amounts to a percentage of sales. D. The cash flow statement is a type of analysis that helps the statement user to assess the company’s ability to generate positive future cash flows, assess the need for external financing and the ability to pay debts and dividends, assess the overall financial health of the entity, and to reconcile the differences between net income and the change in cash. E. The primary purpose of the statement of cash flows is to provide the user with information about a company’s cash receipts and cash payments during a specific period. 35
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
36 Chapter 7: Using Analytical Review for Internal Financial Decisions and Cash Management F. The direct method of preparing the operating section of the cash flow statement presents the amount of cash inflows from customers, interest earned on loans, and dividends received plus the cash outflows for merchandise, wages, operating expenses, taxes and interest. The indirect method of preparing the operating section of the cash flow statement begins with net income and adjusts it for all items that did not generate or use cash to arrive at net operating cash flows. Approximately 97% of firms use the indirect method for the operating section of the statement of cash flows. G. The statement of cash flows presents cash flow from operating activities, investing activities, and financing activities. Operating activities present cash flows from the primary business activities. Investing activities presents cash flows from the purchase and sale of long term assets including property and equipment and other investments. The financing section presents cash flows from borrowing from stockholders, institutions or bondholders and their subsequent repayment, and the sale and repurchase of capital stock. H.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 29

CH 7 Homework Solutions (All) - Chapter 7 Using Analytical...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online