Profit is necessary in order to survive over long periods of time within the

Profit is necessary in order to survive over long

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periods of time within the market and profit is presented in the income statement. The increasesand decreases in the profit provide information about the companies standing. Using their balance sheet, the company calculates their debt equity ratio, working capital ratio and their ability to pay their debts and survive in the market.D.As stated in the last answer, Kate should look at the income statement for Sentiments to evaluate their profitability. From the income statement, Kate can see the gross profit ratio and new profit margin calculated and can compare that to their last year’s ratios to see the increases and decreases. Increases in ratio show a healthy sign for the company.E.Kate can see within the balance sheet of Sentiments’ financial statements and determine if they have outstanding debts. Short term debt is presented under the current liabilities and long-term debt is under noncurrent liabilities. The fixed charge coverage ratio is where Kate can determine the Sentiments’ ability to meet its interest and principal payments on any debts they have. ¿chargecoverage ratio=Earningbeforeinteresttax+¿chargesbefore ta x÷¿chargesbefore tax+IntereF.Kate can determine whether Sentiments pays a dividend by looking at their cash flow statement.The dividend is an outflow of cash and is shown under the head financing activities.G.If Kate fully reviews Sentiments’ complete operating performance, financial position, and cash flows she should be able to make an informed decision about whether she wants to work with this company or not.
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