1. Current ratio
Year 5: $61,000/$40,000.
Year 6: $84,000/$54,000.
2. Days' sales in receivables
3. Inventory turnover
Prospective analysis is central to security valuation. All valuation
models rely on forecasts of earnings or cash flows that are, then,
discounted back to the present to arrive at the estimated value of the
security. Prospective analysis is also useful
1) The return that is achieved in any one period on the invested capital of a company consists
of the returns (and losses) realized by its various segments and divisions. In turn, these
returns are made up of the results achieved by individual product lin
Exercise 7-3 (30 minutes)
a. Cash Flows from Operations Computation:
Add (deduct) items to convert to cash basis:
Depreciation, depletion, and amortization.
Deferred income taxes.
Amortization of bond discount.
Increase in accounts payable.
Managers have discretion in financial reporting in most cases. This
discretion may result from either of two sources. First, managers often
have a choice between alternative generally accepted rules in
accounting for certain transactions. Second, mana
1. The income statement portrays the net results of operations of an enterprise.
Since results are what enterprises are established to achieve and since their
value is, in large measure, determined by the size and quality of these results,
it follows that
3-1) The two major source of liabilities, for both current and noncurrent liabilities, are
operating and financing activities. Current liabilities of an operating naturesuch as
accounts payable and operating expense accrualsrepresent claims on resources f
1. Long-term investments are usually investments in assets such as debt
instruments, equity securities, real estate, mineral deposits, or joint ventures
acquired with longer-term goals. Such goals often include the acquisition of
control or affi
The two most important questions facing the financial analyst with respect to
receivables are: (1) Is the receivable genuine, due, and enforceable?, and
(2) Has the probability of collection been properly assessed? While the
Business analysis is the evaluation of a companys prospects and risks for business
decisions. Applicable business decisions include, among others, equity and debt
valuation, credit risk assessment, earnings prediction, audit testing, and count