ii) Inventory Turnover*
iv) Times Interest Earned
v) Gross Margin Percentage
(1 Mark) Financial Statement ratios can tell you lots about how a company is performing. However, which of1 the following is this analysis unlikely to accurately measure.
Of the following Financial Statement ratios, which one is a long-term shareholder of the company most likely interested in?
Return on Total Assets.
Sales Departments ability to meet sales targets.
Ability of company to remain a going concern (to make ongoing payments to creditors).
Cost of Goods Sold year-over-year trend analysis.
(1 Mark) What statement most accurately describes zero based budgeting?
Start with last year’s budget and make adjustments for new sales expectations and projected costs.The Income Statement Budget where Net Income is zero Managers of each department are required to justify all their budgeted expenditures (regardless of the amounts expended in previous periods). (5 Marks)
For simplicity, assume the ending balance for Inventory equals the average Inventory balance during the year.
Statement of Financial Position
December 31, 2020
For the Year Ended December 31, 2020
(2 Marks) In your own words, explain what a horizontal analysis of the Income Statement is and how you can use it to make better decisions.
Actual Forecast Forecast Forecast
Dec Jan Feb Mar
Sales $50,000 $38,000 $45,000 $50,000
Cost of Goods Sold 20,000 15,960 17,100 17,500
Gross Margin $30,000 $22,040 $27,900 $32,500
Operating Costs 20,000 19,000 22,000 25,000
Net Operating Income $10,000 $3,040 $5,900 $7,500
h) (1 Mark) Your bank is hesitant to grant you an increase in your line of credit given your present Current Ratio. You have one month to improve this in order to obtain the additional funding. Provide a recommendation to management on what they could do today to qualify for the line of credit before the end of the month.(15 Mark) ABC Corporation is preparing their Cash Budget for the upcoming quarter (Jan to Mar).
They are a merchandising company that sell candies and chocolates. The company has never budgeted their cash flows before, but has decided that they should perform this activity going forward since they’ve often had to scramble to make staff payroll payments.
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