Foundations Of Accounting For
Peregrine Global Services Questions
And Answers With Verified Solutions
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Financial statements - ANSWER✔✔ provide information that is useful for making
investments and other economic decisions about business
Horizontal analysis - ANSWER✔✔ Analysis of percentage increases and decreases
in financial statements across time.
The amount of each line item on the most recent statement is compared with the
related item on earlier statements, and expressed as a percentage change
Vertical analysis - ANSWER✔✔ An percentage analysis that is used to show the
relationship of each component to the total within a single statement.
The balance sheet is analyzed by stating each asset item as a percent of total
assets. Each liability and stockholders equity item is stated as a percent of total
liabilities and stockholders equity.
Common side statements - ANSWER✔✔ Horizontal and vertical analyses are
useful in assessing trends, in relationships and financial conditions, and
operations of a business
Common size income statements - ANSWER✔✔ can compare to businesses or
more
Solvency and profitability - ANSWER✔✔ The ability of a business to repay its
debts and earn income
,Solvency analysis - ANSWER✔✔ Focuses on the ability of a business to pay, or
otherwise satisfy its current and noncurrent liabilities
Current position analysis, working capital - ANSWER✔✔ Using metrics to assess a
business, is ability to pay its current liabilities
Current ratio - ANSWER✔✔ current assets divided by current liabilities
Quick ratio - ANSWER✔✔ quick assets/current liabilities
Accounts Receivable analysis - ANSWER✔✔ sales on account increase accounts
receivable, whereas collections from customers decrease accounts receivable. It is
desirable to collect receivables as promptly as possible. The cash generated by
prompt collections from customers may be used to pay or avoid current liabilities
and be used in operations for purposes, such as purchasing merchandise in large
quantities at lower prices.
Accounts Receivable Turnover Ratio - ANSWER✔✔ net credit sales/average net
accounts receivable
number of days' sales in receivables - ANSWER✔✔ Average Accounts Receivable /
Average Daily Sales
Inventory turnover ratio - ANSWER✔✔ cost of goods sold/average inventory
, Ratio fixed assets to long-term liabilities - ANSWER✔✔ ratio of fixed assets to
long-term liabilities is a solvency measure that indicates the margin of safety for
node holders and bond holders. It also indicates the ability of a business to
borrow additional funds on a long-term basis.
Ratio of liabilities to stockholders equity - ANSWER✔✔ Claims against the total
assets of a business are divided into two groups, one claims of creditors and two
claims of owners. The relationship between the total claims of the creditors and
owners is a solvency measure that indicates the margin of safety for creditors.
Time Interest Earned - ANSWER✔✔ The higher, the ratio, the lower, the risk that
interest payments will not be made, if earnings decrease. Dividing the sum of the
income before taxes and interest expense.
Profitability and market analysis - ANSWER✔✔ Profitability analysis focuses,
primarily on the relationship between operating results as reported in the
income, statement and resources available to the business as reported on the
balance sheet. Market analysis focuses on how well a company is doing from the
financial markets perspective.
Return on Sales - ANSWER✔✔ The ratio of net income to net sales is a
profitability measure that is often called the net profit margin. The ratio shows
how much of each dollar and sales flows through the net income after all
expenses are subtracted.
Return on Assets Ratio - ANSWER✔✔ The return on assets is computed by adding
interest, expense to net income, and dividing the sum by the average total assets.
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