Financial Administration Essay

1271 Words Mar 13th, 2014 6 Pages
QUESTIONS 1. Investors use the information to assess whether or not they want to put money into the company. Equity investors look for an indication of stability and the potential growth. Debt investors are concerned with the firm's ability to generate cash to make interest .Vendors who supply the firm on credit look for its ability to pay its bills in the short term. Management uses financial information to pinpoint problem areas for improvement in operations. 2. Financial information about companies comes mainly from the companies themselves. The primary source is the annual report. The numerical information is usually correct, especially with respect to prospects for the future. 3. The whole idea …show more content…
Taken together, ratios can give an overall picture of how effectively a firm is being managed. 8. Performance on particular ratios differs a great deal between types of business. Therefore, a ratio value doesn't mean much without a comparison to some standard that indicates whether performance is good or bad. The common comparisons are with the competition, history, and budget. 9. The money flowing into and out of a firm due to normal business operations passes respectively through current assets and current liabilities that are defined to become or require cash within a year. Hence, at a point in time, anything coming in within a year is in current assets while anything going out in a year is in current liabilities. 10.Inventory is particularly subject to overstatement and may be difficult to convert to cash. Therefore, a measure of liquidity that does not depend on inventory is appropriate. 11. Probably not, since customers routinely stretch payables, and an ACP of five days over terms isn't unusual. It could, however, indicate a substantial long overdue account among a majority of customers paying on time. If that's the case, the account may be uncollectible and require a write off. 12. Sometimes debt is taken to mean long-term bonds or loans only. Another definition includes short-term interest bearing notes and loans. Still a third approach

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