Making SUMMARY . ncial statements i information on cast tability, and (3) discuss ues: managers 10 Orr by investors atid MABSE!S ol qaverrights. The {OUOW Eas 1) major financial decisions, 1 rf ‘erstand their impact on YOUr ia gue net-worth statement isa snapsnor point in nts contained in x ‘ nicial state 1 ‘ort are the balance sheet, the income rnd the statement of cash flows. Inves- the information provided in these state- » expectations about future levels of nnd dividends and about the firm's risk- pehavi¢ balance sheet shows a snapshot of nancial position at a particular point in gh three categories: (1) assets the firm bilities the firm owes, and (3) owners’ ss liabilities) m’s income statement reports the results of wns over a period of time and shows earn- er share as its “bottom line.” The main e (1) revenues and gains, (2) expenses and ct income or net loss (revenue less . tatement of cash flows reports the impact esting, and financing activities on over an accounting period, m The purpose of c jating a set of financial ratios » examine the relative strengths PROBLEMS Financial Statements the balance-sheet entries for War Bagle a company compared y ne ne vies in the same industry «eof other compar ang those Oen whether the Compan rsition hag Gig Jeteriorating Over time ©) mproving of Jt iow th relationshif fr y ratios sho m Liquidity To its current liabilities and thy urrent aS x debts. wo com: uriay to meet maturing d T neil bo itios are the current ratio and th ad liquidity use quick (acid-test) ratio Asset mana cement ratios measure how effective ing its assets. Some of the major a firm is mana tios are inventory tUMoOver fixed assets tumo, ratios are y e ver and total assets tumover ment ratios reveal (1) the extent to .d with debt and Debt manage! which a firm is finance firm’s likelihood of defaulting on its debt obliga ategory are the debt ratio and the the tions. In this ¢ times-interest-earned ratio. Profitability ratios show the combined effects of liquidity, asset management, and debt manage: ment policies on operating results. Profitabil ity ratios include the profit margin on sales, the return on total assets, and the return on common equity Market value ratios relate the firm’s stock price to its earnings and book value per share, and they give management an indication of what inves tors think of the company’s past performance and future prospects. Market value ratios include the price-to-earnings ratio and the book value pet share. Trend analysis, in which one plots a ratio over time, is important, because it reveals whether the firm’: ra firm's ratios are improving or deteriorating ve me. Current liabilities: § Working capital: $ Shareholders’ equity: $_