Who uses financial ratios and how the ratios are used?

2. The Motor Corporation sold vehicles for $500,000 to one specific dealer during the year. At

the financial year end, the dealer still owed The Motor Corporation ... % (see appendix) of the

sales value. The cost of the vehicles sold was $400,000, and this cost was incurred and paid by

The Motor Corporation. 3

a. Determine the net profit using the accrual basis of accounting.

b. Determine the net cash flow using the cash basis of accounting.

c. The accountant and financial manager need to present the results to the CEO of The

Motor Corporation. What will be their message regarding the performance of the

corporation?

Ans : The cash flow statement is more useful to the financial manager. The accounting net income
includes amounts that will not be collected and, as a result, do not contribute to the wealth of the
owners.

In the  Cash basis of accounting revenues are reported on the income statement in the
period in which the cash is received from customers and expenses are reported on the
income statement when the cash is paid out.
under the accrual basis of accounting revenues are reported on the income statement when
they are earned or before cash is received from the customers and expenses are reported
on the income statements in the period when they occur or when they expire.

3. Complete the 2018 Balance Sheet for Alif Corporation’s using the information that follows it.

Find the missing values: 8

Alif Corporation

Balance Sheet

December 31, 2018

Assets Liabilities

Cash Tk. 50,000 Accounts Payable Tk. 1,05,000

Marketable securities 30,000 Notes Payable (h)

Accounts receivable (a) Accruals 40,000

Inventories (b) Total Current Liabilities (g)

Total Current Assets (c) Long Term Debt (j)

Net Fixed Assets (e) Stockholder’s Equity (i)

Total Assets Tk.(d) Total Liabilities and

Stockholder’s Equity

Tk.(f)

The following Financial data for 2018 are also available:

i) Sales totaled Tk. ............ (see Appendix)

ii) The gross profit margin was 30% Inventory turnover was 5.0

iii) There are 365 days in the year.

iv) The average collection period was 30 days.

v) The current ratio was 1.81.

vi) The total asset turnover ratio was 2.

vii)The debt ratio was 40%.

Self test 02 math

4. Write the differences between .............. and ................ (see appendix) 4

5. Write in small description about different Stakeholders in a firm. Why is it important to focus

on stakeholder to maximize shareholder wealth 3

6. The financial statements of ABC Industries for the year ended December 31, 2015, follow.

9
a. Use the preceding financial statements to calculate 2015’s ratios. Assume that the industry

averages given in the table are applicable for both 2014 and 2015.

b. Analyze ABC Industries’ financial condition as it is related to (1) liquidity, (2) activity, (3)

debt, and (4) profitability on a time series and cross section basis. Summarize the company’s
overall financial condition. [summarizing clue: page 133-135 of the book. Don’t copy each other.

Copying will reduce marks]

P3 –24 number math .

P1 02