Name:

Financial Statement Analysis

Mid Term Spring 2021
BBA III/ Sec B

1. Analyze the common size income statements below for Key Company: (Show working)
(24 Marks)

(in percent) 2012 2011

Net sales 100 100
COGS 57 52
Gross margin 43 48
Research and development 5 8
Selling, general and administrative 21 27
Restructuring, asset impairments and other charges 1 1
Income/(loss) from operations 16 12
Interest expense (2) (1)
Income/(loss) before taxes 14 11
Provision for/(benefit from) income taxes 4 5
Net income/(loss) 10 6

2. Below is the income statement and balance sheet of Fred Corporation. From this
information prepare a statement of cash flows (indirect method) for the year ended
September 30, 2005. (40 Marks)
3. Explain why financial statements are important to the decision-making process in

financial analysis. Also, identify and discuss some of their limitations for analysis

purposes. (15 Marks)

4. What is a necessary condition for usefulness of a ratio of financial numbers? Explain with

an example.(10 Marks)