1) Some accountants believe that financial statement analysis is of little benefit as it contradicts the findings of capital markets research. Discuss the findings of capital markets research and its implications for financial statement analysis.

2) Discuss at least 3 roles that an entitys cash flow data can play in analysing the entitys financial performance.

3) Discuss how, in choosing the accounting methods below, the following ratios can be affected rate of return on assets, quick ratio, profit margin, asset turnover:

(a) a change in accounting method for depreciation from straight line to reducing balance.

(b) revaluation of a non-current asset upwards at the beginning of the current year.

(c) providing for an expected loss through obsolescence of certain items of merchandise inventory.

4) After calculating the quick ratio for an entity and finding that the ratios value was 0.9, a student analyst decided that the company was in a sound position for paying its liquid liabilities. Discuss at least 4 shortcomings of making such a conclusion.

5) In analysing the financial statements of an entity, the following ratios were calculated: 2011 2012 Current ratio 2:1 1.3:1 Quick ratio 1:1 0.7:1 Receivables turnover (days) 30 45 Inventory turnover 3 times 4 times Profit margin 10% 7% Discuss any potential weaknesses that these ratios may reveal in the overall performance of the entity, and comment on possible causes for these results.