Answer the following questions briefly

1) Describe the two main purposes of Financial Ratios and discuss briefly how it is useful for business organizations.

2) What does it mean by Free Cash Flow (FCF). Explain its use briefly.

3) What is meant by Negotiated Budgeting? Explain briefly.

4)Mention two financial ratios from Liquidity analysis. How do we interpret whether a business is performing better or worse based on this analysis?

IV Problem/Calculation (Points, 26) The following data is extracted from the financial statements prepared by ABC Company for the year 2019.

Income Statement Sales 700000 Cost of Sales 500000 Gross Profit 200000 Operating expense 60000 EBIT (Operating profit) 140000 Interest expense 20000 EBT 120000 Taxes 30000 Net Income 90000 . NB* - Out of the total sales $300000 was recorded as cash sales.

Balance Sheet Assets Liabilities Current Assets Current Liabilities Cash 80,000 Accounts Payable 45,000 Accounts Receivable 40,000 Notes payable 45,000 Inventory 80,000 Taxes payable 30,000 Supplies 30,000 Total Current Liab 120,000 Total Current Assets 230,000 Long-term Liab Fixed Assets Long-term loan 80,000 Equipment 270,000 Total Liabilities 200,000 Equity/Capital

ABC Co. Equity 300,00, Total Assets 500,000 Total Liab & Equity 500,000

Required: Calculate the following ratios and give brief explanation for those which are required (*) only. i) Liquidity Ratios a. Current Ratios* (if the Industry average is 2. 5 times) b. Acid-test Ratio

ii) Efficiency Ratios (6 points) a. Inventory Turnover b. Receivable Turnover* ( the previous year the turnover was 8 times)

iii) Profitability Ratios (8 points) a. Gross Profit Margin* ( If the Industry average is 35% what do you say about the ABC Company and what measures should they take to increase the percentage) b. Operating Profit Margin c. Net Profit Margin

iv) Leverage Ratios (6 points) a. Debt to Asset Ratio* ( In general how much percentage is safe and accepted in Accounting) b. Interest Coverage Ratio