"ETHICAL DILEMMAHocus-PocusLook, An Increase in Sales!Dynamic Energy Wares (DEW)manufactures and distributesproducts that are used to saveenergy and to help reduce and reverse the harmful envi-ronmental effects of atmospheric pollutants. DEW relieson a relatively complex distribution system to get the pro-ducts to its customers. Large companies, which accountfor nearly 30 percent of the firm's total sales, purchasedirectly from DEW. Smaller companies and retailers thatsell to individuals are required to make their purchasesfrom one of the 50 independent distributors that are con-tractually obligated toexclusivelysell DEW's products.DEW's accountants have just finished the firm's finan-cial statements for the third quarter of the fiscal year,which ended three weeks ago. The results are terrible.Profits are down 30 percent from this time last year,when a downturn in sales began. Profits are depressedprimarily because DEW continues to lose market share toa competitor that entered the field nearly two years ago.Senior management has decided that it needs to take action to boost sales in the fourth quarter so that year- end profits will be"more acceptable."Starting immediately,DEW will (1) eliminate all direct sales, which means that large companies must purchase products from DEW's distributors just as the smaller companies and retailers do, (2) require distributors to maintain certain minimum inventory levels, which are much higher than previous levels, and (3) form a task force to study and propose ways that the firm can recapture its lost market share.The financial manager, who is your boss, has asked you to attend a hastily called meeting ofDEW's distributors to announce the implementation of these operational changes. At the meeting, the distributors will be informed that they must increase inventory to the required minimum level before the end of DEW's current fiscal year or face losing the distributorship. According to your boss, the reason forth is requirement is to ensure that distributors can meet the increased demand they will face when the large companies are no longer permitted to purchase directly from DEW. The sales forecast you have been developing over the past few months, however, indicates that distributors' sales are expected to decline by almost 10 percent during the next year.As a consequence, the added inventories might be extremely burdensome to the distributors"

Questions:

7-1"What four financial statements appear in most annual reports?

7-2If a typical firm reports $20 million of retained earnings on its balance sheet ,could its directors declare a $20 million cash dividend without any qualms?Explain why or why not.

7-3Describe the changes in balance sheet accounts that would constitute sources of funds. What changes would be considered uses of funds?

7-4Financial ratio analysis is conducted by four types of analysts: managers, equity investors, long-term creditors, and short-term creditors. What is the primary emphasis of each of these groups in evaluating ratios"