part 1.

Locate and read the following article located from the Library:

Faello, J. (2015). Understanding the limitations of financial ratios. Academy of Accounting & Financial Studies Journal, 19(3), 75-85

Refer to pages 75 and 76 of Faello's (2015) work. In four separate paragraphs (one for each question), summarize four of the benefits of financial analysis mentioned in the journal article. In one paragraph, describe which one of the four benefits you consider to be most significant.

Review the following financial data, then answer the questions below.

Income Statement and Balance Sheet

Company X Income Statement

FYE 2014 and 2015

Period Ending

31-Jan-15

31-Jan-14

Total Sales

$ 485,651,000

$ 476,294,000

Cost of Goods

365,086,000

358,069,000

Gross Profit

120,565,000

118,225,000

Selling General and Administrative

93,418,000

91,353,000

Operating Profit

27,147,000

26,872,000

Total Other Income/Expenses Net

113,000

119,000

Earnings Before Interest And Taxes

27,034,000

26,753,000

Interest Expense

2,461,000

2,335,000

Income Before Tax

24,573,000

24,418,000

Income Tax Expense

7,985,000

8,105,000

Net Income From Continuing Ops

16,588,000

16,313,000

Discontinued Operations

285,000

144,000

Net Income (Net Profit)

$ _ 16,303,000

$ _ 16,169,000

14,000,000 shares outstanding

Market Share price per share

$ 10.00

$ 9.00

Company X Balance Sheet

FYE 2014 and 2015

Period Ending

31-Jan-15

31-Jan-14

Assets

Current Assets

Cash and Cash Equivalents

$ 9,135,000

$ 7,281,000

Net Receivables

6,778,000

6,677,000

Inventory

45,141,000

44,858,000

Other Current Assets

2,224,000

2,369,000

Total Current Assets

63,278,000

61,185,000

Property Plant and Equipment

116,655,000

117,907,000

Goodwill

18,102,000

19,510,000

Other Assets

5,671,000

6,149,000

Total Assets

203,706,000

204,751,000

Liabilities

Current Liabilities

Accounts Payable

58,583,000

57,174,000

Short/Current Long Term Debt

6,689,000

12,082,000

Other Current Liabilities

-

89,000

Total Current Liabilities

65,272,000

69,345,000

Long Term Debt

43,692,000

44,559,000

Deferred Long Term Liability Charges

8,805,000

8,017,000

Minority Interest

4,543,000

5,084,000

Total Liabilities

122,312,000

127,005,000

Miscellaneous Stocks Options Warrants

0

0

Common Stock

323,000

323,000

Retained Earnings

85,777,000

76,566,000

Capital Surplus

2,462,000

2,362,000

Other Stockholders Equity

-7,168,000

-1,505,000

Total Stockholders' Equity

81,394,000

77,746,000

Total Liabilities + Stockholders' Equity

$ 203,706,000

$ 204,751,000

Number of Shares Outstanding

14,000,000

14,000,000

Market Share price per share

$ 10.00

$ 9.00

Part 2.

Define the ten financial ratios below.

Financial Ratios:

Current Ratio

Quick Ratio

Accounts Receivable Turnover

Return on Equity

Return on Assets

Operating Profit Margin

Net Profit (after tax) Margin

Earnings per Share

Price to Earnings

Part 3. Classify, calculate, and assess a) Liquidity-Activity, b) Profitability, and c) Market Value Ratio

a. Liquidity - Activity

In this section, properly classify which of the above (from Part 2) are the liquidity ratios Then, using the data from the Income Statement and Balance Sheet, provide the correct calculation of these three liquidity ratios and an assessment of the company's ability to maintain liquidity. Include the proper assessment of outcomes as positive or negative trends given the three ratio outcomes.

b. Profitability

In this section, properly classify which of the above (from Part 2) are the profitability ratios. Then, using the data from the Income Statement and Balance Sheet, provide the correct calculation of these four profitability ratios and an assessment of the company's ability to maintain profitability. Include the proper assessment of outcomes as positive or negative trends given the four ratio outcomes.

c. Market Value

In this section, properly classify which of the above (from Part 2) are the Market Value ratios. Then, using the data from the Income Statement and Balance Sheet, provide the correct calculation of these two Market Value ratios and an assessment of the company's ability to maintain market valuation. Include the proper assessment of outcomes as positive or negative trends given the two ratio outcomes.

Part 4. Overall Analysis

In this section, you will compose an analytical essay. Based on the above, provide a proper assessment of the company's most significant negative trend and what corrective actions can be taken to improve results. You should search the Library, your textbook, and the internet using a variety of criteria to find academic sources that will support your assessment of the trends and actions that.

ii

21. The Federal Reserve's reserve requirement power includes the authority to (a) determine which bank liabilities are subject to reserve requirements (b) impose reserve requirements on mutual funds (c) eliminate reserve requirements for small banks (i.e., those with deposits of $100 million or less) (d) all of the above 22. The Federal Reserve has the power to change (a) reserve requirements (b) stock market margin requirements (c) capital requirements for large banks (d) all of the above 23. Since 2009, Congress has given the Fed new policy tools, most notably the authority to (a) pay interest on bank reserves (b) close the stock market if trading becomes "disruptive" (c) require banks to give first priority in lending to consumers and business firms that have deposits in their bank (d) all of the above 24. Open market operations work efficiently and effectively because these operations (a) are conducted through dealer firms, not banks (b) involve highly liquid and highly coveted US Treasury securities (c) change bank reserves and the money supply instantly (d) all of the above 25. When the Fed buys government securities in the open market (a) bank reserves increase (b) bank reserves decline (c) money supply increases but bank reserves remain unchanged (d) money supply declines but bank reserves remain unchanged 26. Banks that maintain their reserves at the Fed receive interest on these funds; the rate they receive is called the "prime rate." 27. To implement its sequential targeting strategy, the Fed relies on (a) daily open market operations (b) daily management of the amount of reserves provided to banks (c) adherence to a pre-designated federal funds rate target (d) all of these 28. Under the Fed's sequential targeting strategy, money supply growth is one of several intermediate targets that the Fed uses to assess how close it is coming to achieving its policy goals. 29. Which of the following is not an "intermediate" target used by the Fed in implementing monetary policy (a) gold prices (b) real long term interest rates (c) growth in consumer debt (d) federal funds rate 30. The Fed operates under a "dual mandate" with respect to its ultimate policy goals; one part of the mandate is to achieve full employment, price stability and economic growth; the other part of the mandate is to reduce income inequality and the national debt. 31. Economists consider the Fed's sequential targeting strategy to be "transparent" because the Federal Reserve announces its strategy, policy intentions and operating targets after each FOMC meeting.8:417 X HW-Ch2.docx Chapter 2 Appendix - Problem 3 (a,b) 3. In the accompanying figures, the numbers on the aves have been lost. All you know is that the units shown on the vertical axis are the same as the units on the boon tal ands. a. In panel (a). what is the slope of the line? Show that the slope is constant along the line. b. In panel (b). what is the slope of the line? Show that the slope is constant along the line. Chapter 2 Appendix - Problem 5 (a,b,c) 5. For each of the accompanying diagrams, calculate the area of the shaded right triangle helpl Panel (1) 1 1 C