Q.2 Comment on the following? While working in a financial institution, you have come across the following statements. Give your views and comments on these statements with the necessary arguments.

(a) The sales of company A have been growing at a faster rate than those of company B. The profitability of company A must, therefore, be greater than that of company B.

(b) Firm X and firm Y have the same expected sales volume for next year and they are identical in every respect except that the firm X has a greater proportion of fixed costs. If sales are expected to increase (decrease), firm X will have greater (lower) profit from operations than firm Y.

(c) Assume Calico has a profit margin of 20 per cent and Mafatlal has a profit margin of 25 per cent. It is, therefore, obvious that Mafatlal is a better investment than Calico.

(d) Accruals are a source of Finance

(e) Letter of Credit versus Bank Guarantee

(f) What do suppliers look for in granting trade credit?