1. The DuPont System of Analysis is a very helpful tool for investors, creditors, and managers because it provides a more accurate assessment to make better-informed business decisions. Specifically, it shows the overall financial health and performance of a company through determining its ROE by analyzing three (3) main areas of finance (profit margin, asset utilization, and financial leverage) using various financial ratio analysis tools. However, using the analysis requires a lot of its inputs from the company's accounting data which, as history recalls, can be manipulated; thus, making the results inaccurate. With this being said, how can a stakeholder that uses the DuPont System avoid fraud numbers ruining their analysis? Are there ways of detection or specific methods to follow?
2. Cross-sectional analysis and time series analysis are somewhat similar. How can we differentiate the two by comparing how an investor, analyst, or company would use them?
3. Is there a chance where one or two of the categories of cash flows can be negative or positive? What happens then? Is the company in danger if 1 or 2 categories are negative?
4. Long-term (strategic) financial plans and short-term (operating) financial plans both specify possible financial actions relative to the assumptions of the management of how the firm will react to specific internal/external factors, past and projected financial information. However, the financial planning process begins with a long-term financial plan before creating the short-term financial plan that is comprised of a budget plan and other Pro-forma financial statements. With this, how do particularly long-term financial plans used to make the operating financial plan?