财务会计英版课后习题答案Ch14.docVIP

CHAPTER 14 DISCUSSION QUESTIONS 1. One purpose of financial statement analysis is to evaluate the performance of a company with an eye toward identifying problem areas. Another purpose of financial statement analysis is to use the past performance of a company to predict how it will do in the future. 2. Disagree. An analysis of a company’s financial ratios usually does not provide detailed information about what the causes of a company’s problems are, but it does identify areas in which more detailed data should be gathered. 3. The usefulness of financial ratios is greatly enhanced when they are compared with past values for the same company and with values for other firms in the same industry. 4. Current ratio is a measure of a company’s liquidity, which is the company’s ability to pay its debts in the short run. 5. It is impossible to tell whether Company A’s return on sales of 6% is high or low. The return on sales value must be analyzed in light of the appropriate industry. For example, a normal return on sales for supermarkets is around 1% or 2%, whereas the return on sales for a high-tech company such as Microsoft can be in excess of 20%. 6. The price-earnings ratio differs from most other financial ratios in that it is not the ratio of two financial statement numbers. Instead, the PE ratio is a comparison of a financial statement number to a market value number. 7. A common-size financial statement is a financial statement with all numbers for a given year divided by sales for the year. Thus, all amounts for a given year are shown as a percentage of sales for that year. Common-size financial statements make it possible to make comparisons even when the size of companies is different. In addition, common-size financial statements allow comparison of a company’s numbers to equivalent numbers in prior years when the sales level may have been much different. 8. If an analysis of common-size financial statements suggests that a company has problems, the way to