MODULE 3 ASSIGNMENT

I. Identification

Items Indicate whether items is on If on statement of Financial

Statement of Financial Position, designate which
Position or Income Statement category
1. Retained earnings
2. Income tax expense
3. Accounts receivable
4. Common stock
5. Bonds payable
6. Notes payable
7. Net income
8. Selling and administrative
expense
9. Plant and equipment
10. Marketable securities

II. Essay

1. Financial ratio analysis is conducted by three main groups of analysts: credit analysts,
stock analysts and managers. What is the primary emphasis of each group, and how
would that emphasis affects the ratios they focus on? (5 points)
2. Why would the inventory turnover ratio be more important for someone analysing a
grocery store chain than an insurance company?
3. If a firm’s ROE is low and management wants to improve it, explain how using more debt
might help. (5 points)
4. Explain in general terms the concept of return on investment. Why is this concept
important in the analysis of financial performance? 5 points
5. Explain the concept of liquidity and why it is crucial to company survival. 5 points
6. What advantages does the fixed charge coverage ratio offer over simply using times
interest earned? 5 points