Financial Statement and cash flow analysis Report

RUNNING HEAD: FINANCIAL STATEMENT AND CASH FLOW ANALYSIS
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Financial Statement and Cash flow analysis
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Financial Statement and cash flow analysis
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Multiple Choices
1. c. sales
It is shown in the income statement as revenue, revenue is the amount generated from
sales. This value is associated with the costs of providing services or creating goods and
services.
2. c. Total Equity
From the company’s total assets and total debts, total equity can be calculated as the
formula for calculating total equity is:
Here liabilities of the company are total debt of the company. Further, all these items are
the part of balance sheet.
Total Equity = Assets - Liabilities
3. a. EBIT- taxes + depreciation
Operating cash flow is the cash that business generates from its operations and core
activities by deducting operating expenses from the revenue generated by the company.
This shows the total cash generated from the operations not including any other source of
revenue.
Operating cash flows= Net Income +/- changes in liabilities and assets + non-cash
expenses or EBIT – taxes + depreciation
4. b. The company acquires inventory
Cash outflow is a situation when cash goes outside the business because of some
transactions related to business expenses or investment. When company sells machine
cash comes in and machine goes out. When company acquire inventory cash need to be
paid to supplier and inventory comes in so in this case cash outflows. When company
receive bank loan, debt of company increases and cash comes in.

Financial Statement and cash flow analysis
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5. a. Quick ratio
Liquidity ratio shows the ability of business to pay of its short term debt without raising
cash from external sources. Liquidity ratio includes current ratio, quick ratio and day
sales outstanding.
6. c. $226,000
Operating cash flows= EBIT-taxes + depreciation
$245,000- $84,000+ $65,000
$226,000
7. a. 0.5645
Quick ratio = Cash + cash equivalents + short term investments + current
receivables/current liabilities
$50,000 + $125,000/ $185,000+$125,000
$175,000/310,000
=0.5645161
8. d. 86.90 days
The average collection period is the time that business takes in order to collect the
payment from the debtors.
Average collection period: account receivables /net sales*365
$125,000/$525,000*365
86.90 days
9. c. 11.90
P/E ratio is the price to earnings ratio that is calculated by the company in order to know
the value of current share price in comparison to earning per share.
P/E ratio = Market value per share/ earnings per share
Earnings per share = net income / outstanding common share
$126,000/100,000= $1.26

Financial Statement and cash flow analysis
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P/E ratio= $15/$1.26
11.90
10. d. 24%
Net profit margin is considered as the percentage of revenue remaining after all expenses
subtracted from sales during the year.
Net profit margin= Net income/ revenue * 100
$126,000/$525,000*100
24%
11. a. 0.23
Debt to equity ratio is the percentage of debt or portion of debt in the total liabilities of
the company. The ideal debt to equity ratio is 2:1.
Debt/equity ratio= Total liabilities/ total shareholders’ equity
Here, Total liabilities= long term debt
Total shareholders’ equity= common stock + retained earnings
$115,000/$500,000
0.23
12. c. 13.62
Return on assets is the indicator of how profitable the company is as per the assets. This
indicates the company efficiency of using assets in order to maximize earnings.
Return on assets= net income/ total assets
$126,000/$925,000*100
13.62%