9. Fill in the missing amounts (38 Common stock Dividends Net income Retained ea
ID: 2340260 • Letter: 9
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9. Fill in the missing amounts (38 Common stock Dividends Net income Retained earnings-beginning of year Retained earnings-end of year Total assets Total expenses 2,280 s0 700 ,100 122 200 Total liabilities 83 2,800 Total revenues 3,800 10. What is EBITDA? (2) 11. What is a significant difference between a balance sheet and statement of operations? (4) 12. What is a relationship between Debits and Credits? (2) 13. What is purpose of journal entries? (2) 14. What are 3 ratios you might consider using when analyzing a financial statement, and why? (18) a. b. C. 15. Using the balance sheet and statement of income on the next two pages, provide the amounts for the ratios mentioned in the previous question. (9) Amount Ratio listed above a. b.Explanation / Answer
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10.Earnings before interest, tax, depreciation and amortization (EBITDA) is a measure of a company's operating performance. Essentially, it's a way to evaluate a company's performance without having to factor in financing decisions, accounting decisions or tax environments.
EBITDA is calculated by adding back the non-cash expenses of depreciation and amortization to a firm's operating income.
11.Companies produce a set of financial statements that reflect their business activities and profitability for each accounting period. The three main financial statements are the balance sheet, income statement, and statement of cash flows. The cash flow statement shows how well a company is managing its cash to fund its operations and any expansion efforts. In this article, we'll examine the differences between the balance sheet and the income statement.
The balance sheet shows a company’s assets, liabilities, and shareholders' equity. Total assets should equal the total of liabilities and shareholders' equity. The balance sheet shows how a company puts its assets to work and how those assets are financed as listed in the liabilities section. Shareholders' equity is the difference between assets and liabilities or the money left over for shareholders if all debts were repaid. Investors and creditors analyze the balance sheet to see how a company's management is putting its resources to work.
12.In double entry bookkeeping, debits and credits (abbreviated Dr and Cr, respectively) are entries made in account ledgers to record changes in value resulting from business transactions. Generally speaking (in T-Account terms), if cash is spent in a business transaction, the cash account is credited (that is, an entry is made on the right side of the T-Account's ledger), and conversely, when cash is obtained in a business transaction, it is described as a debit (that is, an entry is made on the left side of the T-Account's ledger). Debits and Credits can occur in any account. For simplicity it is often best to view Debits as positive numbers and Credits as negative numbers. When all the debits and credits that are transacted in each account are added up the resulting account total could be a net Debit (positive number) or a net Credit (negative number).
13.Journal entries provide foundational information for all other financial reports and are used by auditors to analyze how financial transactions impact a business.
The Journal entries apply to a record of events that is maintained on a regular basis. As it pertains to bookkeeping, a journal is a record of transactions listed as they occur that shows the specific accounts affected by the transaction. For example, your journal for Monday might contain entries for the sales of Widget A, Gadget B and Widget C. The journal can tell you how much your total sales were for Monday, which might be handy if you want to compare Monday sales with Wednesday sales. However, if you want to know how much of your monthly income was derived from Widget C sales, you would have to locate every sale of that item in your journal and total them.
Journal entries are assigned to specific accounts using a Chart of Accounts, and the journal entry is then recorded in a ledger account.
14.Liquidity Ratio :
These measure the amount of liquidity (cash and easily converted assets) that you have to cover your debts, and provide a broad overview of your financial health.
The current ratio measures your company's ability to generate cash to meet your short-term financial commitments. Also called the working capital ratio, it is calculated by dividing your current assets—such as cash, inventory and receivables—by your current liabilities, such as line of credit balance, payables and current portion of long-term debts.
The quick ratio measures your ability to access cash quickly to support immediate demands. Also known as the acid test, the quick ratio divides current assets (excluding inventory) by current liabilities (excluding current portion of long-term debts). A ratio of 1.0 or greater is generally acceptable, but this can vary depending on your industry.
Effiency Ratio:
Often measured over a 3- to 5-year period, these give additional insight into areas of your business such as collections, cash flow and operational results.
Inventory turnover looks at how long it takes for inventory to be sold and replaced during the year. It is calculated by dividing total purchases by average inventory in a given period. For most inventory-reliant companies, this can be a make-or-break factor for success. After all, the longer the inventory sits on your shelves, the more it costs.
Assessing your inventory turnover is important because gross profit is earned each time such turnover occurs. This ratio can enable you to see where you might improve your buying practices and inventory management. For example, you could analyze your purchasing patterns as well as your clients to determine ways to minimize the amount of inventory on hand. You might want to turn some of the obsolete inventory into cash by selling it off at a discount to specific clients. This ratio can also help you see if your levels are too low and you're missing out on sales opportunities.
Profitability ratios:
These ratios are used not only to evaluate the financial viability of your business, but are essential in comparing your business to others in your industry. You can also look for trends in your company by comparing the ratios over a certain number of years.
Net profit margin measures how much a company earns (usually after taxes) relative to its sales. A company with a higher profit margin than its competitor is usually more efficient, flexible and able to take on new opportunities.
Operating profit margin, also known as coverage ratio, measures earnings before interest and taxes. The results can be quite different from the net profit margin due to the impact of interest and tax expenses. By analyzing this margin, you can better assess your ability to expand your business through additional debt or other investments.
Return on assets (ROA) ratio tells how well management is utilizing the company's various resources (assets). It is calculated by dividing net profit (before taxes) by total assets. The number will vary widely across different industries. Capital-intensive industries such as railways will yield a low return on assets, since they need expensive infrastructure to do business. Service-based operations such as consulting firms will have a high ROA, as they require minimal hard assets to operate.
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