For each of the following scenarios, provide an explanation that focuses on the

Question

For each of the following scenarios, provide an explanation that focuses on the critical performance factors, highlighted in chapter 7 of the Fundamentals of Financing and Accounting text. (Financial Accounting As a Second Language by David P Weiner)

• Scenario 1: If you were general manager of a division, on which three key ratios would you choose to have your unit’s financial performance evaluated? Please explain your choices and why you selected these ratios, and the yardsticks (benchmarks) that you would use to measure your company’s performance.
• Scenario 2: In looking at an analysis of financial statements that you have prepared for your employer, a management team member points out that the gross profit margin rate has declined in each of the past three years. How would you explain and evaluate the reasons for this situation? What other ratios might be useful in your analysis?
• Scenario 3: The current ratio in the company, for which you are a financial analyst, is 3 to 1. The average for other firms in the industry is 1.6 to 1. Management has asked you to evaluate the company’s ratio, and explain why it is nearly twice the industry’s average. What factors are responsible for the difference? Are we better off than our competitors, or worse? Explain.

Explanation / Answer

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