Attempts: Do No Harm: 15 8. Analyzing ratios Aa Aa One of the most important app

Question

Attempts: Do No Harm: 15 8. Analyzing ratios Aa Aa One of the most important applications of ratio analysis is to compare a company's performance with that of other players in the industry or to compare its own performance over a period of time. Such analyses are referred to as a comparative analysis and trend analysis, respectively A common size analysis requires the representation of financial statement data in terms of a single financial statement item (or base account or value). What is the most commonly used base item for a common size income statement? O Stockholders' equity O Total assets O Net sales O Total liabilities Suppose you are conducting an analysis of the financial performance of Fuzzy Button Clothing Company over the past three years. The company did not issue new shares during these three years, and has faced some operational difficulties. The company has thus pilot tested some new forecasting strategies for better operations management. You have collected the company's relevant financial data, made reasonable assumptions based on the information available, and calculated the following ratios. Ratios Calculated Year 1 Year 2 Year 3 Price to cash flow 5.00 6.50 7.28 Inventory turnover 10.00 12.00 13.44 Dabt to equity 0.30 0.32 0.38

Explanation / Answer

The most commonly used base item for a common size income statement is “Net Sales”. This is because in all profitability and operational and expenditure ratios, the Net Sales is used as the commonly base item.

The following statements can be included in your analysis report are:

===========================

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.