Reference no: EM132940556
Questions -
Q1. Tempest Company is a manufacturer of industrial products and employs a calendar year for financial reporting purposes. Tempest's total quick assets exceeded total current liabilities both before and after the transaction. The company has positive profits during the year and a credit balance throughout the year in its retained earnings. Tempest consulted a financial analyst for their future transactions which consist of payment of a trade account payable of 64,500 and collection of current accounts receivable of 29,000. The financial analyst then advised not to undertake those proposed transactions as it would decrease both current and quick ratios and decrease the company's net working capital thereby affecting the company's performance against industry ratio averages. As a future finance analyst, give your comments as to accept or reject the financial analyst's recommendations to Tempest Company. Support your answers with necessary computed assumptions.
Q2. Ratios and other quantitative means of evaluation are not sufficient in themselves as bases for judgments about the future. Changes in consumer tastes, industry trends, and economy are some of the factors that must be considered.
How would changes in technology affect the need for an organization to look beyond ratios and other quantitative means in arriving sound economic decisions? Give your thoughts on the matter.
Q3. A company or firm may experience a significant positive or negative change in gross profit. In order to maintain profitability and avoid operating losses, any unexpected or significant change in gross profit for a period must be timely investigated through analysis in variation of gross profit. Its major purpose is to reveal the unexpected changes in gross profit and their causes so that they can be brought to the attention of management in a timely manner.
Supposed that a company desires to increase its gross profit by 10% for the next period, what would be the best course of action between an increased price by 10% with constant volume or a 10% increase in volume with constant price? Support your answer with necessary computed assumptions.