W5 ANALYSIS/ Finance Accounting

AC1420: Week 5 Financial Statement Analysis

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In this exercise, you will discuss the impact of cash payment against the accounts

payable on the current ratio of a company. In addition, you will perform a vertical

analysis against the entries listed on the financial statement.

Task 1: A company has a current ratio of two. The CFO decides to pay off a portion of its

accounts payable with cash. Explain whether the current ratio will increase, decrease, or

remain unchanged. Support your answer with appropriate rationale.

Task 2: Based on the attached financial information, perform a vertical analysis, list the

steps performed, and provide an explanation for your analysis.

Year-2010 Year-2009

Amount in Dollars Amount in Dollars

Sales 1,00,000 79,900

Cost of goods sold 47,500 39,950

Operating expenses 750 500

Selling expenses 9,500 9,000

Administrative

expenses 12,000 12,000

Net income 30,250 18,450

Submission Requirements:

Submit your answers in a Microsoft (MS) Word file.

Font: Arial, 12 point, double-spaced

AC1420: Week 5 Financial Statement Analysis

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Evaluation Criteria:

Criteria Points Assigned Points Earned

Did you correctly analyse the

current ratio based on the given

information?

20%

Did you support your analysis of

current ratio with appropriate

rationale?

20%

Did you follow the appropriate

steps to conduct vertical analysis

for the given financial information?

20%

Did you calculate all information as

a percent of sales?

20%

Did you correctly explain the

development of certain cost

components in the vertical analysis

statement?

20%