“The Balance Sheet and Ratio Analysis” Please respond to the following:
- According to the textbook, the balance sheet is important to investors and creditors because it provides important information about the amounts of investments, obligations to creditors, and owner’s equity. However, there are limitations to the balance sheet. Explain three (3) limitations of the balance sheet, and suggest the fundamental manner in which a company can overcome each such limitation. Provide a rationale for your suggestions.
- Suppose you are the senior financial analyst at your company, and at the end of each month you are required to analyze the company’s profitability. Prepare a report to management that identifies ratios that are important to a company’s profitability. Assume that the ratios are unfavorable. Recommend to management one (1) way in which it can improve the company’s profitability ratios.