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A ride-sharing company whose business model has been rapidly adapting to market
conditions
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An insurance company that has recently been subject to new accounting laws
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A manufacturing company that has recently expanded into mining as well
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An established hotel company that has made very few changes to its business model
CONCEPT
Using Financial Ratios for Analysis
4
A potential investor in Cristian's company wants to know how much money was paid in
dividends in the last reporting period.
What type of financial statement should he look at?
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Balance sheet
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Cash flow statement
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Income statement
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Statement of changes in equity
CONCEPT
Introducing Financial Statements
5
Under GAAP, how would dividends paid to company stockholders be accounted for
on the
statement of cash flows?
•
As an increase in cash flow from financing
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As an increase in cash flow from operations
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What does an inventory turnover ratio of 1.5 mean?
If the cost of goods sold was $3 million, the inventory turnover ratio will be 1.5. The higher the inventory turnover ratio, the better. When the ratio is high, it means that you're able to sell goods quickly. A low ratio indicates weak sales.
What does an inventory turnover of 2.0 mean?
For example, if cost of goods sold during a year is $20,000 while the inventory on hand is valued at $10,000, the inventory turnover ratio is 2. Compare the turnover ratio with the industry's average to determine if it is high or low.
What happens when inventory turnover ratio increases?
A higher ratio tends to point to strong sales and a lower one to weak sales. Conversely, a higher ratio can indicate insufficient inventory on hand, and a lower one can indicate too much inventory in stock.
Is 3 a good inventory turnover ratio?
A good inventory turnover ratio is between 5 and 10 for most industries, which indicates that you sell and restock your inventory every 1-2 months. This ratio strikes a good balance between having enough inventory on hand and not having to reorder too frequently.