Liquidity, Solvency and Profitability Ratio Analysis

Liquidity, Solvency and Profitability Ratio Analysis

A. The Finance Director has asked you, the accountant, to explain the ratio analysis and the understanding the difference between liquidity, solvency and profitability analysis, how would you communicate your response to this question? Include in your response a discussion of the basic objective of observing trends in data and ratios. Suggest some standards of comparison.In addition, the Finance Director has also asked the following questions. Explain which ratio you would apply for the following questions:

  1. How quickly is our company able to collect its receivables?
  2. How quickly is our company able to sell its inventory?
  3. Will our company be able to make interest payments as they become due?

B. As a finance manager, part of your job is to prepare the Notes and MD&A portion of the annual report. Your supervisor has asked you to omit certain matters that would have a profound impact on the financial accounts of the organization. You wonder if he/she is testing your loyalty to the supervisor or testing the responsibilities as a professional manager.

Describe how you would respond to this situation. In your response, describe leadership characteristics of the managerial accounting profession. State the standards/principles you must follow according to IMA.

In explaining to the supervisor how disclosure notes are an integral part of the information provided in the financial statements, describe why the notes are a critical process in understanding the financial statements and in evaluating the company’s performance and financial health.

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