Ch22

Question 1

Gross Profit Margin Up & Down

Answer 1

Up reasons:
Cost prices down, Selling prices constant
Cost prices constant, Selling prices up
Cost prices down greater than Selling prices down

Down Reasons
Cost prices up, Selling prices down
Cost prices constant, Selling prices down
Cost prices up are greater than Selling prices up

Question 2

Benchmarks

Answer 2

Previous reporting periods - show trends
Industry averages of comparisons with other businesses
Budgeted Results

Question 3

Cash Cycle

Answer 3

Inventory turnover + Accounts receivable turnover

Question 4

Main types of indicators

Answer 4

Profitability

• how profitable business has been during the period
• measured by comparing profit with investment or looking at what happened to sales dollar

Operatig efficiency

• how efficiently management uses assets available
• Investment in inventory, accounts receivable, current assets, non current assets examined by how efficiently they’ve been used

Liquidity

• ability of business to meet its short term debts as they fall due
• based on short term events, consider items relevant to next 12 months of operations

Stability
- measure business’s financial stability and reflect financial risk being taken on