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Ch 24 Ratio Analysis, pt 2 - Coggle Diagram

- - - - Income statement items as a percentage of 20.7 increase
      - Both Cases: the measure in the denominator is used as a benchmark, a proxy for activity/size
  - - - Between accounts within a set of financial statements
- - - - Collections
        
        Payment
        
        Make payments on accounts payable
        
        All things equal, prefer this to be longer
        
        Collect on accounts receivable
        
        All things equal, prefer this to be shorter
      - Purchase inventory on credit. assemble or manufacture, sell the goods own credit.
      - All things equal, prefer this to be shorter
      - Inventory Turnover
        
        Very Important
        
        Measures the length of the manufacturing/ sales cycle: Investments -> Sales
      - Average Inventory days outstanding
        
        Same info as Inventory Turnover, presented in number of days rather than annual turnover
- - - - The key is to place information in its proper context
      - Financial Statements can tell you a lot about a company and its performance, but in order to get a complete picture of the business you need to thoroughly evaluate the statements, footnotes, and disclosures; and understand the business environment
- - - - 1) to its prior period performance
        
        2) to its competitors
        
        3) to the industry average
- - - - Environment in which a business operates
    - - Life Cycle
        
        Competition
        
        Political
        
        Customers
        
        Outputs
        
        Inputs
        
        1 more item...
- - - - A decline in manufacturing efficiency
        
        Less demand for products than the company anitcipated
        
        An existing product line becoming obsolete
- - - - Higher accounts receivable turnover implies that amounts are being collected more quickly
- - - - What may be occurring if turnover slows?
        
        seller may be taking on longer paying customers