Mastery level 4

MASTERY LEVEL 4 PART A Question 1 Financial statements are used to determine the financial performance of the company. There are three main financial statements of a company: income statement, statement of financial position or the balance sheet, and the statement of cash flows. Income statement and balance sheet are the most common statements in in analyzing a company's performance. Calculations performed during the analysis include financial ratio calculations, performing vertical analysis, and performing horizontal analysis. Ratio analysis is used to determine the profitability, liquidity, efficiency, and solvency performances of a company. Vertical analysis is used to determine the percentage on the financial statements in relation to the main line items in those statements. Horizontal analysis issued to determine the changes in financial statement items from one financial year to the other. Greg's credit worthiness can be ascertained by determining its liquidity and efficiency performance. The ratios used in this analysis include the current ratio, accounts payable turnover, and days payable outstanding. If its current ratio is higher than 2, then it means that he has enough current assets to set off its current liabilities when they fall due; therefore, accept to extend credit. If accounts payable turnover is high and days payable outstanding is less, then its means that Greg often pays off its current debt, thus, credit will be extended. Question 2 The business should opt for an alternative only if it suits both the parties. Possible alternatives include tightening the credit policy to allow customers to pay on time. Another alternative is to