Question

Problem 1.1

What types of questions can be answered by analyzing financial statements?

•Would an investment generate attractive returns?

•What is the degree of risk inherent in the investment?

•Should existing investment holdings be liquidated?

•Does the cWill cash flows be sufficient to service interest and principal payments to support the firm’s borrowing needs?

•company provide a good opportunity for employment, future advancement, and employee benefits?

•How well does this company compete in its operating environment?

•Is this firm a good prospect as a customer?

Answer 1

1-	Yes by analyzing we can find out that at what rate company is generating profits. A good state of profitability ensures the rate of return earned on investment if the investment is done for long term period.
2-	Yes by analyzing we can find out the degree of diversifiable risk associated with the company. By analyzing the operating risk financial risk we can find out the risk inherent in the investment.
3-	yes if the company is incurring losses over the period of time one should liquidate the investment
4-	yes by analyzing the interest coverage ratio one can easily find out.
5-	yes by analyzing the pattern of spending on research and development, employees training and development program and expenses incurred on induction of employee.
6-	yes we can do it by comparing the various ratio with the industry average or with the competitors financial position
7-	Yes by checking the financial soundness we can take an idea whether the firm is a better prospect or not