Question

Q1: Most companies use financial measures to evaluate their performance. being a managerial accountant you are required to use common financial ratios covering all aspects including market performance to evaluate a Saudi company listed in Saudi stock exchange for 2017’s financial statements and explain weakness and strengths points.

Answer 1

Strength points of financial statements:

- Higher liquidity ratios, ability to convert all its assets and payoff business obligations without any difficuties.

Ex: current ratio, cash ratio, quick ratio....

- Higher solvency ratios, ability to assess the financial vailability in longterm.

Ex: debt ratio, net worth ratio, debt equity ratio......

- Better Profitability ratios, measure the ability of business to earns profits

Ex: gross profit ratio, operating profit ratio, net profit ratio......

- Positive cash flow ratios

- Good operating, activity ratios

- Coverage ratios, PE ratio, EPS, MPS, PV ratio, Variable cost ratio.... etc.,

Weakness points of financial statements:

- Negative Financial reporting

- Negative cash flows

- Substantial losses

- Inadequate Solvency ratio

- Negative net worth

- Higher Beta (risk)