Question

In: Accounting

·        Understand how to use the formulas to do ratio analysis. ·        What are the advantages/disadvantages...

·        Understand how to use the formulas to do ratio analysis.

·        What are the advantages/disadvantages of corporations?

Solutions

Expert Solution

1:- Financial ratios provide business owners and managers with an easy way to analyze a business to determine if it is operating efficiently and at a profit.

When it comes to financial statement analysis, you can use ratio analysis formulas to interpret the data presented in financial statements (balance sheet, profit and loss) in a better manner.

A ratio shows the relationship between two numbers. It shows how big one number is compared with another.

Ratios calculated from the information in financial statements help investors in three ways: • Investors can easily obtain data from a few ratios instead of trying to understand entire statements.

• They help detect a problematic trend: Each type of ratio analysed over a long period can point to a defect in the functioning of a business.

• They facilitate comparisons: Ratios not only help analyse the performance of one company but also facilitate a comparison of the performances of two or more companies within an industry or a sector.

2:- CORPORATION:- The simple definition of a corporation is a legal business entity that exchanges ownership of a company, also known as stock, through shares.

ADVANTAGES :-

• the owners are not personally liable for any debt or legal judgements associated with the corporation.

• the ease of funding , Corporations can transfer ownership by buying or selling its shares.

• .The corporation has separate corporate taxes which are taxed at a separate rate than your individual taxes.

DISADVANTAGES :-

• it will require investing more money and time than if you went with another business entity.

• there are many legal requirements and annual documentation that must be submitted.

• the double taxation that happens when dividends are paid to shareholders. Corporate taxes must be paid on profit at the corporate-level and again at the individual level.


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