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Review the five ratios (gross profit percentage, working capital, current ratio, and inventory turnover, & accounts receivable turnover). Pick one of the ratios and provide the formula for the a calculation, where the numbers can be found on the financial statements, and what the ratio can tell creditors, managers, and investors.
A company may report high net income through a number of means including normal revenues, one-time tax benefits, or other accounting activities. If a company sales merchandise, it is important to understand their operating revenues which will include income statement reporting of both Cost of Goods Sold and Gross Profit on Sales.
Class, what is Cost of Goods Sold? Provide examples of the types of entries recorded to this account. Next, what is Gross Profit on Sales? Why is understanding this section of the Classified Income Statement so important to managers, investors, and creditors?