Discuss and give reasons why a business would act in a socially responsible manner.
Part A:
'Two of the key accounting reports available to users of accounting information are the income statement and the cash flow statement'.
a) Explain the fundamental difference between an income statement and a cash flow statement.
b) Why do decision-makers need both reports? Explain.
Part B:
a) Explain why debt is a riskier form of finance for a business than equity.
b) In relation to short-term liquidity explain:
i) What the operating cycle is.
ii) Why it is important.
c) How does the quick asset ratio differ from the current ratio? Explain.
Part C:
The information below is available for two companies who are both listed on the stock exchange.
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Black Ltd
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Grey Ltd
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Dividend payout ratio
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80%
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25%
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Price earnings ratio
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12:1
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15:1
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Explain in your own words what each of:
a) The dividend payout ratio
b) The price earnings ratio
is intended to measure (do not just give the formula for the ratio) and, discuss what the ratio results reveal about the differences between the two companies to a potential investor.