Chapter 12
Using Accounting Information
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A company’s profitability can be assessed using gross profit margin, net profit margin, and
return on equity (ROE).
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A company’s operations management can be assessed using inventory turnover and inventory
days on hand.
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A company’s leverage can be assessed using debt-to-equity ratio.
Analyze the cash flow statement by interpreting the three sources and uses of cash
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The cash flow statement reports sources and uses of cash within an organization.
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Cash is generated and consumed by a business through three types of activities, including
operating activities, investing activities and financing activities.
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Operating activities are those necessary to run the daily operations of the business.
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Investing activities include any exchange of cash related to the long-termfinancial investments
or capital assets of the business.
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Financing activities are any payments or receipts of cash that relate to changes in either long-
term debt or shareholders’ equity.
