Analysis:
1. When analyzing a ratio, always indicate in the first paragraph of your analysis what the ratio tells us — what does the ratio tell us, IN GENERAL, about companies?
2. In the next paragraphs, analyze the quality of income ratio over the three years for each company. How does each company cash flow from operating activities compare to its net income (net earnings) for each year?
3. In the final paragraph, compare the two companies quality of income ratio highest, lowest, etc. Because of NON-cash expenses (like depreciation expense, for instance) in the income statement, wouldn’t you typically expect net income (net earnings) to be less than cash flow from operating activities (because NON- cash expenses like depreciation are not deducted in the statement of cash flows)?? This should be the normal situation. if its not, the company may be using aggressive accounting in reporting its net income (net earnings) on a GAAP accrual basis.