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Business Chapter 26: Analysis of Accounts - Coggle Diagram
Business Chapter 26: Analysis of Accounts
analysis of published accounts
to show if business performs better this year than last year
to show if business performs better than other business
it is to use the data contained to make useful observations
performance and financial strength of business
concept and importance of profitability
measurement of profit
value of sales achieved
capital invested in the business
important to
investors when deciding which business to invest in
directors and managers of business to assess if business is more or less successful over time
profitability conceps
return on capital employed
net profit / capital employed x 100
gross profit margin
gross profit / revenue x 100
net profit margin
net profit / revenue x 100
concept and importance of liquidity
current ratio
current assets / current liabilities x 100
acid test ratio
current assets - inventories / current liabilities x 100
users of business accounts
managers use them for taking decisions
managers use them for controlling operations of a business
other companies use them for comparing performance
shareholders, creditors, government use them to check on company performance
limitations of using accounts and ratio analysis
managers will have access to all data
ratios are based on past data; may not indicate future performance
accounting data over time will be affected by rising prices
could lead to different ratio results; hard comparisons