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analysis of accounts (uses and users of account (managers (they will be…

- - - - (net profit : capital employed) x 100
      - the higher the result, the more successful the managers are in earning profit from capital used in the business.
      - if % increases, this means that the managers are running the business more efficiently, making higher profits from each dollar invested in the business
    - - (%) (gross profit : sales revenue) x 100
      - if % increase
        
        prices have been increased more than the cost of goods sold have risen
        
        costs of goods bought in have been reduced (new supplier or negotiated lower price)
    - - (%) (net profit : sales revenue) x 100
      - the higher the result, the more successful the managers are in making net profit from sales
      - if % decreases
        
        business is less successful at converting sales into net profit
        
        fixed costs of the business must have increased, reducing the company's net profit compared to sales revenue
- - - - current assets : current liabilities
      - if the current ratio is very high (over 2.0) it could mean that too much working capital is tied up in unprofitable current assets
      - current ratio is useful, but it assumes that all current assets could be turned into cash quickly
      - if it falls
        
        business has bought and used many more supplies, but not yet paid for it.
        
        it could also be because the business has used cash to pay for fixed assets
        
        business has low liquidity and needs to increase current assets or reduce current liabilities
    - - (current assets - inventories) : current liabilities
      - a result of 1 would mean that the company could just pay off its short term debts from its most liquid assets.
      - steps to improve the liquidity of the business could be reducing the level of inventories by selling some for cash