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Ratio Analysis :star: - Coggle Diagram
Ratio Analysis :star:
uses
The Statement of Financial Position
Assets Liabilities Equity
Liquidity
Company's ability to pay off short term debts.
Profitability
Sales - Purchases to show Profit.
Financial Flexibility
To show the current status of the business on a particular date.
uses
The Income Statement
Revenues Expenses Net Income
Net Profit
Revenues
Gross Profit
Shows a business how much profit is made.
3 Groups of Ratios that access the business.
Liquidity Ratios
Current Ratio. Current Assets:Creditors falling due within 1 year.
TO BE FILLED WHEN CHAPTER COMPLETE
Acid Test Ratio. Current Assets - Closing Stock: Creditors falling due within 1 year.
TO BE FILLED WHEN CHAPTER COMPLETE
Gearing Ratios
Debt: Equity ratio. Debt capital:Equity ratio.
TO BE FILLED WHEN CHAPTER COMPLETE
Profitability Ratios
Net Profit Margin. Net Profit/Sales x 100
Represented in the form of %, the higher the NPM the better, as there is a higher profit for each sale.
Invetors, employees and managers would be interested.
Return On Investment. Net Profit/Capital Employed x 100.
Represented in the form of %, the higher the ROI , the more likely investors will put capital in.
Investors and Employees would be interested.
Gross Profit Margin. Gross Profit/Sales x 100
Represented in % form, the higher the better as there is a profit for each sale.
Investors, employees and managers would be interested.
Allows us to assess the financial performance of a business.