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Analysis of accounts - Coggle Diagram

- - - - They want to know if the business will be able to repay them
    - - The loaner wants evidence that the business will be able to repay the loan
    - - Wants to be sure if the supplier will be able to produce and deliver goods.
  - - - A quick way to measure liquidity
      - expressed as a ratio
      - How many $ the business has in current assets: How many $1 the business needs to cover short term debt
      - Current ratio=current assets/ current liabilities
    - - precice and realistic way to measure liquidity
      - Acid test ratio=current assets - inventory/current liabilities
      - The least liquid form of current assets (inventory) is deducted so the acid test ratio provides a more realistic measure of the businesses ability to meet short-term debts quickly
      - expressed as a ratio
      - inventory
        
        All the things that the business owns to sell in the market
  - - - Use cash flow forecast to see possible areas of improvement in a business
    - - Collecting money owed from customers more quickly will increase the level of current assets in the business
    - - The business can use the money they would have payed to the suppliers for other things
- - - - operating profit margin= operating profit/revenue x 100
      - Calculates teh percentage of revenue that is turned into operating profit
      - How to improve operating profit margin
        
        reduce operating expenses
        
        reduce staff or decrease rent
        
        Increasing gross profit margin
    - - gross profit margin=gross profit/revenue x 100
      - Calculates the percentage of revenue that is turned into gross profit
      - How to improve gross profit margin
        
        Decreas cost of sales
        
        EXP: buying in bulk, cheaper supplier
        
        Increase revenue
        
        EXP: increase selling price
  - - - Used to determine the price of a product
  - - - compare to competition
      - comnpare toother potential capital inverstements
    - - Capital Employed = Non current Liabilities +Equity
    - - decrease capital employed
      - increase level of profit