Analysis of accounts 5.5 Flashcards
What is profitability and the importance
Measurement of profit made relative to value of sales achieved or capital invested in business
This is important when investors decide what business to invest into
What is liquidity and the importance
The ability of a business to pay back its short term debts
It is important when paying an overdraft or pay suppliers for materials that are important to production
What is gross profit margin formula
Grossprofit/revenue x 100
What is net profit margin
Net profit/ revenue x 100
What is return on capital employed formula
Net profit/capital employed x 100
What is current ratio
Current assets/Current liabilities
What is acid test ratio
Current assets-inventories/current liabilities
How may accounts and ratio results help make decisions
Managers use to help control and operate business9
Other companies use to compare performance
Investors can see if they want to invest in the business
