KPI's and Analysing Performance

Question 1

Define Profitability

Answer 1

The ABILITY of the business to earn a PROFIT when MEASURED against a base such as NET SALES, AVG TA OR OE

Question 2

Define Efficiency

Answer 2

The ABILITY of the business to MANAGE its ASSETS and LIABILITIES

Question 3

Define Liquidity

Answer 3

The ABILITY of the firm to MEET its SHORT TERM DEBTS AS they FALL DUE

Question 4

Define Stability

Answer 4

The ABILITY of the business to MEET its DEBTS and continue to OPERATE in the LONG TERM

Question 5

Define Analysis

Answer 5

The PROCESS of EXAMINING financial REPORTS to IDENTIFY CHANGES or differences IN PERFORMANCE

Question 6

Why should the business review and analyse performance (3 reasons)

Answer 6

1. Enables management to understand and compare the information easily
2. Allows performance of different periods to be compared
3. Ratio’s give figures a common base

Question 7

What are the two different types of analysis

Answer 7

1. Vertical (Comparing up and down the report with percentages)
2. Horizontal (Comparing the report with other periods)

Question 8

What are 4 different limitations of analysis

Answer 8

1. Size and age of the business
2. Based on averages
3. Accounting methods used
4. Frequency of reporting