Business igsce (0450)
Section 5 Analysis of accounts
Using the data contained in the accounts to make some useful
observations about the performance and financial strength of
the business
Without analysis of accounts, it’s hard to tell whether a
business is
Þ Performing better this year better than the last
Þ Performing better than other businesses
When analyzing published accounts, it’s important to compare
two figures – called ratio analysis
Concepts and importance of profitability
Þ Profit is money made after deduction of expenses have
taken place (net profit)
Þ Profitability is the measure of the profit relative to
Þ Value of sales achieved
Þ Capital invested
Þ Measured using percentage
Þ Therefore, a measure of efficiency and compares
business performance over years
Þ Important for; investors and managers
Most common profitability ratios
1. Return on capital employed
Net profit x 100
Capital employed
2. Gross Profit Margin
Gross profit margin(%) = gross profit. X 100
Revenue
Section 5 Analysis of accounts
Using the data contained in the accounts to make some useful
observations about the performance and financial strength of
the business
Without analysis of accounts, it’s hard to tell whether a
business is
Þ Performing better this year better than the last
Þ Performing better than other businesses
When analyzing published accounts, it’s important to compare
two figures – called ratio analysis
Concepts and importance of profitability
Þ Profit is money made after deduction of expenses have
taken place (net profit)
Þ Profitability is the measure of the profit relative to
Þ Value of sales achieved
Þ Capital invested
Þ Measured using percentage
Þ Therefore, a measure of efficiency and compares
business performance over years
Þ Important for; investors and managers
Most common profitability ratios
1. Return on capital employed
Net profit x 100
Capital employed
2. Gross Profit Margin
Gross profit margin(%) = gross profit. X 100
Revenue
