Financial Indicators
, Commenting
Steps to commenting:
1. Mention what the financial indicator shows
2. Comment on whether it is ideal or should be higher/lower
3. Compare to previous years and how the difference as well as what may have caused the difference and
whether it is favourable or unfavourable
Profitability & operating indicators
SHow how profitable a business is and how efficiently it operates & whether it manages its expenses well
Liquidity Indicators
Shows whether the business can pay back its short term Debts and how current assets + liabilities are being
managed
Found in balance sheet
Solvency indicators
Shows whether the business can survive long-term and pay off long-term debt or not (solvent)
Return indicators
Shows what return the owners are earning from their investments and whether the business is a good
investment
*Market value indicators (Shares)
Shows whether share price is overvalued or undervalued and the earning or dividends per share
1. Gross profit on sales/Cost of sales
- Shows whether the business has achieved its profit margin
- Compare to mark-up to see whether it is being maintained
- High is good, low is bad
- Compare to previous year
- Determine causes (Too many discounts, too many sales, too many debtors, mistakes in price
markings, mistakes in books, loss or theft of stock, competition)
2. Operating profit on sales
- Shows how well expenses have been managed
- Compare with gross profit on sales and if OP/S is a lot lower it shows that operating expenses
are not well controlled
- Compare to previous years
- Good if it increases means they are efficient regarding expenses, sales & purchases
, Commenting
Steps to commenting:
1. Mention what the financial indicator shows
2. Comment on whether it is ideal or should be higher/lower
3. Compare to previous years and how the difference as well as what may have caused the difference and
whether it is favourable or unfavourable
Profitability & operating indicators
SHow how profitable a business is and how efficiently it operates & whether it manages its expenses well
Liquidity Indicators
Shows whether the business can pay back its short term Debts and how current assets + liabilities are being
managed
Found in balance sheet
Solvency indicators
Shows whether the business can survive long-term and pay off long-term debt or not (solvent)
Return indicators
Shows what return the owners are earning from their investments and whether the business is a good
investment
*Market value indicators (Shares)
Shows whether share price is overvalued or undervalued and the earning or dividends per share
1. Gross profit on sales/Cost of sales
- Shows whether the business has achieved its profit margin
- Compare to mark-up to see whether it is being maintained
- High is good, low is bad
- Compare to previous year
- Determine causes (Too many discounts, too many sales, too many debtors, mistakes in price
markings, mistakes in books, loss or theft of stock, competition)
2. Operating profit on sales
- Shows how well expenses have been managed
- Compare with gross profit on sales and if OP/S is a lot lower it shows that operating expenses
are not well controlled
- Compare to previous years
- Good if it increases means they are efficient regarding expenses, sales & purchases
