Unit 7: Management Accounting
Unit 7 (P3) – Use accounting data and statistical information to
measure business performance.
CURRENT RATIO
Sports Active uses their previous year’s data of current ratio to help them identify
whether they are going to be successful in future years to come. Current ratio is a
test to determine whether short-term assets cover short-term liabilities. Moreover,
from Sports Active Ltd year ending December 2016, which was in the ratio of 5.4:1 in
comparison to the industry average in 2018 which is 4.7:1 this indicates that they
have more short assets then liabilities as the Ltd year ending December is 0.7 higher
than the industry average. This foreshadows that Sports Active’s next year of current
ratio, is also going to be higher than the industry average as in 2017 their year
ending March December was 6.9:1. In addition, this data can be used to monitor
Sports Active performances, as they have a higher current ratio of 2016 than the
industry average this would present Sports Active’s performance as positive, which
leads to them being successful because they have overachieved the industry
average. Furthermore, this information can than be used to identify trends as if
Sports Actives have low liabilities than this would make it easier to have a current
asset, this would result in Sports Active continuously having low liabilities, so they
gain higher sales.
ACID TEST
Sports Active acid test for year ending December 2016 shows that Sports Active
performance is effective as their year ending December in 2016 is 3.1:1 which is
higher than the industry average by 2.1 as the industry average in 2018 is 1.1.
However, this is negative for Sports Active as it is not between 1 and 1.5 this means
that they have too much cash or debtors. Furthermore, the previous year’s data
shows that Sports Active data is usually higher than 1 or 1.5 as in 2016 it’s 3.1:1, in
2017 its 3.89:1 which is 2.89 above the preferred. Moreover, the historical data for
acid tests can be used to detect trends in the future, as the majority of Sports Actives
pg. 1
Unit 7 (P3) – Use accounting data and statistical information to
measure business performance.
CURRENT RATIO
Sports Active uses their previous year’s data of current ratio to help them identify
whether they are going to be successful in future years to come. Current ratio is a
test to determine whether short-term assets cover short-term liabilities. Moreover,
from Sports Active Ltd year ending December 2016, which was in the ratio of 5.4:1 in
comparison to the industry average in 2018 which is 4.7:1 this indicates that they
have more short assets then liabilities as the Ltd year ending December is 0.7 higher
than the industry average. This foreshadows that Sports Active’s next year of current
ratio, is also going to be higher than the industry average as in 2017 their year
ending March December was 6.9:1. In addition, this data can be used to monitor
Sports Active performances, as they have a higher current ratio of 2016 than the
industry average this would present Sports Active’s performance as positive, which
leads to them being successful because they have overachieved the industry
average. Furthermore, this information can than be used to identify trends as if
Sports Actives have low liabilities than this would make it easier to have a current
asset, this would result in Sports Active continuously having low liabilities, so they
gain higher sales.
ACID TEST
Sports Active acid test for year ending December 2016 shows that Sports Active
performance is effective as their year ending December in 2016 is 3.1:1 which is
higher than the industry average by 2.1 as the industry average in 2018 is 1.1.
However, this is negative for Sports Active as it is not between 1 and 1.5 this means
that they have too much cash or debtors. Furthermore, the previous year’s data
shows that Sports Active data is usually higher than 1 or 1.5 as in 2016 it’s 3.1:1, in
2017 its 3.89:1 which is 2.89 above the preferred. Moreover, the historical data for
acid tests can be used to detect trends in the future, as the majority of Sports Actives
pg. 1
