Task 7: Illustrate the financial state of a given business and interpret the
contents of a trading and profit and loss account and balance sheet for a
selected company (P7)
The information in the profit and loss account and on the balance sheet can be used to provide
accounting ratios. These in turn can be used to compare a business’ performance over the years or to
compare one business’ performance to other businesses.
FM’s business FM's business Industry
year ending Dec year ending Dec averages FM's business year ending
2014 2015 December 2016
Return on capital employed 71% 75% 84% 81%
Gross profit percentage 74% 75% 69% 80%
Net profit percentage 12% 11% 14% 14%
Stock turnover 90 days 92 days 101 days 50 days
Debtor payment period 48 days 46 days 40 days 41 days
Current ratio 4,8 4,9 4,5 5,9
Acid test 4,6 4,6 5,0 5,1
The return on capital employed was in the previous year’s lower than the average of other
businesses, but the capital employed of Financial Meltdown increased a lot in the end of the year
2016. This means that Financial Meltdown got a lot of money back on their capital.
The gross profit percentage of Financial Meltdown was in the previous year’s better than the industry
averages, this is really good. But in the end of the year 2016 it was even better. 80% is a very high
and this means that Financial Meltdown is doing well, as its controlling the cost of its purchases.
The net profit was in the previous year’s quite low in comparison with the industry averages of other
businesses. Financial Meltdown grew in 2016 to 14% and achieved the average. That’s okay, but it
can be better. They grew every year, so the chance is big that they the net profit will also increase.
The net profit percentage shows how well Financial Meltdown manages its other expenses,
especially when it is compared to the gross profit percentage.
The stock turnover of Financial Meltdown in the end of 2016 is amazing! The stock turnover shows
how much days it takes that a business sold its stock. The stock turnover of the previous years was
really bad, and the average of the other businesses are also really bad. Financial Meltdown is selling
their stock really fast which means that they are efficient.
The debtor payment period was in the previous year’s higher than the average, which is not good. In
the following year’s, the debtors paid Financial Meltdown faster, which is good. They have almost the
duration in days as the industry average. If they continue like this than next year will also be a lot
better.
contents of a trading and profit and loss account and balance sheet for a
selected company (P7)
The information in the profit and loss account and on the balance sheet can be used to provide
accounting ratios. These in turn can be used to compare a business’ performance over the years or to
compare one business’ performance to other businesses.
FM’s business FM's business Industry
year ending Dec year ending Dec averages FM's business year ending
2014 2015 December 2016
Return on capital employed 71% 75% 84% 81%
Gross profit percentage 74% 75% 69% 80%
Net profit percentage 12% 11% 14% 14%
Stock turnover 90 days 92 days 101 days 50 days
Debtor payment period 48 days 46 days 40 days 41 days
Current ratio 4,8 4,9 4,5 5,9
Acid test 4,6 4,6 5,0 5,1
The return on capital employed was in the previous year’s lower than the average of other
businesses, but the capital employed of Financial Meltdown increased a lot in the end of the year
2016. This means that Financial Meltdown got a lot of money back on their capital.
The gross profit percentage of Financial Meltdown was in the previous year’s better than the industry
averages, this is really good. But in the end of the year 2016 it was even better. 80% is a very high
and this means that Financial Meltdown is doing well, as its controlling the cost of its purchases.
The net profit was in the previous year’s quite low in comparison with the industry averages of other
businesses. Financial Meltdown grew in 2016 to 14% and achieved the average. That’s okay, but it
can be better. They grew every year, so the chance is big that they the net profit will also increase.
The net profit percentage shows how well Financial Meltdown manages its other expenses,
especially when it is compared to the gross profit percentage.
The stock turnover of Financial Meltdown in the end of 2016 is amazing! The stock turnover shows
how much days it takes that a business sold its stock. The stock turnover of the previous years was
really bad, and the average of the other businesses are also really bad. Financial Meltdown is selling
their stock really fast which means that they are efficient.
The debtor payment period was in the previous year’s higher than the average, which is not good. In
the following year’s, the debtors paid Financial Meltdown faster, which is good. They have almost the
duration in days as the industry average. If they continue like this than next year will also be a lot
better.
