Essay about Unit 2 Business Betc

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P7 Illustrate the financial state of a given business using ratios I have been asked to illustrate the financial state of a given business using ratios, to do this I will use accounting ratios to show the financial state of Porcella. One of the ways a business can measure how it is doing is through ratio analysis. Ratios can help Porcella to see how it is doing now and how it compares to last year or the year before and against competitors. For these ratios to be useful, they should be compared over time to see if there are any trends and also compared between businesses within the same industry (competitors). I shall be using the following ratios Solvency Ratios, Acid Test Ratios, Profitability Ratios, Net profit Ratios, Efficiency…show more content…
So in this case the ration I concluded was 3 which said that the business was making proper use of their assets as they can re-invest some of these assets into other parts of the business if they wish. Liquid Ratio Acid (test ratio, quick ratio) The acid test ratio shows the assets compared to liabilities, like the current ratio, but by taking out the stock figure from the current assets, it shows how well a business can meet its liabilities without having to sell stock. Again, the figure should be higher than 1 but not higher than 2. The acid test ration is calculated as follows: Liquid ratio = Current assets – Stock Current Liabilities Q.R=C.A-S/C.L =10,600-5000/3,600 =1.5=2 The result of the quick ratio figure for the above business is 2, which is really a good term and that the business is doing really well, which the business can meet its liability without having to sell stock. Profitability Ratios can also show how profitable a business really is, either as a snapshot or over time. We can put the profit in perspective by looking at various ratios which compare profit as a percentage of sales or assets. Gross profit One of the most commonly used ratios is the gross profit margin, which looks at gross profit as a percentage of turnovers: This calculation shows gross profit as a percentage of the turnover, sales and any other income that a business get. Gross profit % = gross

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