M3: interpret the contents of a trading and profit and loss account and balance sheet for a selected company explaining how accounting ratios can be used to monitor the financial performance of the organization.
BTEC LEVEL 3 90 CREDIT IN BUSINESS
UNIT 2: BUSINESS RESOURCES
M3 interpret the contents of a trading and profit and loss account and balance sheet for a
selected company explaining how accounting ratios can be used to monitor the financial
performance of the organisation.
INTRODUCTION
In this assignment, the accounts of Brunel University, being the trading and profit and loss
account and the balance sheet will be taken into consideration. The ratios from P7 will be
further interpreted and conclusions and recommendations will be made as to how the
business can adjust and continue to perform well in the market.
AIMS AND OBJECTIVES
1. To be able calculate ratios.
2. To be able to select the correct figures from the accounts and use them in the ratios.
3. To be able to detect any faults in the figures calculated and make necessary
recommendations.
, ACCOUNTING RATIOS
Accounting Ratios are used to measure the efficiency and profitability of a
company based on its financial reports.
TYPES OF RATIOS
Ratios can be categorized into five (5) different types, with each being
subcategorized. The following being: (focusing on the ones highlighted.)
PROFITABILITY RATIO
Return on Capital Employed
Gross Profit Margin
Net Profit Margin
EFFICIENCY RATIO
Stock Turnover
Debtors Collection Period
Creditor Payment Period
Asset Utilization
LIQUIDITY RATIO
Current Ratio
Acid Test Ratio
SOLVENCY RATIO
The Gearing Ratio
Interest Cover
SHAREHOLDER RATIO
Return on Equity Ratio
Earnings per Share Ratio
Dividend per Share Ratio
Dividend Yield Ratio
Profitability Ratios
2
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