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BTEC BUSINESS UNIT 2 P7 AND M3
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P7 Illustrate the financial state of a given business
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A A ALIRatios P7/M3
P7 Illustrate the financial state of a given business
Ratio analysis:
Ratio analysis is used in order to carry out analysis of information which involves numbers. Ratio
analysis is used by people in order to calculate the businesses last year and this year statistics to find
out whether the business had done better last year or this year. Akbar’s would compare the stock,
expenses, gross profit etc. As they will be able to compare the figures from last year and this year
and they will also be able to compare with other businesses which are the competitors of Akbar’s.
These businesses would be Mumtaz and Anams etc. Akbar’s and other businesses would use the
ration analysis in order to find out how well they are doing and whether they are doing better than
the previous year. Akbar’s will have someone who would be managing the account and keeping
Akbar’s updated on the figures. However Akbar’s could also have a database where they can input
the figures into the data base and the database will then keep them updated which is an easy and
quick way but will be expensive.
Profitability:
Profitability is making a good profit on something which you have spent less money on but you are
making more money from it. So therefore Akbar’s will aim to make more money this year and the
upcoming years as they may have made less money last year so therefore in order to make more
money Akbar’s will need to begin to buy cheaper stock from their suppliers so that they can increase
the price of the products which they have purchased so they can make more money. Akbar’s would
also need to reduce the amount of money which they spend on their bills in order to save more
money and they can do this by using less lights of getting lights which don’t use as much electricity
so it will help Akbar’s to make more money.
Gross profit:
Gross profit tells you how much profit a company has made.
Gross profit Calculation 2013 2014
percentage
1450 1375
Gross profit X 100 = 54% X 100 = 48%
X 100 2675 2850
Sales
, A A ALI
M3- explaining how accounting ratios can be used to monitor the financial performance of the
organisation
There has been a change in gross profit over the two years as the cost of sales have increased so
therefore this has meant that Akbar' s had to spend more money on ingredients and other items in
order to help them run the business. The increase of sales has been £175,000 which shows that
Akbar's have sold more food and possessions. Gross profit would have decreased due to the sales
and the cost of sales being high which has led to Akbar's making a loss in profit.
Akbar's can improve their gross profit by making sure that they are buy ingredients from cheaper
suppliers and making sure they are spending less money on basic ingredients such as oil, milk etc. If
Akbar's buy their ingredients from cheaper suppliers then this will allow Akbar’s to charge their
customers with a higher price in order for them to make a profit on a product which they have spent
on. However this has a negative effect for Akbar’s as Akbar's will increase their prices of the products
but the customers will then stop coming to Akbar’s due to the restaurant becoming expensive and
not affordable for them to buy from. Akbar’s can use a different method in order to attract and gain
attention of customers and this is through allowing customers to throw parties and weddings at the
restaurant and this will allow Akbar's to gain profit. If Akbar’s decide to decrease the prices of their
products then this will help Akbar's to gain customers however this will lead to Akbar's not earning
any profit. Akbar’s will need to come up with a method which will help them to earn more profit and
to keep their customers satisfied. If Akbar’s want to decrease the cost of sales which they are
spending their money than they can do this by purchasing goods from suppliers who sell the
products from cheaper prices.
Net Profit
Net profit is the profit you have made at the end once you have paid the taxes and expenses from it.
Net profit Calculation 2013 2014
percentage
625 450
Net profit X 100 = 23.4% X 100 = 15.8%
X 100 2675 2850
Sales
M3- explaining how accounting ratios can be used to monitor the financial performance of the
organisation
Looking at the net profit which is over the two years I can say that the percentage of the net profit
has decreased by 8%. A reason behind this could be that Akbar' s may have been purchasing their
goods and ingredients from suppliers which may have overcharged them and suppliers who are
expensive which could have led to them spending too much money on the stock. In order for Akbar’s
to increase their net profit they must decide to change their suppliers and begin to search for new
suppliers who sell the same goods but for a cheaper price as this will help Akbar’s to gain profit as
they will be able to add money on top of the amount which they have paid the suppliers so that
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