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 explaining how accounting ratios can be used to monitor the financial performance of the organisation and evaluate the adequacy of accounti...
Calculatio
2016-2017 Definition Formula n Answer Explanation
Liquidity ratios
measure how
solvent the
business is and
how they are able
to meet short-
Liquidity term debts.
Current For every £1 L’Orchidee owes in
Is the amount of Assets/ current liabilities it owns £1.6 in
current assets in Current current assets. L’Orchidee has
Current relation to current Liabilitie 292,391/1 sufficient liquidity to meet current
Ratio liabilities. s 85,934 1.6:1 liabilities.
L’Orchidee for every £1 L’Orchidee
Current owns £1.4 in liquid assets.
The amount of Assets- L’Orchidee has sufficient liquidity to
current assets in Stock/C meet current liabilities if immediate
Acid Test relation to current urrent repayment was demanded and
292,391 -
Liquidity liabilities, Liabilitie 25,481/18 would not be forced into taking an
Ratio excluding stock. s 5,934 1.4:1 overdraft or loan.
Are used to
assess how well
a businesses
management is
controlling key
aspects of the
business, primary
stock and
Efficiency finances.
L’Orchidee customers on average
take 31 days to pay for their
purchases. L’Orchidee could allow
their customers to have a longer
period to pay for their purchases
which allow customers to finish
payment after 1 month. Benefits
Measures on such as customer loyalty and
average how long business attractability could increase
Debtors it takes for 365/Rev 365/1,221 however, they could suffer from
Payment debtors to pay for enue x ,910 x cash flow problems and be forced to
Period their purchases. Debtors 102,102 31 days take out an overdraft.
, L’Orchidee pays its suppliers in 124
days on average. By paying their
suppliers within a period of four
months can build weaker
Measure on relationship between the supplier
average how long which can futurely negatively impact
it takes a the cost of goods and then place a
company to pay 365/Pur strain on L'Orchidee and force them
Creditors for goods and chases x 365 / to try and maintain a good
Payment services that are Creditor 116,208 x 124 relationship with suppliers, and fix
Period bought on credit. s 39,491 days their budgeting.
L’Orchidee on average sells its stock
every 66 days. By having their stock
Average turnover happen every two months,
Measures the Stock/C it can decrease efficiency as they
amount of time an ost of sell their current assets slower.
Rate of item of stock is Goods 25,481/14 L’Orchidee could acquire problems
Stock held by a Sold x 1,689 x with the freshness of the products
Turnover business. 365 365 66 days and not selling all of the stock.
Determines how Sales/ L’Orchidee on average earns £5.7
much revenue is Fixed 1,221,910 and £4.2 per £1 sold. This is due to
being generated Assets /214,070 L’Orchidee not having a large
by the amount of Sales/ investment in fixed assets, being a
Asset assets a business Current 1,221,910 5.7:1 cake shop, they are more labour
Turnover owns Assets /292,391 4.2:1 intensive then machine intensive.
Is the measure of
the profit of a firm
Profitabilit in relation to
y another.
Refers to the
gross profit as a
percentage of
sales turnover. L’Orchidee takes resources and
Shows us for adds value to it. Due to this, they will
every £1 made in have low variable costs and higher
sales how much fixed/overhead costs, resulting in a
is left as gross higher gross profit on average,
profit after the Gross allowing the company to support
Gross cost of goods Profit/Re 1,080,221 themselves and keep track of
Profit sold has been venue x /1,221,91 payments and continue to make
Margin deducted. 100 0 x 100 88% profit.
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