AccountingCode 9706
Calculation and evaluation of ratios
What this topic asks you to be able to do
- how to calculate the main accounting ratios that show how profitable, liquid and efficient a business is, namely: for profitability, the gross profit margin, the mark-up, the profit margin, the return on capital employed and the expenses to revenue ratio (also known as the operating expenses to revenue ratio); for liquidity, the current ratio and the acid test ratio; for efficiency, the non-current asset turnover, the trade receivables turnover (days), the trade payables turnover (days), the inventory turnover (days) and the rate of inventory turnover (times)
- how to interpret ratios in order to evaluate an organisation's profitability, liquidity and efficiency
- the steps an organisation could take to improve its profitability, liquidity and efficiency
- the ways in which accounting information falls short
- apply what you understand about calculating and evaluating ratios, drawing on relevant information to reach well-informed business decisions