a) List six users of accounting information (b) State the formula and the use of each of the following accounting ratios: i. Quick ratio ii. Net profit marg...
Question 1 Report
a) List six users of accounting information
(b) State the formula and the use of each of the following accounting ratios:
i. Quick ratio
ii. Net profit margin
iii. Total assets turnover
iv. Creditors payment period (in days)
Answer Details
(a) Six users of accounting information
- Owners / shareholders
- Management
- Creditors / suppliers
- Lenders / banks
- Government / tax authorities
- Employees
(Others acceptable: potential investors, customers, the general public.)
(b) Formulae and uses of the ratios
| Ratio | Formula | Use |
|---|---|---|
| i. Quick (acid-test) ratio | \( \dfrac{\text{Current assets} - \text{Stock}}{\text{Current liabilities}} \) | Measures the ability to meet current liabilities from the most liquid assets, without relying on the sale of stock. |
| ii. Net profit margin | \( \dfrac{\text{Net profit}}{\text{Net sales}} \times 100 \) | Shows overall profitability after all expenses, per unit of sales. |
| iii. Total assets turnover | \( \dfrac{\text{Net sales}}{\text{Total assets}} \) | Measures how efficiently total assets are used to generate sales. |
| iv. Creditors payment period (days) | \( \dfrac{\text{Creditors}}{\text{Net credit purchases}} \times 365 \) | Shows the average number of days taken to pay suppliers/creditors. |
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