The Calculation And Interpretation Of Accounting Ratios
Gbogbo ọrọ náà
Two businesses can report the exact same profit for the year and still be in completely different financial health. One might be thriving, the other might be weeks away from being unable to pay its suppliers. A single profit figure cannot tell that story on its own; ratios can.
In this lesson you will learn the difference between profitability and liquidity, how to calculate and interpret the three profitability ratios and two liquidity ratios in the 4AC1 specification, and how to read a change in a ratio as evidence about what is actually happening inside a business.
Ebumnobi
- Explain the difference between profitability and liquidity
- Calculate and interpret the following profitability ratios: gross profit percentage, profit for the year as a percentage of revenue, return on capital employed
- Calculate and interpret the following liquidity ratios: current (working capital) ratio, liquid (acid test) ratio
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Nnyocha Ọmụmụ
Ekele diri gi maka imecha ihe karịrị na The Calculation And Interpretation Of Accounting Ratios. Ugbu a na ị na-enyochakwa isi echiche na echiche ndị dị mkpa, ọ bụ oge iji nwalee ihe ị ma. Ngwa a na-enye ụdị ajụjụ ọmụmụ dị iche iche emebere iji kwado nghọta gị wee nyere gị aka ịmata otú ị ghọtara ihe ndị a kụziri.
Ị ga-ahụ ngwakọta nke ụdị ajụjụ dị iche iche, gụnyere ajụjụ chọrọ ịhọrọ otu n’ime ọtụtụ azịza, ajụjụ chọrọ mkpirisi azịza, na ajụjụ ede ede. A na-arụpụta ajụjụ ọ bụla nke ọma iji nwalee akụkụ dị iche iche nke ihe ọmụma gị na nkà nke ịtụgharị uche.
Jiri akụkụ a nke nyocha ka ohere iji kụziere ihe ị matara banyere isiokwu ahụ ma chọpụta ebe ọ bụla ị nwere ike ịchọ ọmụmụ ihe ọzọ. Ekwela ka nsogbu ọ bụla ị na-eche ihu mee ka ị daa mba; kama, lee ha anya dị ka ohere maka ịzụlite onwe gị na imeziwanye.
- A business has gross profit of $45,000 and revenue of $150,000. What is the gross profit percentage? A) 3.3% B) 30.0% C) 33.3% D) 45.0% Answer: B
- Which ratio removes inventory from current assets before dividing by current liabilities? A) Gross profit percentage B) Return on capital employed C) Current ratio D) Acid test ratio Answer: D
- How is capital employed calculated? A) Current assets less current liabilities B) Total assets less current liabilities C) Total assets plus current liabilities D) Non-current assets only Answer: B
- A business has current assets of $60,000 and current liabilities of $30,000. What is the current ratio? A) 0.5 : 1 B) 1.0 : 1 C) 2.0 : 1 D) 3.0 : 1 Answer: C
- Which best describes liquidity? A) The ability to generate profit from capital invested B) The ability to meet short-term obligations using cash and near-cash assets C) The total value of non-current assets D) The rate at which revenue is growing Answer: B
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Akụkụ akwụkwọ
Apply the Results from the Adjusted Trial Balance to Compute Current Ratio and Working Capital Balance, and Explain How These Measures Represent Liquidity
"Principles of Accounting, Volume 1: Financial Accounting: Apply the Results from the Adjusted Trial Balance to Compute Current Ratio and Working Capital Balance, and Explain How These Measures Represent Liquidity" by OpenStax, OpenStax, Rice University, licensed under CC BY-NC-SA 4.0 (https://creativecommons.org/licenses/by-nc-sa/4.0/). Source: https://openstax.org/books/principles-financial-accounting/pages/5-3-apply-the-results-from-the-adjusted-trial-balance-to-compute-current-ratio-and-working-capital-balance-and-explain-how-these-measures-represent-liquidity. Access for free at https://openstax.org/books/principles-financial-accounting/pages/1-introduction
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