Why And How Accounts Are Used:
Overview
A business's accounts are not just for the tax office. Banks, investors, managers, suppliers, workers and the government all pore over them, each asking a different question: Can they repay us? Is it worth investing? Is my job safe? Ratio analysis turns the raw figures into answers.
In this lesson you will learn the different users of accounts and what each needs to know, and how ratio results, profitability and liquidity, help them decide whether to lend to, invest in or trade with a business.
Objectives
- Needs of different users of accounts and ratio analysis
- How users of accounts and ratio results might use information to help make decisions, e.g. whether to lend to or invest in the business
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Lesson Evaluation
Congratulations on completing the lesson on Why And How Accounts Are Used:. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.
You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.
Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.
- Which user of accounts most wants to know if a loan can be repaid? A. a customer B. a bank C. a competitor's customer D. a tourist Answer: B
- Revenue is $500,000 and gross profit is $200,000. The gross profit margin is: A. 25% B. 40% C. 60% D. 250% Answer: B
- ROCE is calculated as: A. net profit / revenue x 100 B. net profit / capital employed x 100 C. current assets / current liabilities D. gross profit / inventories Answer: B
- The current ratio measures a firm's: A. profitability B. liquidity C. market share D. number of staff Answer: B
- The acid test ratio differs from the current ratio because it: A. adds inventories B. removes inventories from current assets C. uses revenue D. ignores liabilities Answer: B
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