The document discusses who is interested in a company's annual accounts and why. Shareholders and potential investors are interested to understand the profitability and financial performance of the company. Annual accounts contain key financial ratios that analyze various aspects of a company's sales, costs, overheads, gross profits and net profits. These ratios help stakeholders evaluate the company's efficiency in controlling costs and expenses, and determining how well the company utilizes its resources to be profitable. The document also provides examples of calculating common ratios like gross profit percentage and explains how different ratios are interrelated.
1 of 11
More Related Content
Ratio analysis Accounting Help
1. Who is interested in company’s Annual Accounts?
Who? Why? What do they want to know?
1) Shareholders
2) ?
3) ?
Name 10 altogether!
8. Note
GP% = NP% + Expenses/Sales%
32% = 26.2% + 5.8%
Bigger Expenses means smaller NP
GP% indicates how well COS being controlled
NP% indicates how well Expenses being controlled
9. 3. Minimise!
4. Minimise! Keen purchasing
Efficiency Efficient production
(people) Economy of Scale
(procedures)
Sales Cost of Sales
Overheads
Gross Profit
Net Profit
2. Maximise!
(Good marketing)
1. Ultimate objective is to maximise!
10. 25% SELLING
MARK PRICE
UP £1-25
MARGIN
20%
COST
(to us)
£1-00
Mark Up = “Gross Profit” as a % of Cost
Margin = “Gross Profit” as a % of Selling Price
11. Answering Ratio Questions in exam
1) Write formula
2) Do calculation
3) Is bigger or smaller better?
(If you are comparing ratios…)
4) Which ratio is better? Last year’s ratio or this year’s?
Company A or company B?
5) What may have caused ratio to be good or bad?
6) How to improve a poor ratio?
7) Can’t make final judgment if industry norms unknown