RATIO ANALYSIS Unit 4A Partners

Ratio Analysis indicate how well an organisation did show trends in performance over time make comparisons with similar firms 5 calculations, using figures from the final accounts, to:

Gross Profit to Sales Percentage shows what percentage of every pound of net sales, is gross profit Gross Profit X 100 Net Sales increases year on year is a good thing

Net Profit to Sales Percentage shows what percentage of every pound of net sales is net profit (after all expenses have been paid) Net Profit X 100 Net Sales increases year on year is a good thing

Rate of Stock Turnover calculates the number of times stock is sold out during the year Cost of Sales Average Stock (opening stock + closing stock /2) high is good - depends on the product

Return on Capital Invested shows what percentage the owner gets back for every pound invested Net Profit X 100 Capital at the Start this should be as high as possible

Working Capital Ratio shows how many times current liabilities can be paid using current assets Current Assets Current Liabilities 2 : 1 is the ideal result for this ratio

REPORT After calculating the ratios, analysis and comparisons over time are made and written up in the form of a report The report will also contain advice on bringing about improvement

Key Words Ratio Analysis – interprets the final accounts using 5 calculations Partnership – a form of business arrangement where profits and decision making are shared Partnership Agreement – a contract stating the terms of the arrangement between partners