Unit 3.5 - Profitability & Liquidity Ratio Analysis
What you need to know and understand:
- The following profitability ratios.
- Gross profit margin
- Profit margin
- Return on capital employed (ROCE)
- Gross profit margin
- Possible strategies to improve these ratios
- The following liquidity ratios.
- Current ratio
- Acid test (quick) ratio
- Current ratio
- Possible strategies to improve these ratios
Conceptual Understandings:
- Change in the business structure can impact a business’ financial resources
- Creativity in financial reporting can have diverse impacts in a business
- Ethical financial and accounting practices can be a form of sustainable business behavior
Questions to consider:
- Are objective facts or appeals to emotion more effective when applying for an external source of finance?
- How do our expectations and assumptions have an impact on how we read company accounts?
- What roles do reason and emotion play when analyzing financial performance?
- Are the results of some types of ratio analysis less open to interpretation than others?
- To what extent are the methods used to gain knowledge in investment appraisal “scientific”?
- What assumptions underlie the techniques used when budgeting?
TEXTBOOK unit 3.5
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