what you will learn in this UNIT
The unit is divided into two parts. In the first part, Assignment 1, you developed an understanding of the accounting processes necessary to provide accurate and relevant financial information. The second part of the unit (Assignments 2, 3 and 4) cover the practical aspect of carrying out those accounting activities.
P5 – Perform ratio analysis to measure the profitability, liquidity and efficiency of a given organisation M2 – Analyse the performance of a business using suitable ratios D2 – Evaluate the financial performance and position of a business using ratio analysis
You are still working for accountants, Fleesom and Leggett as in Assignment 3. Sharma and Ryan at SIGNature Ltd now want you to help them understand their financial accounts. You should prepare a set of numbered appendices to the accounts which explain their profitability, liquidity and efficiency. Only Sharma and Ryan will see these notes and therefor these should give a fair and frank explanation of their performance. Task 1 (P5)
In order to produce these appendices, you should perform the following tasks:
a) Use the profit and loss account and balance sheet from Assignment 3 to carry out the following ratios to measure: * Profitability
* Gross profit percentage of sales
* Net profit percentage of sales
* Current ratio
* Acid test/ liquidity ratio
* Debtor’s payment period
* Creditor’s payment period
* Rate of Stock Turnover
Outline clearly what is meant by profitability, liquidity and efficiency as well as the meaning and relevance...