Unit 4 M2 Ratio Analysis
M2: Analyse the performance of a business using suitable ratios
Ratio
Dessi-Designs
Gross profit margin
Dessi-Designs Result :
60%
Q1. Definition of Ratio
Gross profit margin is the difference between revenue and cost before accounting for certain other costs. Generally, it is calculated as the selling price of an item, less the cost of goods sold then multiplied by 100.
Q2. What result would your aunty and uncle want from this ratio?
The result they would want a high percentage because the higher the percentage the better it would be for the business, 60% means that for every £1 of sales they are given 60p gross profit.
Q3. With the result that your aunty and uncle got, why did they get it and what does this mean for their business …show more content…
Definition of Ratio
The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firm's current assets to its current liabilities.
Q2. What result would your aunty and uncle want from this ratio?
This ratio will provide them with information and with the information they can decide take make smart decisions because it takes both current assets and liabilities to mind. For example this will be able to tell them if they can pay debts back in a months time or if they need to borrow money to pay it back.
Q3. With the result that your aunty and uncle got what does this mean for their business (e.g. is this good or poor performance and why) The results are poor and it shows that they have too much stock that is not sold. The result 3:1 is high because it shows that for every £1 the business are in debt they have to pay £3 back
Q4. What financial decisions can you aunty and uncle make from their result? (e.g. whether to continue in business or whether to expand) Dessi designs should try to keep the ratio lower than 1.5:1 and in order for Dessi designs to keep running they should not purchase so much …show more content…
Definition of Ratio
Gearing ratio refers to the fundamental analysis ratio of a company's level of long-term debt compared to its equity capital
Q2. What result would your aunty and uncle want from this ratio?
This result shows that if the gearing ratio is above 50% it shows that the business are financed by loans and they have to pay it back with interest so they will want to decrease their gearing ratio
Q3. With the result that your aunty and uncle got what does this mean for their business (e.g. is this good or poor performance and why)
The result shows that the performances have not been good because it shows that they are mostly financed by loans and with loans they have to pay it back with interest which means that they are paying extra and making a loss.
Q4. What financial decisions can you aunty and uncle make from their result? (e.g. whether to continue in business or whether to expand)
If they want to expand they should try to lower the gearing ratio by getting a trustworthy person to invest in the business so that they are not relying on loans.
Creditor
Ratio
Dessi-Designs
Gross profit margin
Dessi-Designs Result :
60%
Q1. Definition of Ratio
Gross profit margin is the difference between revenue and cost before accounting for certain other costs. Generally, it is calculated as the selling price of an item, less the cost of goods sold then multiplied by 100.
Q2. What result would your aunty and uncle want from this ratio?
The result they would want a high percentage because the higher the percentage the better it would be for the business, 60% means that for every £1 of sales they are given 60p gross profit.
Q3. With the result that your aunty and uncle got, why did they get it and what does this mean for their business …show more content…
Definition of Ratio
The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firm's current assets to its current liabilities.
Q2. What result would your aunty and uncle want from this ratio?
This ratio will provide them with information and with the information they can decide take make smart decisions because it takes both current assets and liabilities to mind. For example this will be able to tell them if they can pay debts back in a months time or if they need to borrow money to pay it back.
Q3. With the result that your aunty and uncle got what does this mean for their business (e.g. is this good or poor performance and why) The results are poor and it shows that they have too much stock that is not sold. The result 3:1 is high because it shows that for every £1 the business are in debt they have to pay £3 back
Q4. What financial decisions can you aunty and uncle make from their result? (e.g. whether to continue in business or whether to expand) Dessi designs should try to keep the ratio lower than 1.5:1 and in order for Dessi designs to keep running they should not purchase so much …show more content…
Definition of Ratio
Gearing ratio refers to the fundamental analysis ratio of a company's level of long-term debt compared to its equity capital
Q2. What result would your aunty and uncle want from this ratio?
This result shows that if the gearing ratio is above 50% it shows that the business are financed by loans and they have to pay it back with interest so they will want to decrease their gearing ratio
Q3. With the result that your aunty and uncle got what does this mean for their business (e.g. is this good or poor performance and why)
The result shows that the performances have not been good because it shows that they are mostly financed by loans and with loans they have to pay it back with interest which means that they are paying extra and making a loss.
Q4. What financial decisions can you aunty and uncle make from their result? (e.g. whether to continue in business or whether to expand)
If they want to expand they should try to lower the gearing ratio by getting a trustworthy person to invest in the business so that they are not relying on loans.
Creditor