Unit 2 P7 M3

Topics: Generally Accepted Accounting Principles, Finance, Investment Pages: 2 (503 words) Published: May 20, 2012
Amina Naamani
In this piece of coursework, I will be illustrating the financial state of a given business Current ratio= current assets / current liabilities
= 180 / 100

In personal finance, current assets are all assets that a person can readily convert to cash to pay outstanding debts and cover liabilities without having to sell fixed assets. Current assets divided by the current liabilities = the current ration. If the current ratio is more than 1.5, it means that the company is in a healthy position, however they have excess money, which they could be investing it elsewhere to gain a larger income than they already started with, which is better than leaving it lying around in the bank, and might get a 2% interest rate.

Acids-test ratio= current assets-stock / current liabilities = (180-60) / 100
= 1.2

The Acid-Test ratio measures the short term liquidity of a company. During an Acid-Test analysis the short term assets are weighted against the current liabilities. Companies that have ratios which are less than 1.0 cannot pay their current liabilities, without selling inventories, and are in a danger zone. An acid test ratio which is 1.2+ shows that a business is in a healthy position.

Gross profit margin= gross profit x 100 / turnover (sales)
= 160x 100 / 200
= 80%

80% is more than a half which shows that the business is performing well. This ratio is used to show if the profit is growing in proportion to the size of the business.

Net profit margin= net profit x 100 / turnover (Sales)
= 60 x 100 / 200
= 30 %

The percentage that is being shown, is 10% per year, which means it’s very good, because will want to be a part of their company. This business’s net profit margin...
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