Unit 5 Business Accounting

Good Essays
JACK BLACKMORE
BLA14248050
BTEC EXTENDED DIPLOMA IN BUSINESS
UNIT 5: BUSINESS ACCOUNTING
KAREN DIXON

Introduction:
This report will entail whether or not it is a good idea for Erika Knolls to invest in Tesco. As a financial adviser I shall use ratio analysis to make a recommendation and support my decisions on whether Tesco will be a good beneficial long term investment.
Ratio analysis will be used to measure the profitability, liquidity and efficiency of the named business and to analyse the performance of the business using ratio analysis.
I will then evaluate the financial performance and position of a business using ratio analysis.
Ratio analysis:
Ratio analysis measures how well a business is doing, also allow it to compare against previous years and competitors figures. This method will be used to measure the profitability, liquidity and efficiency of Tesco and analyse the performance of the business. Also the ratio analysis will be used to evaluate the financial performance and position of the business.
Types of ratio analysis:
Profitability ratio-
Profitability ratios are used to show if a business has done better or worse in the last year of recorded sales.
Gross profit % of sales – gross profit/sales x100 – this ratio is used to indicate the gross profit from sales made.
Net profit % of sales – net profit/sales x100 – used to show how much profit after expenses is made from sales.
ROCE (return on capital employed) – net profit/(capital employed + long-term abilities) x100 – this ratio shows the total return on the amount of share capital plus long-term debt.
Liquidity ratio-
Liquidity ratios are used to show if a business will survive and be able to pay its debts.
Current ratio – current assets/current liabilities – this shows the company’s ability to pay its debts over the next year.
Acid test/Quick ratio – (current assets – stock)/current liabilities – shows how fast a business can pay its debts.
Efficiency ratio-
Efficiency ratios are used

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