# Ratio analysis and Income Statements

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Ratio
Way of using numbers to look at how well or badly a business is doing.
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When analysing gross profit margins what is always important to remember?
Is the numbers from previous years to see if the figure is less or more and if so try to explain why and comparing to people in similar industries.
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Current ratio
Help you to understand how easily a business can meet all of their liabilities.It gives us a measure of liquidity.
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Is a current ratio of 2.9 good
Yes because it means that the business has nearly three times as many debts than current liabilities however a high figure means he has too much money just lying about and not working for him
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In the acid ratio test, why do we take stock away from our current assets.
Because stock is illiquid- it usually takes a long time to sell and turn to cash
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Sydneys Ratio and stock
His value of 2.9 made us believe that he could meet all of his debts quickly.Its only now when we use the Acid test ratio we can see that most of his money is tied up in old stock that nobody wants. If his creditors asked for their money back then Sidney
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What should however be considered during acid ratio test?
That to think what industry the business/person is in and what their figures were for last year.
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ROCE
How much money you get back from investing in a business.
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Composition of an income statement
Revenue
Gross profit
Operating profit
Net profit
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## Other cards in this set

### Card 2

#### Front

When analysing gross profit margins what is always important to remember?

#### Back

Is the numbers from previous years to see if the figure is less or more and if so try to explain why and comparing to people in similar industries.

Current ratio

### Card 4

#### Front

Is a current ratio of 2.9 good

### Card 5

#### Front

In the acid ratio test, why do we take stock away from our current assets.