What I may already know: • Preparing accounts gives a business valuable information about its finances. • Business decisions are made based on the financial information in accounts.
Learning Intentions
In this chapter, I will learn: • How a business uses its final accounts. • How to analyse final accounts and comment on the financial position of a business. • What action a business can take based on the analysis of its final accounts. • The limitations of using final accounts to assess performance.
Key Words: Stock turnover Average stock Profitability Working capital (current) ratio
Acid test (quick) ratio Credit control Solvency
HOW DOES A BUSINESS USE ITS FINAL ACCOUNTS?
Once final accounts have been prepared, they provide valuable information about the financial position of a business, such as:
• How well the business is performing year on year (i.e. is its profit increasing or decreasing?).
• How well the business is performing compared to its competitors.
• How efficient the business is and whether or not it could be more efficient.
