3.8 Analysis and evaluation of financial information


Additional information

Calculation and interpretation of financial measures and ratios.

Financial ratios and measures are:

  • gross profit margin %
  • markup %
  • rate of inventory turnover
  • rate of inventory turnover (days)
  • profit in relation to revenue %
  • expenses in relation to revenue %
  • return on capital employed %
  • current ratio
  • liquid capital ratio
  • trade receivable days
  • trade payable days
  • capital gearing.

Appraising business performance by using financial statements and ratios.

Appraisals could focus on:

  • profitability
  • liquidity
  • efficiency
  • capital structure.

The difference between cash and profits and the effect of transactions on profitability and liquidity.


The limitations of financial statements and ratio analysis when assessing business performance.

Limitations will include those relating to both financial and non-financial factors.