HIGHER LEVEL

ASSESSING A BUSINESS

Overview

Who is interested in the accounts of a business?

Profitability ratiosLiquidity ratiosActivity ratiosDividend policyHow to structure your answer

Interested Parties

1. Management – performance of a company from one year to the next

2. Revenue Commissioners – calculating tax based on profits made

3. Bank – repayments of loans and overdrafts4. Creditors – can you make repayments for

goods bought on credit5. Employees – can their wages be paid, job

security6. Investors – is it a good company to invest in

Profitability

Liquidity

Activity

Layout of solutions

1. State the formula

2. Show the workings for the two years

3. Show the correct unit with each answer e.g. ratio, %, times

4. In your evaluation, outline the difference between the two years performance.

5. For Liquidity ratios, outline the IDEALS1. Working capital ratio 2:12. Acid-test ratio 1:1