# 4.9 Analysing financial statements

 Page 1 / 1

## Analysing financial statements

Financial Statements: Analysis and Use for Decision Making

ACTIVITY 1:

To analyse financial statement[LO 3.5]

Financial statements are used as a way of discovering the financial position and financial results of a business.

Financial figures, contained in the financial statements, usually do not tell outsiders very much. In order for the figure to be of any value, they must be compared with the results of previous years or with the results of other businesses in the same industry.

Financial statements are also used to determine ratios and trends.

The following ratios can be used in decision making:

1. Liquidity:

This is the ability of the business to honour its obligations (pay its bills) and is expressed in the ratio current assets to current liabilities.

Current assets : Current liabilities

40 000 : 16 000

2,5 : 1

This indicates good liquidity, as the norm for businesses is 2:1.

2. Profitability:

This indicates the profitability of the funds invested in the business and is calculated as follows:

$\frac{\text{Net profit}}{\text{Capital}}$ × $\frac{\text{100}}{1}$ $\frac{\text{20}\text{000}}{\text{200}\text{000}}$ × $\frac{\text{100}}{1}$ = 10%

If the percentage is significantly higher than the current bank rate of ±15%, the profitability is good.

3. Solvency:

This indicates by how much the total assets of the business exceed the total liabilities. It is calculated as follows:

Total Assets : Total Liabilities

50 000 : 20 000

2,5 : 1

The solvency is good as the norm is 2:1.

ASSIGNMENT:

• Use the information below to determine the following:

(a) Profitability

(b) Solvency

(c) Liquidity

Comment on the answer to each and give reasons why it is good or bad.

• The net profit of the company is R35 000
• The capital is R100 000
• Fixed assets are R90 000
• Current assets are R30 000
• Current liabilities are R10 000

## Assessment

 Learning Outcomes(LOs) LO 3 MANAGERIAL, Consumer and Financial Knowledge and SkillsThe learner will be able to demonstrate knowledge and the ability to apply responsibly a range of managerial, consumer and financial skills. Assessment Standards(ASs) We know this if the learner : 3.1 completes a basic income statement and balance sheet for a service and retail business; 3.2 investigates the public relations, social responsibility and environmental responsibility strategies and actions of different businesses and organisations; 3.3 completes cash and credit transactions in the books of service and retail businesses; 3.4 uses keyboard skills and function keys in developing, storing, retrieving and editing business documentation; 3.5 analyses financial statements for decision-making at a basic level; 3.6 differentiates between the forms of credit purchases.

## Memorandum

ACTIVITY 1

(a) Profitability:

$\frac{\text{NV}}{\text{Capital}}$ × $\frac{\text{100}}{1}$

$\frac{\text{35}\text{000}}{\text{100}\text{000}}$ × $\frac{\text{100}}{1}$

= 35%

Very good profitability measured against a bank rate of 15%.

(b) Solvability:

Total Assets : Total Liabilities

120 000 : 10 000

12 : 1

A good solvability ratio, as the liabilities are covered 12 times by the assets.

(c) Liquidity:

Current assets : Current liabilities

30 000 : 10 000

3 : 1

A good liquidity ratio measured against the norm of 2:1.

anyone know any internet site where one can find nanotechnology papers?
research.net
kanaga
Introduction about quantum dots in nanotechnology
what does nano mean?
nano basically means 10^(-9). nanometer is a unit to measure length.
Bharti
do you think it's worthwhile in the long term to study the effects and possibilities of nanotechnology on viral treatment?
absolutely yes
Daniel
how to know photocatalytic properties of tio2 nanoparticles...what to do now
it is a goid question and i want to know the answer as well
Maciej
Abigail
for teaching engĺish at school how nano technology help us
Anassong
Do somebody tell me a best nano engineering book for beginners?
there is no specific books for beginners but there is book called principle of nanotechnology
NANO
what is fullerene does it is used to make bukky balls
are you nano engineer ?
s.
fullerene is a bucky ball aka Carbon 60 molecule. It was name by the architect Fuller. He design the geodesic dome. it resembles a soccer ball.
Tarell
what is the actual application of fullerenes nowadays?
Damian
That is a great question Damian. best way to answer that question is to Google it. there are hundreds of applications for buck minister fullerenes, from medical to aerospace. you can also find plenty of research papers that will give you great detail on the potential applications of fullerenes.
Tarell
what is the Synthesis, properties,and applications of carbon nano chemistry
Mostly, they use nano carbon for electronics and for materials to be strengthened.
Virgil
is Bucky paper clear?
CYNTHIA
carbon nanotubes has various application in fuel cells membrane, current research on cancer drug,and in electronics MEMS and NEMS etc
NANO
so some one know about replacing silicon atom with phosphorous in semiconductors device?
Yeah, it is a pain to say the least. You basically have to heat the substarte up to around 1000 degrees celcius then pass phosphene gas over top of it, which is explosive and toxic by the way, under very low pressure.
Harper
Do you know which machine is used to that process?
s.
how to fabricate graphene ink ?
for screen printed electrodes ?
SUYASH
What is lattice structure?
of graphene you mean?
Ebrahim
or in general
Ebrahim
in general
s.
Graphene has a hexagonal structure
tahir
On having this app for quite a bit time, Haven't realised there's a chat room in it.
Cied
what is biological synthesis of nanoparticles
what's the easiest and fastest way to the synthesize AgNP?
China
Cied
types of nano material
I start with an easy one. carbon nanotubes woven into a long filament like a string
Porter
many many of nanotubes
Porter
what is the k.e before it land
Yasmin
what is the function of carbon nanotubes?
Cesar
I'm interested in nanotube
Uday
what is nanomaterials​ and their applications of sensors.
how did you get the value of 2000N.What calculations are needed to arrive at it
Privacy Information Security Software Version 1.1a
Good
Berger describes sociologists as concerned with
Got questions? Join the online conversation and get instant answers!