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Economic and management sciences

Grade 9

Business, consumer and financial knowledge and skills

Module 24

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:

Net profit Capital size 12{ { { size 11{"Net profit"}} over { size 11{"Capital"}} } } {} × 100 1 size 12{ { {"100"} over {1} } } {} 20 000 200 000 size 12{ { { size 11{"20"`"000"}} over { size 11{"200"`"000"}} } } {} × 100 1 size 12{ { {"100"} over {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:

NV Capital size 12{ { { ital "NV"} over { ital "Capital"} } } {} × 100 1 size 12{ { {"100"} over {1} } } {}

35 000 100 000 size 12{ { {"35"`"000"} over {"100"`"000"} } } {} × 100 1 size 12{ { {"100"} over {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.

Questions & Answers

where we get a research paper on Nano chemistry....?
Maira Reply
what are the products of Nano chemistry?
Maira Reply
There are lots of products of nano chemistry... Like nano coatings.....carbon fiber.. And lots of others..
learn
Even nanotechnology is pretty much all about chemistry... Its the chemistry on quantum or atomic level
learn
Google
da
no nanotechnology is also a part of physics and maths it requires angle formulas and some pressure regarding concepts
Bhagvanji
Preparation and Applications of Nanomaterial for Drug Delivery
Hafiz Reply
revolt
da
Application of nanotechnology in medicine
what is variations in raman spectra for nanomaterials
Jyoti Reply
I only see partial conversation and what's the question here!
Crow Reply
what about nanotechnology for water purification
RAW Reply
please someone correct me if I'm wrong but I think one can use nanoparticles, specially silver nanoparticles for water treatment.
Damian
yes that's correct
Professor
I think
Professor
Nasa has use it in the 60's, copper as water purification in the moon travel.
Alexandre
nanocopper obvius
Alexandre
what is the stm
Brian Reply
is there industrial application of fullrenes. What is the method to prepare fullrene on large scale.?
Rafiq
industrial application...? mmm I think on the medical side as drug carrier, but you should go deeper on your research, I may be wrong
Damian
How we are making nano material?
LITNING Reply
what is a peer
LITNING Reply
What is meant by 'nano scale'?
LITNING Reply
What is STMs full form?
LITNING
scanning tunneling microscope
Sahil
how nano science is used for hydrophobicity
Santosh
Do u think that Graphene and Fullrene fiber can be used to make Air Plane body structure the lightest and strongest. Rafiq
Rafiq
what is differents between GO and RGO?
Mahi
what is simplest way to understand the applications of nano robots used to detect the cancer affected cell of human body.? How this robot is carried to required site of body cell.? what will be the carrier material and how can be detected that correct delivery of drug is done Rafiq
Rafiq
if virus is killing to make ARTIFICIAL DNA OF GRAPHENE FOR KILLED THE VIRUS .THIS IS OUR ASSUMPTION
Anam
analytical skills graphene is prepared to kill any type viruses .
Anam
Any one who tell me about Preparation and application of Nanomaterial for drug Delivery
Hafiz
what is Nano technology ?
Bob Reply
write examples of Nano molecule?
Bob
The nanotechnology is as new science, to scale nanometric
brayan
nanotechnology is the study, desing, synthesis, manipulation and application of materials and functional systems through control of matter at nanoscale
Damian
Is there any normative that regulates the use of silver nanoparticles?
Damian Reply
what king of growth are you checking .?
Renato
What fields keep nano created devices from performing or assimulating ? Magnetic fields ? Are do they assimilate ?
Stoney Reply
why we need to study biomolecules, molecular biology in nanotechnology?
Adin Reply
?
Kyle
yes I'm doing my masters in nanotechnology, we are being studying all these domains as well..
Adin
why?
Adin
what school?
Kyle
biomolecules are e building blocks of every organics and inorganic materials.
Joe
how did you get the value of 2000N.What calculations are needed to arrive at it
Smarajit Reply
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Source:  OpenStax, Economic and management sciences grade 9. OpenStax CNX. Sep 15, 2009 Download for free at http://cnx.org/content/col11074/1.1
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