4. The TRADING ACCOUNT shows the Gross Profit – profit made from buying and selling goods. It is not the final profit. The PROFIT & LOSS ACCOUNT shows the Net Profit – the final profit. It is the Gross Profit add income from any other sources minus any expenses. THE FINAL ACCOUNTS
5. THE FINAL ACCOUNTS If we are dealing with a Sole Trader, then the profit is all theirs. However, the profit is divided between all of the owners in a partnership or company. This is done in the APPROPRIATION ACCOUNT. The BALANCE SHEET is like a snapshot of a business, showing what the business has and what the business owes. It shows the overall value of a business.
6. How does a business know if it is doing well? The profit figure can be a good guide as to whether a business is performing well. Certainly, a profit is better than a loss.
7. Which business is doing best? Take these 2 businesses and look at their profits: Profits of more than £2 billion vs Profits of £15,000 George’s Groceries
8. Financial Ratios Tesco is a large multinational company whereas George’s Groceries is a small local business. It is therefore more meaningful to use ratios to analyse the performance of a business rather than comparing figures.
9. Using Ratios With ratios, businesses can compare their own performance over a period of time and they can also compare themselves to other similar businesses .
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14. How do we calculate the ratios Gross Profit Percentage Gross Profit Net Sales X 100 = ? %
15. How do we calculate the ratios Net Profit Percentage Net Profit Net Sales X 100 = ? %
16. How do we calculate the ratios Return on Capital Employed Net Profit Opening Capital X 100 = ? %
17. How do we calculate the ratios Working Capital Ratio Current Assets Current Liabilities = ?:1
18. How do we calculate the ratios Acid Test Ratio Current Assets - Stock Current Liabilities = ?:1
19. How do we calculate the ratios Rate of Stock Turnover Step 1: Calculate the Average Stock Opening Stock + Closing Stock 2 Step 2: Calculate the Rate of Stock Turnover Cost of Goods Sold Average Stock = ? times = Average Stock
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