1. Performance and
analysis No. 8
The performance of a business is
determined by the goals and objectives
of the company.

2. Setting goals
 Look at figure 7.10 on page 382.
 In a paragraph of about 200 words, define and
compare short, long and medium term goals.

3. Financial Ratio Analysis
 Ratios (expressed as percentages) greatly assist a
business in determining its profitability and
financial stability.
 What do think the above two words mean?

4. Profitability Ratios
 Gross Profit Ratio
 Gross Profit / net sales x 100 as a %.
 Indicates monies left over after sales less the cost of making
those goods available for sale.
 High ratio is good and low ratio needs attention
 Net Profit Ratio
 Net Profit / net sales x 100 as %
 Shows the total amount of money left over at the end of the
period.
 High ratio is good and low ratio needs attention

5. Have a go
 Go to page 376
 Using this basic income statement, determine
the gross profit and net profit ratio.
 What does this say about the performance of the
business?
 What can they do to improve? (Look at the
expenses)
 Check your answers pg 383 Table 7.7

6.  Return on owners investment
 Net profit / Owners Equity x 100 as a %
 Measures the success of the business as an investment
 Shows the amount of profit returned to the business from
investments
 High ratio is good and a low ratio needs improvement
 Between 70% to 100% is considered to be high
 Return on Total Assets
 Net Profit / Total Assets x 100 as a %
 This shows how effectively the business has used its assets to
produce profit.
 High ratio is good and a low ratio needs improvement
 Between 5% to 20% is considered to be low

7. Have a go
 Using the balance sheet on page 374, determine
the return on owners investment and return on
total assets.
 Comment on the results
 Check your answers pg 384.

8. Summarise
 Open up a new document
 Summarise the profitability ratios now for your own
notes.