This document outlines a lesson on interpreting financial ratios to determine the health of an organization. The lesson aims to teach students to: 1) Describe how to record transactions, monitor activity, and control management planning, monitoring, and controlling. 2) Measure financial performance through metrics like gross profit and net profit. 3) Categorize capital income from sources like sole traders, partners, shares, and mortgages/loans. The lesson involves students matching business transactions to activities and people, defining key terms like capital/revenue income and expenditures, and beginning a dictionary of accounting terms.

1. BTEC Extended Diploma in
Business
Interpretation of ratios
How to determine the financial
health of an organisation
BTEC Extended Diploma - Unit 5 - 1
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2. Learning outcomes:
• By the end of this lesson you must be able
to:-
• Describe how to record transactions,
monitor activity, control management of
the business (planning, monitoring,
controlling)
• Measurement of financial performance
(gross profit, net profit, value owed to and
by the business)
• Categorise Capital income: sole traders;
partners; shares;SharronDiploma mortgages
loans; - Unit 5 -
BTEC Extended
Holding
2

3. BTEC Extended Diploma - Unit 5 - 3
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4. Record Transactions
• Work in pairs
• Using the cards provided match up the
- activity
- purpose
- and suggest the person responsible for the
activity
Take 10 minutes
BTEC Extended Diploma - Unit 5 - 4
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5. Fill in the missing words
• Work individually – take max. 10 minutes
• Compare your answers with your
neighbour
• Check – are you right?
BTEC Extended Diploma - Unit 5 - 5
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6. Measurement of financial
performance
• Financial records allow a business to
identify if they are making a profit or loss.
• Profit is identified as GROSS PROFIT or
NET PROFIT
ACTIVITY
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7. Money matters – what is the
difference between the
following?
• Value owed to the business
• Value owed by the business
BTEC Extended Diploma - Unit 5 - 7
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8. What happens if money is going
out at a higher pace than the
money coming in?
BTEC Extended Diploma - Unit 5 - 8
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9. Reminder – you are expected
to:
• Be able to examine a specific type of
organisation and identify the likely income
and revenue and indicating in each case
whether it is of a capital or revenue
nature. You must also be able to describe
clearly what each category means.
BTEC Extended Diploma - Unit 5 - 9
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10. Capital income
• Capital income is the money invested by
the owners or other investors that is used
to set up a business or buy additional
equipment
Research
time
BTEC Extended Diploma - Unit 5 - 10
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11. Revenue Income
• Revenue is income that a company
receives from its normal business
activities, usually from the sale of goods
and services to customers
a.k.a turnover
BTEC Extended Diploma - Unit 5 - 11
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12. Revenue Income
• Some companies receive revenue from
interest, dividends or royalties paid to
them by other companies
BTEC Extended Diploma - Unit 5 - 12
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13. What is Capital expenditure?
• Capital expenditures (CAPEX or capex)
are expenditures creating future benefits,
capex is incurred when a business spends
money either to buy fixed assets or to add
to the value of an existing fixed asset with
a useful life extending beyond the taxable
year. CAPEX is used by a company to
acquire or upgrade physical assets such
as equipment, property, or industrial
buildings BTEC Extended Diploma - Unit 5 - 13
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14. Capital expenditure
• fixed assets (land and buildings; office
equipment; machinery; furniture and
fittings; motor vehicles); intangibles, eg
goodwill, patents, trademarks
BTEC Extended Diploma - Unit 5 - 14
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15. Freddies Frames
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16. A-Z
• Working individually begin a dictionary A-Z
of accounting words together with a
definition (covered so far) – you will
improve on your dictionary week by week
so consider the presentation and quality of
your work.
• Now work in pairs to share your results
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17. Lesson Outcomes
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