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Financial Analysis and Ratios

3 dot points across 3 inquiry questions. Click any dot point for a focused answer with worked past exam questions where available.

What does a ratio actually tell us, and what are the limits of using ratios?

Interpret ratios by comparison and explain the limitations of ratio analysis
A simple answer to the N(A)-Level Principles of Accounts outcome on interpreting ratios. Why ratios must be compared, how to explain a change, and the main limitations of ratio analysis.
9 min answer →

Can the business pay its short-term debts as they fall due?

Calculate and interpret the current ratio and the quick (acid-test) ratio
A simple answer to the N(A)-Level Principles of Accounts outcome on liquidity ratios. The current ratio and the quick ratio, how to calculate each, what a healthy figure looks like, and what they reveal about paying debts.
9 min answer →

How well does a business turn its sales into profit?

Calculate and interpret the gross profit margin and the profit margin
A simple answer to the N(A)-Level Principles of Accounts outcome on profitability ratios. The gross profit margin and the profit margin, how to calculate each, and what a change in them tells the owner.
9 min answer →