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Accounting Ratios. By using ratios Hills System ltd can monitor their businesss performance. The more they know about their Business performance, the easier it will be for them to make decisions about how to manage and grow their business

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Introduction

Accounting Ratios What is a Balance sheet? It is a financial statement that summarizes a company's assets, liabilities and owner's capital at a specific point in time. Balance sheet The Purpose of a "Balance Sheet" Balance sheet answers all questions regarding the financial condition and are extensively referred and analyzed by banks and investors . Uses of the Balance Sheet * To determine how much the business is worth. * Comparisons of balance sheets over time show trends in financial strength and structure. * To support loan requests. * To provide information for estate planning. * To help analyze the business' ability to bear risk. * To provide year end values for increased assets and liabilities which are needed in measuring business profitability It is mainly used to identify business problems : * liquidity problems - Company's ability / inability to meet financial obligations. * Working capital- How strong a company is to meet its short term liabilities. Profit and Loss Account What is a Profit and Loss Account? The Profit and Loss Account is a report that shows theor loss of a business over a given period of time, which is normally a year. ...read more.

Middle

Current assets In Hill systems ltd the current assets are : * Stock * Debtors * Bank/Cash * Creditors Fixed assets In Hill systems ltd the fixed assets are : * Land and premises * Fixtures and fittings * Motor vehicles Land and premises This is the money paid for the land the business is using and the amount of premises they have scattered. They paid �1105,000 in 2007 and �1366,000 in 2008. Fixtures and fittings These are lighting, electricity and telephones costs. They're needed in a business for the business to be ran. They paid �115,000 in 2007 and �258,000 in 2008 for these. Net assets employed Shows how much the business's assets are worth. This is found out by using this equation: Fixed assets + current assets net. They net assets employed is �2228,000 in 2007 and �2508,000 in 2008. Working capital This is amount of money available for the day to day running of the business. The working capital in 2007 is �863,000 and �744,000 in 2008. "Stock+ debtors+ bank/cash - creditors = Working Capital" Owners capital This is the money invested in the business by the owners. They invested �1300,000 in, in 2007 and �1618,000 in, in 2008. ...read more.

Conclusion

There are two types of liquidity ratio: Current Ratio The current ratio measures the ratio of current assets to current liabilities. A current asset is an asset that can be quickly turned into cash, such as motor vehicles. A current liability is a debt that a business will be paying within the next year. This ratio shows the ability of the company to pay off its debts over the next year. A ratio of; shows you have twice as many current assets as current liabilities. Formula: Current ratio formula : Current Assets / Current Liabilities Acid Test The acid test ratio, like the current ratio, measures the ability of your company to pay off its debt. The difference is that motor vehicle is not included as a current asset. Because turning your motor vehicle into cash is contingent on sales, the quick ratio shows the company's ability to pay its debts if they were not able to sell the motor vehicle. Acid Test ratio formula : Current Assets - Stock Current Liabilities There are there main accounting ratios. These are Liquidity, Profitability and Performance ratios. These are used to monitor the business, whether its going swiftly or unstable. They make it easy to identify financial issues before its too late for the business to act on the issues. ...read more.

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