• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Business resources P6

Extracts from this document...

Introduction

For this task, you need to comment on the financial health of the business by backing your assessment with the aid of examples of accounting ratio Solvency ratios Solvency ratio measures the financial soundness of a business and how well the company can satisfy its short and long-term obligations. Solvency ratio is divided into two current ratio and acid test ratio. Current ratio This year Formula Current asset/current liabilities Working out - �200,000/�130,000 Answer = �1.53 This means that for every �1 of current liabilities the business has �1.53 of current assets available. Normally it should between �1.5 - 2. A figure less than 1.5 indicates that the business may experience difficulties in meeting its short-term debts. ...read more.

Middle

The business was financially healthier last year than this year. This because the business had �1.60 of current assets to pay it current liabilities last year, but only had �1.53 of current asset to pay for it current liabilities this year. Therefore, this indicates that the business was in better financial position last year. Acid test ratio Formula Current asset - stock/ current liabilities Working out - �200,000 - �22,000/130 Answer = �1.37 This means that for every �1 of current liabilities the business has �1.37 of current asset available at short notice. Normally the answer should between �1 - 2. A figure less than �1 indicate that the business may experience difficulties in meeting it short-term debts. ...read more.

Conclusion

This simply means a business can pay its creditors by possessing enough working capital. The acid test ratio helps the business know how quickly it can pay it creditors by deducting the stock. The acid test ratio is more accurate than the current ratio in terms of liquidity. This is simply because the acid test ratio deducts the value of stock from the current assets. For a business to be able to turn stock into cash could take some time as cash from any sale will only be received according to the business trading agreements. For example, a business may look healthy using the current ratio, but may be carrying too much stock. Margin of safety will help the business whether they are able to break even and see the percentage that they surpass the breakeven point. ?? ?? ?? ?? Abdulaziz Omar Unit 2 - Investigating Business Resources ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Accounting & Financial Management section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Accounting & Financial Management essays

  1. Marked by a teacher

    Business resources D1

    3 star(s)

    So, this would affect the performance of the business as it would reduce its profits. However, if a business doesn't manage to control its budgets then it wouldn't be able to reach it objectives and targets because the budgets haven't been observed by the business.

  2. Business resources P5

    For example shares, loans and retained capital(profit) Opening capital Opening capital is the money the owner of the business has invested in order to start the business. Drawing Drawing is the money which the owner took out of the business for his personal use.

  1. A2 Business CourseWork

    It will mean that Tesco will try and introduce measures to acquire more customers. How they are going about achieving this aim: Tesco believe that the best way to improve their market share is by opening more stores. They have done this in recent years by opening up new types

  2. Btec Business Level 3 Year 1 - Introduction to Accounting

    is the increase (or decrease) in the net value of assets during that period * prepare simple columnar Trading Accounts when dealing with a business which has some departments Balance Sheets * recognise that they are statements of balances of assets and liabilities on a specified date set out in

  1. Profitability and Liquidity

    At the end of the business year I can then compare my cash flow forecast with the actual cash flow. This allows me to see where it is I have over spent, or even not spent enough. But most importantly, it allows me to make any adjustments for the following year.

  2. Investigating Business Resources Unit 2 P3

    It involves the business owing money to outside individuals or institutions There are a number of different external sources that can be used to fund a business. Some of these are outlined below: * Banks- * Building Societies * Hire Purchase * Leasing * Venture capitalists * Factoring * Share

  1. Business resources M2

    Furthermore the staff wouldn't feel motivated as they won't have any real and obvious targets to reach. If a Sainsbury doesn't control its cost and budget then it runs the risk of spending more money than it is taking in or, even, not spending enough money to expand the business and compete.

  2. Unit 2 Exploring Business Activity P6 - ratios

    If a business has a high gross profit percentage but a low net profit percentage its operating costs (i.e. staff, petrol, rent, insurance and wages) are too high as they are taking too much profit from the business. Gearing Long-term Loans / Capital x 100 = Gearing % This ratio

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work