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Unit 2 D2 Evaluate the adequacy of accounting ratios as a means of monitoring the state of Tescos

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Introduction

D2 evaluate the adequacy of accounting ratios as a means of monitoring the state of the business in selected organisation, using example This report will evaluate the adequacy of accounting ratios as a means of monitoring the state of the business in selected organisation, using example. The selected organisation is going to Tesco plc, and it will be evaluating their profitability ratios and Liquidity ratios. A financial ratio (or accounting ratio) is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. There are many standard ratios used to try to evaluate the overall financial condition of a corporation form a balance sheet. Financial ratios may be used by managers within a firm, by current and potential shareholders of a firm. Financial analysts use financial ratios to compare the strengths and weaknesses in various companies. Accounting ratios indicates the efficient use of business assets and whether the share price is realistic based on earnings, but some of the critical details that might cause the business to go bankrupt are, liquidity ratios, legal issues, employee issues or funding issues/gearing ratios. ...read more.

Middle

For example: This is because it shows the shareholder what Tesco plc’s profit is in a percentage, but not the specific amount of profit or sales they have made, however this will make it easier for shareholder to know if the business is right organisation to invest in as they would also look at shareholder ratios. The calculation below will show the gross profit margin of Tesco plc from the balance sheet. Actual figure indicates how much gross profit the business has gain, this shows how much profit the business has gained or the amount of sales the business has gained from selling products. This shows the actually figures shows much the organisation has actually gained or loss. However actual figures doesn’t give the indication of the performance of the business for example on Tesco plc’s balance sheet it shows that in 2013 they had a total sales of £64,826m and in 2012 they made a total gross profit of £5,397m. Actual figures show the aspects that the business has made over the years. This indicates how much they have gained and loss in the years, which is useful to check the business profit margin and finance. ...read more.

Conclusion

(19,249) The current liabilities (including liabilities of the disposal group classified as held for sales) on Tesco plc’s balance sheet show the amount of debt that they owe to other companies. For example Tesco plc owed £18,985m in 2013 and in 2012 Tesco plc owed £19,249m. This indicates Tesco plc owed companies more in 2012 than in 2013 because of the less borrowing they have done in 2012 by £264m The balance sheet of Tesco plc’s current assets (including liabilities of the disposal group and non-current assets classified as held for sale) in 2013 Tesco plc had £13,096m this because however in 2012 Tesco plc had less money than in 2012 for example they spent £12,863m, their current assets went up by £233m in a year. This indicates that Tesco plc.’s current assets and current liabilities shows how much they have spent on certain things and what they are paying out to certain things too. In conclusion, the adequacy of accounting in Tesco plc, monitoring their profitability ratios and Liquidity ratios is essential for Tesco plc to be monitored frequently. This is because not knowing whether the organisation has enough money or doesn’t have enough money to invest in the organisation; it is difficult to make decisions if their finances are not monitored. | Page ...read more.

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