3.6 Ratio Analysis
What we will study?
By the end of this unit you should be able to:
- Calculate financial ratios
- Use ratios to interpret and analyse financial statementsfrom the perspective of different stakeholders
- Evaluate possible financial and other strategies to improve the value of ratios
The key IB Business and Management accounting ratios that you need to be able to calculate and apply are provided above.You will NOT need to memorise these formulas. They are provided for you in the examinations.
What you are required to learn is what they mean, why they may be performed and what the calculated values inform you about the business they are being applied to.
What you are required to learn is what they mean, why they may be performed and what the calculated values inform you about the business they are being applied to.
EXAM TIP!
- Many candidates state that to 'increase profit margins the business should increase sales'. This is a poor answer unless sales revenue can be increased at a greater rate than the costs of the business.
- Many exam questions will ask for methods of increasing profitability of a business. If the question needs an evaluative answer, it is very important that you consider at least one reason why your suggestion may not be effective.
