← Interpret accounting information
The measures, grouped (every paper draws one from each)
Learn the "means" sentence for each — that phrasing is the mark.| Group | Measure | The "means" sentence |
|---|---|---|
| Profitability | Profit % | X cents of every sales dollar is left as profit |
| Profitability | Expense % | X cents of every sales dollar is consumed by expenses |
| Profitability | Mark-up % | X% is added to cost to set the selling price |
| Profitability | Return on equity | X cents earned per dollar the owner has invested |
| Liquidity | Current ratio | $X of current assets per of current liabilities |
| Liquidity | Liquid ratio | $X of liquid assets (excluding inventory) per owed soon |
| Liquidity | Age of receivables | Customers take X days on average to pay |
| Liquidity | Inventory turnover | Stock is sold and replaced X times a year |
| Stability | Equity ratio | X cents of every asset dollar is funded by the owner |
| Stability | Finance cost % | X cents of every sales dollar goes on interest |
Papers state the figure for you. Nothing is gained by recalculating it and everything is lost by not interpreting it.
Which group a given consequence typically belongs to
- A profitability consequence usually reads: "...leaving more/less profit for the owner to reinvest or draw."
- A liquidity consequence usually reads: "...affecting the ability to pay bills or suppliers as they fall due."
- A stability consequence usually reads: "...changing how much of the business is funded by debt versus the owner, and the interest obligation that comes with it."
Practice for this standard covers the whole topic — flashcards and quiz.