Accounting (AS)·Ratios & interpretation · NSSCAS 4.1.2
Who uses ratios, comparisons & their limitations
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Calculating a ratio is only half the job — somebody has to USE it. In this lesson you meet the seven users of accounting ratios, learn to compare two years of figures and write the trend-reason-recommendation comments examiners love, and finish with the five big limitations of ratios. This is the discuss-and-advise heart of the interpretation question in Paper 1.
What you'll learn in this lesson
By the end you should be able to (NSSCAS Accounting (AS) 4.1.2):
- discuss the importance of accounting ratios to: owners, managers, trade payables, trade receivables, banks, employees, potential investors
- compare accounting ratios over time or to similar businesses to advise management and to aid decision making
- identify and discuss the limitations of accounting ratios
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Miss Olivia and Mike talk through the whole topic — with the figure and working drawn live.