Business Studies·The accounting function · NSSCO 2.4
Interpreting statements: profitability, liquidity & solvency ratios
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A page of Namibian dollar figures is hard to judge on its own. In this lesson we turn those figures into ratios — small, powerful calculations that tell us at a glance how a business is really doing. Using one Windhoek shop and one set of figures, we work out every profitability, liquidity and solvency ratio on the board, line by line, to two decimal places, and after each answer we stop and ask the most important question: what does this number actually mean?
What you'll learn in this lesson
By the end you should be able to (NSSCO Business Studies 2.4):
- Use and interpret simple quantitative accounting data, in particular the financial statements (Income Statement and Statement of Financial Position) of a business, calculating performance ratios (return on capital employed, gross profit margin (%), net profit margin (%)), liquidity ratios (current ratio, quick/liquid ratio, rate of inventory turnover) and the solvency ratio
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Miss Maria and Mike talk through the whole topic — with the figure and working drawn live.