INDEX
Question 1 page
Introduction 2
Profitability 4
- Gross Profit Margin 4
- Net Profit Margin Ratio 6
- Return On Capital Employed 7
- Return on Shareholders Funds 9
Working Capital 10
- Liquidity Ratios 11
Investors’ Ratios 12
Conclusion 15
Question 2 page
Introduction 16
Major Differences in Absorption Costing and Marginal Costing 16
Arguments in support of absorption costing 20
Conclusion 21
References 22
Question 1
Introduction
The purpose of financial statement analysis is to provide data for decision making. The financial statements disclose the results of the activities of an entity and are prepared to help interested persons decide on questions such as whether to lend it money or invest in its shares. Financial statement analysis can be seen as part of the link between the financial statements and the decision-making process. (University of Leicester, 2601 Accounting for Managers,p6.1).
The true meaning of figures from the financial statements emerges only when they are compared to other figures. Such comparisons are the essence of why financial ratios have been developed. These ratios are powerful tools because they allow us to immediately grasp the relationship expressed.
When a group of ratios is routinely calculated and recorded for an entity at the end of every accounting period, the performance of the entity over time can be assessed, and be compared to others in the same industry or of similar size.
For analyzing the position of the three companies in ...