Overview

It is a feature of financial statements that they contain an awful lot of numbers. This theme provides you with some tools to help you separate the wood from the trees and draw out the key questions to be asked. Without this toolkit it is very difficult to start any analysis or evaluation of financial performance.

You will be introduced to a range of performance indicators that you can use to evaluate financial performance, in particular the use of key financial ratios. Financial ratios express one piece of financial information (for example profit) in terms of another (for example total assets). The result is then compared with the equivalent result for another time period or organisation to identify trends in financial performance. You will look at the some of the financial ratios that are used to analyse profitability, working capital, gearing and investment.

In this theme you will:

• Explore techniques for monitoring trends in financial performance

• Find out how to analyse the profitability of an organisation using the major profitability ratios

• Describe what is meant by capital investment and appraise the financial statement supporting an investment proposal

• Discover the components of and main ways of controlling working capital

• Distinguish between the three main sources of finance for a business and explore what is meant by gearing.