Explore techniques for monitoring trends in financial performance

• Restating the figures in financial reports as percentages makes it easier to identify trends in performance and carry out what-if analyses. Common size analysis is an example where the figures from the profit and loss statement are presented as a percentage of sales.

• Indicators like the gross profit margin, the gross profit (sales less the cost of good bought in) expressed as a percentage of sales, are similarly useful.

• Variance analysis (the difference between forecast and budget costs) is a more valuable technique for monitoring movement in individual overheads because it considers overheads in isolation from the impact of sales.

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

• The major ratios used to measure how well a business generates profit are:

  • return on capital employed (ROCE)

  • asset turnover

  • net profit margin.

• ROCE measures the percentage return a company is earning on the money invested in it. Ideally, a company's ROCE should be increasing year on year as it makes better use of its assets.

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

• Large, long-term purchases or expenses, such as premises, start up costs, machinery and other fixed assets, are generally paid for by investment capital.

Discover the components of and main ways of controlling working capital

• Working capital is the money used to finance short-term expenses, such as customer credit, saleable goods or...