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Economic and management sciences

Grade 9

Business, consumer and financial knowledge and skills

Module 24

Analysing financial statements

Financial Statements: Analysis and Use for Decision Making

ACTIVITY 1:

To analyse financial statement[LO 3.5]

Financial statements are used as a way of discovering the financial position and financial results of a business.

Financial figures, contained in the financial statements, usually do not tell outsiders very much. In order for the figure to be of any value, they must be compared with the results of previous years or with the results of other businesses in the same industry.

Financial statements are also used to determine ratios and trends.

The following ratios can be used in decision making:

1. Liquidity:

This is the ability of the business to honour its obligations (pay its bills) and is expressed in the ratio current assets to current liabilities.

Current assets : Current liabilities

40 000 : 16 000

2,5 : 1

This indicates good liquidity, as the norm for businesses is 2:1.

2. Profitability:

This indicates the profitability of the funds invested in the business and is calculated as follows:

Net profit Capital size 12{ { { size 11{"Net profit"}} over { size 11{"Capital"}} } } {} × 100 1 size 12{ { {"100"} over {1} } } {} 20 000 200 000 size 12{ { { size 11{"20"`"000"}} over { size 11{"200"`"000"}} } } {} × 100 1 size 12{ { {"100"} over {1} } } {} = 10%

If the percentage is significantly higher than the current bank rate of ±15%, the profitability is good.

3. Solvency:

This indicates by how much the total assets of the business exceed the total liabilities. It is calculated as follows:

Total Assets : Total Liabilities

50 000 : 20 000

2,5 : 1

The solvency is good as the norm is 2:1.

ASSIGNMENT:

  • Use the information below to determine the following:

(a) Profitability

(b) Solvency

(c) Liquidity

Comment on the answer to each and give reasons why it is good or bad.

  • The net profit of the company is R35 000
  • The capital is R100 000
  • Fixed assets are R90 000
  • Current assets are R30 000
  • Current liabilities are R10 000

Assessment

Learning Outcomes(LOs)
LO 3
MANAGERIAL, Consumer and Financial Knowledge and SkillsThe learner will be able to demonstrate knowledge and the ability to apply responsibly a range of managerial, consumer and financial skills.
Assessment Standards(ASs)
We know this if the learner :
3.1 completes a basic income statement and balance sheet for a service and retail business;
3.2 investigates the public relations, social responsibility and environmental responsibility strategies and actions of different businesses and organisations;
3.3 completes cash and credit transactions in the books of service and retail businesses;
3.4 uses keyboard skills and function keys in developing, storing, retrieving and editing business documentation;
3.5 analyses financial statements for decision-making at a basic level;
3.6 differentiates between the forms of credit purchases.

Memorandum

ACTIVITY 1

(a) Profitability:

NV Capital size 12{ { { ital "NV"} over { ital "Capital"} } } {} × 100 1 size 12{ { {"100"} over {1} } } {}

35 000 100 000 size 12{ { {"35"`"000"} over {"100"`"000"} } } {} × 100 1 size 12{ { {"100"} over {1} } } {}

= 35%

Very good profitability measured against a bank rate of 15%.

(b) Solvability:

Total Assets : Total Liabilities

120 000 : 10 000

12 : 1

A good solvability ratio, as the liabilities are covered 12 times by the assets.

(c) Liquidity:

Current assets : Current liabilities

30 000 : 10 000

3 : 1

A good liquidity ratio measured against the norm of 2:1.

Questions & Answers

An investment account was opened with an initial deposit of $9,600 and earns 7.4% interest, compounded continuously. How much will the account be worth after 15 years?
Kala Reply
lim x to infinity e^1-e^-1/log(1+x)
given eccentricity and a point find the equiation
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12, 17, 22.... 25th term
Alexandra Reply
12, 17, 22.... 25th term
Akash
College algebra is really hard?
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Carole
find the 15th term of the geometric sequince whose first is 18 and last term of 387
Jerwin Reply
I know this work
salma
The given of f(x=x-2. then what is the value of this f(3) 5f(x+1)
virgelyn Reply
hmm well what is the answer
Abhi
how do they get the third part x = (32)5/4
kinnecy Reply
can someone help me with some logarithmic and exponential equations.
Jeffrey Reply
sure. what is your question?
ninjadapaul
20/(×-6^2)
Salomon
okay, so you have 6 raised to the power of 2. what is that part of your answer
ninjadapaul
I don't understand what the A with approx sign and the boxed x mean
ninjadapaul
it think it's written 20/(X-6)^2 so it's 20 divided by X-6 squared
Salomon
I'm not sure why it wrote it the other way
Salomon
I got X =-6
Salomon
ok. so take the square root of both sides, now you have plus or minus the square root of 20= x-6
ninjadapaul
oops. ignore that.
ninjadapaul
so you not have an equal sign anywhere in the original equation?
ninjadapaul
hmm
Abhi
is it a question of log
Abhi
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I rally confuse this number And equations too I need exactly help
salma
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salma
Commplementary angles
Idrissa Reply
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Sherica
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hi
salma
what is a good calculator for all algebra; would a Casio fx 260 work with all algebra equations? please name the cheapest, thanks.
Kevin Reply
a perfect square v²+2v+_
Dearan Reply
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Abdirahman Reply
algebra 2 Inequalities:If equation 2 = 0 it is an open set?
Kim Reply
or infinite solutions?
Kim
The answer is neither. The function, 2 = 0 cannot exist. Hence, the function is undefined.
Al
y=10×
Embra Reply
Jeannette has $5 and $10 bills in her wallet. The number of fives is three more than six times the number of tens. Let t represent the number of tens. Write an expression for the number of fives.
August Reply
What is the expressiin for seven less than four times the number of nickels
Leonardo Reply
How do i figure this problem out.
how do you translate this in Algebraic Expressions
linda Reply
why surface tension is zero at critical temperature
Shanjida
I think if critical temperature denote high temperature then a liquid stats boils that time the water stats to evaporate so some moles of h2o to up and due to high temp the bonding break they have low density so it can be a reason
s.
Need to simplify the expresin. 3/7 (x+y)-1/7 (x-1)=
Crystal Reply
. After 3 months on a diet, Lisa had lost 12% of her original weight. She lost 21 pounds. What was Lisa's original weight?
Chris Reply
how did you get the value of 2000N.What calculations are needed to arrive at it
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Source:  OpenStax, Economic and management sciences grade 9. OpenStax CNX. Sep 15, 2009 Download for free at http://cnx.org/content/col11074/1.1
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