Appraising business performance using financial statements and ratios: profitability, liquidity, efficiency, capital structure
Businesses use ratios and financial statements to judge how well they are performing. Accountants group these judgements into four areas: profitability, liquidity, efficiency, and capital structure.
Real World
When analysts reviewed Carillion's accounts before its 2018 collapse, high gearing (capital structure), deteriorating ROCE (profitability), and worsening payable days (efficiency) all pointed to serious trouble — yet each signal required a different category of ratio to spot.
Exam Focus
Structure 'appraise' answers by category — one paragraph each for profitability, liquidity, efficiency, and capital structure — to match mark-scheme allocation.
Essay Framework
Use PEEL to structure every paragraph. Tap each step for guidance and an example.
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