Accounting · Study Guide
Key Points
Ratios allow comparison of business performance over time and against competitors
Liquidity ratios (current, quick) assess ability to pay short-term debts
Profitability and efficiency ratios reveal strengths and weaknesses in earning power and asset use
Exam Focus
Calculate ratios accurately, interpret in context, compare to benchmarks, and evaluate limitations of ratio analysis in decision-making.
Must-Know Terms
Cross-Theme Connections
Preparation of financial statements of sole traders
Sole trader accounts provide the financial data for ratio analysis
Limited company accounts
Limited company accounts are also analyzed using the same ratio framework
Interpretation, analysis and communication of accounting information
Interpretation and communication of financial information includes ratio analysis