How accounting techniques, measures and ratios are used to analyse and interpret accounting information and the limitations of ratio analysis
Accountants use ratios and other measures to judge how well a business is performing. But ratios have real weaknesses, and good analysts always acknowledge those weaknesses.
Formula
Net Profit Margin = (Net Profit ÷ Revenue) × 100
Real World
When Debenhams reported declining ROCE over three consecutive years before its 2019 collapse, analysts used that trend to warn investors the department store was destroying shareholder value.
Exam Focus
Never state a ratio in isolation — always compare it to a previous year or a competitor and explain the significance of the change.
Essay Framework
Use PEEL to structure every paragraph. Tap each step for guidance and an example.
How well did you know this?