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Unit 2 M3

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Submitted By Aishh
Words 780
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Interpret the contents of a trading and profit and loss account and balance sheet for a selected company explaining how accounting ratios can be used to monitor the financial performance of the organisation.

Profitability ratio
Profitability ratios assess a business’s profitability of how well they’re doing by their interest parties.
ROCE: In order for me to calculate the return on capital employed, I divided net profit from capital employed and then multiply by 100. This is shown bellow.
R.O.C.E=(NET PROFIT )/(CAPITAL EMPLOYED)*100
R.O.C.E=159.2/300*100
=53.066%
Return of capital employed is when investors receive money back on their capitals. For business the results of ROCE in 2007 show that the business made a return of 53% out of 300 of capital employed. The high return of 53% shows that business has made high net profit and the business making is being profitable. This will then give the investor money on back on their capital. On the other hand in 2008 the result shows that the business made 49% out of 334 employed. This is the money they receive after net profit was taxed. This means that the higher the capital employed the less money investors would receive. They need to improve this by preserving operating profit as well as minimizing the amount of capital employed to increase ROCE FOR 2008. ROCE should be higher than the company capital employed. This is a long term ratio, which shows how effectively assets are performing while taking in thought long-term finance. Potential investors are interested in the ratio to see how efficient a business uses it capital employed and their long term financing strategies.

RONA: Return on Net Assets x=(Net Profit)/Sales×365 x=(159.2 )/500×100= 31.84%
In 2007 the business made a return of 31.84% on return net assets, this shows that the business is not doing so

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