For D2, learners will be expected to: Pages 78 to 81 and see presentation
1. Provide additional knowledge and understanding about accounting ratios.
2. They would be expected to provide judgements about the sufficiency of ratios as a measure of how well a company is performing.
Accounting ratios compares different aspects of a financial statement for example the ratio of the current assets to current liabilities. The ratios can be used to evaluate the financial condition of a company which includes the strengths and weaknesses of the organisation.
Current Ratio: Current ratio: Current ratios are a financial ratio where managers measure whether or not the business has enough assets to play its debts over the next 12 months. The formula for current ratios is Current ratios divided by current liabilities which are where the business compares the businesses current assets to their current liabilities.
In 2009 Method media in their current ratio they had an answer of-0.81. I got this answer by using the formula as the total current assets was 1940/-2585 which equalled to -0.81. This shows that Method Media only had 81p to cover for every £1 that they owe. This means that Method Media are unable to play back all the money that they owe money. The state of the business will be affected because Method Media would owe still owe money, which money that the organisation which have to make changes to the businesses. This because Method Media is having cash flow problems and this would mean Method media won’t be able to pay for the short term debts from current assets.
In 2010 Method Media in current ratio got an answer of -0.79 by using the current ratio formula. This shows from 2009 to 2010 that there’s been a fall of 2p which shows that Method Media is getting into more debt because the organisation now has fewer assets to cover every £1 that they owe. This would mean Method Media would have to create strategies to be able to cover the short...