interpreting accounting information for sole proprietors

Interpreting accounting information for sole

proprietorsAS90980

Contents1. Analyse Profitability2. Interpret Profitability3. Analyse Liquidity4. Interpret Liquidity5. Analyse Stability6. Interpret Stability

This is ALL of them!

You will get this sheet in your exam so no need to remember the formulae

BRING a calculator to class every day.

Contents1. Analyse Profitability2. Interpret Profitability3. Analyse Liquidity4. Interpret Liquidity5. Analyse Stability6. Interpret Stability

Click here first

Mark-up percentageWHAT is it?How much does a business add on to the cost of goods to get their selling price?

How do we calculate it?

Gross Profit x 100Cost of Goods Sold 1

Remember, its Gross Profit divided by Cost of Goods Sold

1001

times

Remember, its Gross Profit divided by Cost of Goods Sold

1001

times2400096000

1001

times2400096000

0.25 times100

1times

equals25%This means that the business works out 25% of the cost of the goods and adds that on to work out a selling price.

2004 2005 2006Sales 225,000 250,000 280,000Cost of Goods Sold

135,000 150,000 175,000

Gross profit

90,000 100,000 105,000

Financial Information for Kids R Us daycare

The mark-up percentage for 2005 is:a.25%b.75%c.67%d.100%

Well done! You have learned how to calculate the Mark-up percent.

Later we will learn about how this helps us to understand more about a business.

MOVE on NOW to Gross Profit percent.

Correct mark-up percent

Gross profit percentage

WHAT is it?What portion of each $1 of sales does a business receive as gross profit?

How do we calculate it?

Sales

Gross Profit 1001

times

Remember, its Gross Profit divided by Sales this time.

1001

times

Remember, its Gross Profit divided by Cost of Goods Sold

1001

times24000120000

1001

times24000120000

0.20 times100

1times

equals20%This means that the business keeps 20 cents out of every dollar of sales as gross profit. Remember that expenses then come out of that 20 cents.

2004 2005 2006Sales 225,000 250,000 280,000Cost of Goods Sold

135,000 150,000 175,000

Gross profit

90,000 100,000 105,000

Financial Information for Kids R Us daycare

The Gross Profit percentage for 2005 is:a.25%b.40%c.67%d.100%

Well done! You have learned how to calculate the Gross Profit percent.

Later we will learn about how this helps us to understand more about a business.

MOVE on NOW to Expense percent.

Expenses percent• There are 3 you can calculate.

• One for each of the 3 expenses groups (Distribution Costs, Administrative Expenses and Finance Costs).

WHAT is it?How much of each $1 of sales is a business paying on expenses?

How do we calculate it?

Sales

Expense Group 1001

times

Distribution Costs

Sales

66000

398600

100

1times

0.16557 x 100

= 16.56%

Administrative Expenses

Sales

33300

398600

100

1times

0.0835 x 100

= 8.35%

Finance Costs

Sales

2500

398600

100

1times

0.00627 x 100

= .63%

Expenses percent

Expense Group Expense PercentDistribution Costs 16.56%Administrative Expenses

8.35%

Finance Costs 0.63%

Huia Bookstore

16.56 cents in every $1 of sales is spent on Distribution Costs

8.35 cents in every $1 of sales is spent on Administrative Expenses

.63 cents in every $1 of sales is spent on Finance Costs

2004 2005 2006Sales 225,000 250,000 280,00

0Cost of Goods Sold 135,000 150,000 175,00

0Gross profit 90,000 100,000 105,00

0Distribution costs 31,500 40,000 37,800Administrative Expenses 27,000 26,000 28,000Finance costs 9,000 10,000 14,000Profit for the year 22,500 24,000 25,200

Financial Information for Kids R Us daycare

The Finance Cost percentage for 2004 is:a.2.5%b.7.5%c.12%d.4%

Well done! You have learned how to calculate the Gross Profit percent.

Later we will learn about how this helps us to understand more about a business.

MOVE on NOW to Profit Percent.

Recheck the formula and try again.

GO BACK and check the formula

GO BACK and retake the question

GO BACK and see how to work out the answer

Incorrect Mark-up Percent

1001

times100000150000

0.667 times100

1times

equals67%This means that the business works out 67% of the cost of the goods and adds that on to work out a selling price.

Gross Profit

Cost of Goods Sold

Recheck the formula and try again.

GO BACK and check the formula

GO BACK and retake the question

GO BACK and see how to work out the answer

Incorrect Gross Profit Percent

1001

times100000250000

0.40 times100

1times

equals40%This means that the business keeps 40 cents for every dollar of sales made as Gross Profit.

Gross Profit

Sales

Recheck the formula and try again.

GO BACK and check the formula

GO BACK and retake the question

GO BACK and see how to work out the answer

Incorrect Expense Percent

1001

times9000

250000

0.40100

1times equals 40%

Finance Costs

Sales

Sales

Gross Profit