Analysis of Asset Utilisation, Profitability and Performance

Abstract

When you have finished working through this chapter you should be able to

• Identify the key components which make up business performance

• Describe and illustrate with examples what is meant by the terms performance, resource utilisation, LIQUIDITY and PROFITABILITY

• Identify the key business ratios used to assess performance, resource utilisation, liquidity and profitability

• In the context of a simple example, calculate and interpret the following ratios: ASSET turnover, CURRENT RATIO, ACID TEST, STOCK TURNOVER, CREDITORS’ PAYMENT PERIOD, DEBTORS’ COLLECTION PERIOD, FIXED ASSET RATIO, SALES PER SQUARE FOOT, SALES PER EMPLOYEE, NET MARGIN, GROSS MARGIN and RETURN ON CAPITAL EMPLOYED (ROCE)

• Discuss and illustrate with an example the tradeoff between resource utilisation and profitability

• Assess the likely impact of changes in the above ratios on overall business performance