Est1 Task 3

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Task 3 Limited companies have a legal duty to produce a balance sheet of their annual accounts which are submitted to Companies House, Shareholders and HM Revenue & Customs. Producing a balance sheet is essential for any organisation who wish to raise finance, the majority of lenders or investors will want to see a set of business accounts. A balance sheet will closely monitor the performance of the business, showing the shareholder’s equity, liabilities and assets of the business. Ratio calculations evaluate the financial results of any business in order to gauge its performance. Ratios allow businesses to compare against different principles using the figures on the balance sheet. Accounting ratios offer insight into business performance. The financial stability of a company can be tested to see how a company is performing using financial ratios. I have three sets of accounts, it is my objective to calculate the ratios, and interpret them to show the overall performance levels of all three companies. Liquidity ratio evaluates the company’s ability to pay off any current liabilities as well as long-term liabilities. These ratios display the cash levels and the ability to turn assets into cash to pay off liabilities and other current obligations. …show more content…

The ratios allow a business organisation to develop, but also displays to potential creditors the profitability of the company. Analyzing the Debtors' turnover shows the length it takes to collect payments; a low ratio may mean payment terms need tightening up. Creditors' turnover shows how long a business takes to pay suppliers. Suppliers may withdraw credit if you regularly pay late. Stock turnover shows how long stock is held before selling; a lower stock turnover may mean lower

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