Unit 5 Business Accounting
Credits: 10 Level: 3
© Challenge College
Assignment brief
Unit number and title
Unit 5 – Business Accounting
Qualification
BTEC Level 3 Certificate, Subsidiary Diploma & Diploma in Business
Start date
March 2011
Deadline
June 2011
Assessor
M. Drury
CRITERIA COVERED
P5, M2, D2
Assignment title
RATIO ANALYSIS
Purpose: The aim of this unit is to enable learners to understand the purpose of accounting the associated processes
and its role in the managing a business. Learners will develop the skills and knowledge needed to understand financial
information.
Scenario: You are working as a trainee for a retail clothing company called Bombay Stores, which has been trading in
the area you are looking at for five years. You have been asked to spend some time in the company’s accounting
department.
Evidence you must produce:
 Definitions of accounting ratios
 Ratio Calculations
Task 1
1. Explain what the following ratios show:



Profitability: gross profit percentage of sales; net profit percentage of sales
return on capital employed (ROCE)
Liquidity: current ratio; acid test ratio/liquidity ratio
Efficiency: debtors’ payment period; creditors’ payment period; rate of stock turnover
2. Using the information from your Profit and loss a/c balance sheet and cash flow forecast for Bombay Stores
calculate the above ratios
Profitability: gross profit percentage of sales; net profit percentage of sales; return on capital employed (ROCE)
Liquidity: current ratio; acid test ratio/liquidity ratio
Efficiency: debtors’ payment period; creditors’ payment period; rate of stock turnover
This provides evidence for P5
Task 2
Analyse the performance of Bombay Stores using the above ratios and explain what this shows. Then compare that
with the previous year. The information you require is outlined in additional information (below).
This provides evidence for M2
Unit 5 Business Accounting
Credits: 10 Level: 3
© Challenge College
Task 3
Evaluate the financial performance and position of Bombay Stores using ratio analysis. You will be required to present
this in the form of a board meeting that has come about to discuss Bombay Stores position after the credit crunch. This
is your final task that will take place on July 7th 2011.
This provides evidence for D2
Sources of information:
Bevan J, Dransfield R, Coupland-Smith H, Goymer J and Richards C – BTEC Level 3 National Business Student
Book 1 (Pearson, 2009) ISBN 9781846906343
Bevan J, Goymer J, Richards C and Richards N – BTEC Level 3 National Business Student Book 2
(Pearson, 2009) ISBN 9781846906350
Coupland-Smith H and Mencattelli C – BTEC Level 3 National Business Teaching Resource Pack
(Pearson, 2009) ISBN 9781846906367
www.bbc.co.uk/business BBC Business website
www.bbc.co.uk/news BBC News website
www.becta.org.uk British Educational Communications and Technology Agency
www.bized.ac.uk Business education website including learning materials and quizzes
www.careers-in-business.com Information on a variety of business careers
www.carol.co.uk Online company annual reports
www.direct.gov.uk Gateway to public services
This brief has been verified as being fit for purpose
Assessor
Signature
Date
Internal verifier
Signature
Date
P5 perform ratio analysis to measure the profitability, liquidity and efficiency of a given organisation. [CT]
M2 analyse the performance of a business using suitable ratios.
D2 evaluate the financial performance and position of a business using ratio analysis.
Additional Information for Ratio analysis:
Profitability Ratio figures
Gross Profit percentage
Bombay Stores 31 March 2010 25 March 2009
£'000
£'000
Sales
140150
80200
Gross Profit
107850
62500
Unit 5 Business Accounting
Credits: 10 Level: 3
© Challenge College
Net Profit Percentage
Bombay Stores 31 Mar 2010 25 Mar 2009
£000
Sales
Net Profit
£000
140150
80200
89800
58300
ROCE
Bombay Stores
31 March 2010 25 March 2009
£'000
£'000
Net Profit
89800
58300
Capital (shareholders)
50000
50000
Liquidity Ratio figures
Current Ratio
Bombay Stores
31 March 2010 25 March 2009
£'000
Current Assets
Current Liabilities
£'000
12900
10600
1800
1200
Acid Test
Bombay Stores
31 Mar 2010 25 Mar 2009
£000
Current Assets
£000
12900
10600
Current Liabilities
1800
1200
Stock
3800
2510
Unit 5 Business Accounting
Credits: 10 Level: 3
© Challenge College
Efficiency Ratio figures
Stock Turnover Analysis
Bombay Stores
31 March 2010 25 March 2009
Consolidated Profit and Loss Account
£'000
Cost of sales
Stock
£'000
32300
26400
3800
2700
Debtors Payment Period
Bombay Stores
31 Mar 2010 25 Mar 2009
£000
Turnover
Debtors due within one year
£000
140150
80200
2400
1600
Creditor Payment Period
Bombay Stores
31 March 2010 25 March 2009
£'000
Cost of sales
Creditors: Amounts falling due within one year
£'000
32000
26400
1800
1150