Module 1: Accounting information

XSIQ
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Accounting - How changes to the numerator and the denominator impacts on
the ratio

How changes to the numerator and the denominator impacts on the ratio

Each of the ratios stated above has a numerator and a denominator. For
example: Net profit/(average) Total assets. The net profit is the numerator
and the total assets the denominator. The ratio will be improved by
increasing net profit at a faster rate than total assets or decreasing net
profit at a slower rate.

* measure the ratio

* show how it was calculated

* explain the changes to the numerator and denominator that caused the
ratio to change

Looking at key items in the ratios in the tables above.

May be increased by (for decreases reverse the increase/decrease below)

* an increase in sales

* a decrease in price, which may stimulate extra demand

* an improved location

* increased spending on advertising and sales wages

* better quality

* more appropriate

* increased spending

* quality

* type

* range

* after sales services

* pre sales service

* extra services such as training

buying in bulk - a decrease in buying costs, an increase in carrying costs

cheaper items, risk of sacrificing quality

more expensive items may have greater appeal leading to increased sales

the margin between the cost price and the selling price is an important
factor in the success of a business

increased efficiency should be sought in use of expenses

all expenses should be linked to the contribution they make to profit

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