What you'll learn
How to analyse business performance using ratios.
Key ideas
- Profitability: gross and net profit margins.
- Liquidity: the current ratio and the acid-test (quick) ratio (excludes inventory).
- Inventory turnover shows how fast stock sells.
Exam tips
- Learn the ratio formulas and interpret results.
- Compare ratios over time or with other firms.
Common mistakes
- Calculating ratios without interpreting.
- Confusing the current and acid-test ratios.