Evaluating Financial Performance (AQA GCSE Business): Revision Note

Used to identify the asset structure of the business and how their investment has been put to use

Used to calculate the working capital of the business and determine its solvency

Used to determine the rough value of a business, which helps make a judgement on whether their investment is growing

Interested in revenues, costs and profits earned, business growth and dividend payments

Shareholders may use ratio analysis tools to identify profit margins

Used to identify the financial position of the business at a given point in time

It is useful to assess the working capital position of the business and determine if there are enough liquid assets to pay its bills

Provides information on the capital structure of the business, which helps guide decisions on whether to raise further funds through borrowing or via other means (e.g. share issue)

Interested in key performance data such as an improvement in sales revenue and net profit

• This data can aid in business decision-making

• Financial data can provide evidence to support the payment of bonuses

Look at the balance sheet to evaluate the company's solvency 

They are interested in the company's ability to pay back its debts

Consider profit generated, as this could indicate the stability of the business and level of risk it presents

Businesses with low levels of working capital may find it difficult to pay short-term debts, so suppliers may offer trade credit, but with stricter terms

Interested in the continued success of the company 

This information is also used by suppliers to determine the level of trade credit offered to businesses

Used to answer questions such as:

• Is the business financially stable or are jobs at risk?

• Has the businesses performance improved or worsened?

• What is the business spending its money on?

• How much are senior executives paid?

• How much tax is the business paying?

Interested in profits earned, the potential for wage increases, and job stability

Employees may look at notes to the accounts that detail levels of executive pay

Regulatory bodies use financial statements to ensure a business is complying with accounting standards and tax regulations

Tax authorities use financial statements to check the accuracy of tax returns and assess how much tax a business is liable to pay

The Income Statement can identify whether a business will continue to provide employment, place orders with other businesses and supply goods and services to the public sector

Generally interested in the stability of the business and what this may mean for jobs in the community

May want to see if the firm is generating enough profit to perhaps approach them for local sponsorship