yr11_decisionmaking

Decision Making
All businesses need to ask themselves these questions:


 * How profitable is my business?
 * Should I invest more capital?
 * How is my cash flow?
 * Can I pay my debts in time?
 * Should I invest my funds elsewhere?
 * Am I keeping my expenses under control?
 * Are the prices I'm charging right?

It is because these questions that we have looked at the following ratios (analysis measures)

Here is a chart that summarises the formulae that you need to understand and apply. You wont need to memorise them as they will be given to you in the exam, however, be sure to know what they mean.
 * 1) **Measures of profitability** (mark-up percentage, gross profit percentage, net profit percentage, and the three expense percentages; distribution, administration and financial). These ratios tell us if we are profitable - but we need to be more than profitable ... we need to be able to pay our bills when they are due ... which is the next kind of analysis measure:
 * 2) **Liquidity** (current ratio, liquid ratio, equity ratio). These are the measures that we can tell if the business is ok (or in business terms we say 'sound'). These look at whether the business can meet its debts as and when they fall due.



Watch these clips and listen for the financial and non financial reasons investors decide to invest or not. Relate this to your own unerstanding of business decision making.

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In the homework from class, in general, your answers were not specific enough. You need to get lots of practise by doing past papers to see what the examiner wants. If it is asking about a particular ratio means, it needs to be explained as 'for every $1 in Sales, then 32 cents was spent on Administrative expenses. (for example). Or, XYZ company added an average of 125.4% onto the cost price of the inventory to get the selling price (when the question is asking about what Mark Up % means.)
 * Use the company name. don't say 'they should', say ... 'XYZ company should ...'
 * When you are revising, pay careful attention to the model answers. What do they say? What have you said?
 * __Rounding errors__. Circle the number of decimal places that you will need to round up to when you read them in the sentence. Be careful. This can differ from question to question.
 * Learn how to __apply the ratios__ on to the Trial Balances. It is apparant that some of you haven't even attempted this. It is quite simple, just do it. Try it. Practise it.
 * Make sure you __understand what each ratio tells you__. Practise.

here are the correct answers for that 2008 90028 assessment. Please open this and have a really good look at what they were looking for. Learn these phrases. Look at what their specifics.