Using financial data to inform decision making

• Revenue represents the total income from sales of goods or services
• Liabilities are debts and obligations the business owes to others
• What does the income statement show about a business?

  Profitability
• What do financial ratios help businesses evaluate?

  Financial performance
• The current ratio indicates a company's ability to meet its short-term obligations.


  True
• What does the Cash Flow Statement track over a period of time?

  Movement of cash
• Financial ratios are calculated using data from financial statements.


  True
• What does financial data refer to in business studies?

  Quantitative information
• What are assets in financial terms?

  Things owned by the business
• Match the key financial statements with their descriptions:

  Income Statement ↔️ Summarizes revenue, costs, and profit

  Balance Sheet ↔️ Provides a snapshot of assets and liabilities

  Cash Flow Statement ↔️ Tracks the movement of cash
• The cash flow statement tracks the movement of cash in and out of the business over time.

  True
• What does the profit margin measure?

  Profit per unit of revenue
• What does the return on assets (ROA) measure?

  Asset efficiency
• What does the Balance Sheet provide a snapshot of at a specific point in time?

  Assets, liabilities, and equity
• The Current Ratio measures a company's ability to meet its short-term obligations
• Match the ratio type with its formula:

  Profit Margin ↔️ (Net Profit / Revenue) x 100

  Current Ratio ↔️ Current Assets / Current Liabilities

  Debt-to-Equity Ratio ↔️ Total Debt / Total Equity

  Return on Assets (ROA) ↔️ Net Profit / Total Assets
• A Current Ratio greater than 1 suggests a company can meet its short-term obligations.


  True
• Analyzing KPIs helps businesses achieve their performance objectives.


  True
• Profit is calculated by subtracting costs from revenue.

  True
• Steps businesses may take if profit margins are low

  1️⃣ Reduce costs

  2️⃣ Increase prices
• The balance sheet provides a snapshot of a business's financial position
• Match the financial ratios with their formulas:

  Profit Margin ↔️ (Net Profit / Revenue) x 100

  Current Ratio ↔️ Current Assets / Current Liabilities

  Debt-to-Equity Ratio ↔️ Total Debt / Total Equity

  Return on Assets (ROA) ↔️ Net Profit / Total Assets
• The debt-to-equity ratio shows how much a company finances its operations with debt
• The Income Statement summarizes the revenue, costs, and profit
• What does the Profit Margin ratio measure?

  Profit per unit of revenue
• Steps to analyze financial ratios in order

  1️⃣ Calculate the ratio using financial data

  2️⃣ Compare the ratio to industry standards

  3️⃣ Analyze trends over time

  4️⃣ Identify areas for improvement
• A high Profit Margin indicates strong profitability
• A higher Return on Assets (ROA) indicates better asset utilization
• If profit margins are low, a business may need to reduce costs or increase prices
• What does the Debt-to-Equity Ratio indicate?

  Debt versus equity financing
• What are Key Performance Indicators (KPIs) used for?

  Evaluate strategic objectives
• What does a lower Debt-to-Equity Ratio indicate?

  Less financial risk
• What are the main types of financial data used by businesses?

  Revenue, costs, profit, assets, liabilities