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Accounting for Non-Accountants, 9th Edition by David Horner

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17

Accounting ratios

Introduction

The main measure of business success is assumed to be the operating profit or net profit earned in a particular period, with higher profits assumed to indicate a better level of business performance. However, looking at profit figures in isolation will not tell us much at all. For example, we might know that a firm has a net profit of £50,000 for the most recent financial year, but we would need to know much more about the firm before we could judge the profit earned a success or a disappointment. Consider the following data:

Although firm A generates the highest net profit, we cannot say definitively that this ...

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