MEPX
Chapter 7 of 10All chapters
  1. 1What accounting is for
  2. 2The accounting equation
  3. 3The three statements
  4. 4Accruals and matching
  5. 5Profit against cash
  6. 6Bookkeeping in practice
  7. 7Reading the numbers
  8. 8Costs
  9. 9Controls and audit
  10. 10Reading a company report

Chapter 7 of 10

Reading the numbers

Ratios that tell you something.

The useful ones

Gross margin shows whether the core activity makes money. Current ratio compares short-term assets with short-term debts. Debt to equity shows how much of the business is borrowed.

  • A ratio is meaningful only against similar companies or the same company over time.
  • Trends usually say more than any single figure.

Break even

Fixed costs divided by contribution per unit gives the volume at which you stop losing money. It is the most useful single calculation for a small business.