Understanding Financial Information
In many of the earlier chapters (particularly Chapters 10 and 15) we have been concerned to show the types of financial accounts that a small business will keep, and how these accounts should be prepared. When the term ‘the financial accounts’, or more simply ‘the accounts’, is used it is usual to assume that it refers to the balance-sheet and the profit-and-loss account for the year, and we shall continue to use it in this sense. The technique most frequently employed in understanding these accounts is ratio analysis and in the main part of this chapter we shall be concerned in applying this approach to the historical balance-sheet and profit-and-loss account of a business. We shall build on the example given in Chapter 10 (Tables 10.4 and 10.5.
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