The objective of this simulation is to illustrate how to calculate and interpret a selection of business performance ratios. The business ratios under consideration include the current ratio, the acid test ratio and the gearing ratio.

Business performance ratios are commonly used when people try to assess how the business is performing. The ratios can be subdivided into the following groups:

• Performance ratios, these include profit, capital employed and turnover.
• Liquidity ratios, concerned with the short term financial position of the company.
• Gearing ratios, focus on the long term financial position of the company.
• Shareholder ratios, concerned with the return for the shareholder.

You can download an Excel version of the original spreadsheet (Excel 97).

The model settings for the inputs are:

Long term assets

• Tangible assets (£): 1000 to 12000
• Investments (£): 0 to 1000

Current assets

• Stocks (£): 17500 to 19500
• Debtors (£): 10000 to 15000
• Cash at Bank (£): 6000 to 8000

Current liabilities

• Amounts falling WITHIN ONE year (£): 18000 to 26000

Long term liabilities

• Amount falling AFTER ONE year (£): 2000 to 3000
• Provision for liabilities and charges (£): 500 to 2000
• Deferred income (£) 0 to 1000

Loan and share capital

• Loan capital (£): 2000 to 3000
• Preference Share Capital (£) 0 to 4000

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