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I understand how to calculate the various ratio’s, but in regards to the commentary, what is the best / most advisable way to study how to answer the questions i.e. comment on the ratio’s calculated / provided?
I have the Kaplan book, but the chapter on it seems very long wided.
Please advise
Thanks
MauriceWell, of course it’s long-winded! The chapter has to give you a comprehensive set of interpretations.
But bear this in mind – the interpretation of a calculated ratio, in full, will take a long time! And you don’t have that time in an exam situation.
Best advice for tackling this kind of question? Use your imagination! Just let your imagination fly free! If there’s an increase in gross profit ratio – what possible reasons may account for that?
Increase in sales unit price greater than unit costs?
Incorrect over-valuation of closing inventory?
Failure of competitors leaving the market open for our price increases?
Ability to take discounts from suppliers which were unavailable last year?That’s a start!
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