P7 - ILLUSTRATE THE FINANCIAL STATE OF A GIVEN BUSINESS.

I would be illustrating the use of budgets as a means of exercising financial state of Phelps plc. Ratio analysis is a form of financial statement analysis used by businesses to obtain an indication on the business’ financial performance. Phelps use ratio analysis to help them monitor how they are doing financially. There are three types of ratio analysis and they are:

Profitability Ratio:

Profitability ratio is a type of ratio used by businesses to see how profitable they are. Investors also use profitability ratio to see if they should invest into a business and also to see if they could benefit and make profit out of the business. Below is the calculation of Phelps plc profitability ratios for year ended 31.03.02 and 31.03.01:

|Profitability Ratio |Formula |Calculation |Percentage |
|Gross profit for year ended |Gross profit |12,600 |52.72% |
|31.3.02 |Turnover |23,900 | |
|Net profit for year ended 31.3.02 |Net profit |6,600 |27.62% |
| |Turnover |23,900 | |

|Profitability Ratio |Formula |Calculation |Percentage |
|Gross profit for year ended |Gross profit |9,500 |47.26% |
|31.3.01 |Turnover |20,100 |