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Unit 4: Monitoring a business (company accounting and analysis)

5 dot points across 5 inquiry questions. Click any dot point for a focused answer with worked past exam questions where available.

How does a company raise and report equity, and how does company reporting differ from a sole trader?

Apply double-entry principles to record the issue of shares and the appropriation of company profit, and prepare the equity section of a company balance sheet
A worked QCE Accounting Unit 4 answer on company accounting. Covers how a company raises equity through a share issue, the recording of share capital, the appropriation of profit through retained earnings and dividends, the difference between sole-trader and company equity, and the equity section of a company balance sheet.
6 min answer →

How financially stable is a business, and how is ratio analysis used to make and justify decisions?

Calculate and interpret financial stability ratios (debt to equity, debt ratio, times interest earned) and synthesise ratio analysis to make and justify decisions about a business
A worked QCE Accounting Unit 4 answer on financial stability and decision-making. Covers gearing and the debt to equity ratio, the debt ratio, times interest earned, the concept of favourable and unfavourable gearing, the limitations of ratio analysis, and how to synthesise profitability, liquidity, efficiency and stability ratios to make and justify a decision.
6 min answer →

How can the financial statements of a business be analysed over time and in relative terms to reveal the story behind the dollar figures?

Apply horizontal, vertical and trend analysis to financial statements to identify changes and relationships, and interpret the results to support decision-making
A worked QCE Accounting Unit 4 answer on analysing financial statements beyond single ratios. Covers horizontal analysis of dollar and percentage changes between periods, vertical analysis expressing items as a percentage of a base, trend analysis using a base year, and interpreting the results to support business decisions.
6 min answer →

Can a business meet its short-term debts, and how efficiently does it manage working capital?

Calculate and interpret liquidity ratios (current ratio, quick ratio) and efficiency ratios (inventory turnover, accounts receivable turnover) to assess short-term financial health
A worked QCE Accounting Unit 4 answer on liquidity and efficiency ratios. Covers the current ratio and quick (acid-test) ratio for short-term solvency, inventory turnover and accounts receivable turnover for working-capital efficiency, how each is calculated and interpreted, and how they inform decisions about cash and working capital management.
6 min answer →

How profitable is a business, and what do profitability ratios reveal about its performance?

Calculate and interpret profitability ratios (gross profit margin, net profit margin, return on owner's equity, return on assets) to evaluate business performance and inform decisions
A worked QCE Accounting Unit 4 answer on profitability ratios. Covers gross profit margin, net profit margin, return on owner's equity and return on assets, how each is calculated from the financial statements, how to interpret trends and compare against benchmarks, and how the ratios inform business decisions.
6 min answer →