Measuring the financial performance of a business is an essential task for those either directly involved in its operations or those, such as investors, who have a specific interest in the business.  By doing so, it is possible to monitor the progress of the business over a period of time and identify how successfully the business is performing. It provides a method to determine how well things are going, as well as keeping a close eye on areas which may be cause for potential concern. However, such analysis can also be used to monitor specific areas of operation and find out where funds are being leaked away and thus steps can be taken to reduce costs

In this module, we are going to look at the prime sources of financial information – the financial statements – and then see how the figures contained within them can be used to calculate a range of commonly accepted ratios. It is the interpretation of these ratios that provides an indication of the financial health and performance of any business – whether large or small. We will also use calculated ratios to present us with information about other aspects of the business so that we can establish just how well the business is actually doing. Important areas for discussion are solvency, profitability, efficiency and debt repayment capacity. A further example of the use of ratios is provided by the appraisal of investments, which will be examined briefly