Analysing the financial performance of a business key terms

Return on Assets

A profitability ratio that measures how efficiently a company uses its assets to generate profit, calculated as net profit ÷ average total assets.

Statement of financial position

A financial statement that lists a business’s assets, liabilities and equity at a specific point in time.

Liability

An obligation that a business must settle in the future, such as loans, accounts payable, or other debts.

Statement of financial position

A financial statement that lists a company's assets, liabilities and equity as of a specific date, providing a snapshot of its financial position.

Income statement

A financial statement that shows a company's revenue, expenses, and profit over a specific period.

Return on Assets

A ratio that shows how much profit a company generates for each pound of assets it owns.

Gross profit margin

The ratio of gross profit to revenue, expressed as a percentage, showing the proportion of sales that remains after covering the cost of goods sold.

Net profit margin

Net profit divided by revenue, expressed as a percentage.

Return on Assets (ROA)

Net profit divided by total assets, expressed as a percentage; indicates how efficiently a company uses its assets to generate profit.