Evaluating Financial Performance aqa

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Exam code:8132

Current performance and performance over time

Current performance

Information from the financial statements can be used to evaluate current performance
- It can be compared with financial objectives set for the period
  - E.g. If a business set an objective to increase profit, its progress can be evaluated using the income statement

Worked Example

Valley Organics Ltd set a financial objective to increase net profit by 8% in 2023.

In 2022 it achieved net profit of £2.2m. Its net profit increased to £2.4m in 2023.

Calculate the increase in net profit between 2022 and 2023, and identify whether Valley Organics Ltd was successful in meeting its financial objective. [3 marks]

Step 1: Calculate the difference in net profit between 2022 and 2023

$Difference space equals space 2023 space net space profit space minus space 2022 space net space profit equals space £ 2.4 straight m space minus space £ 2.2 straight m space equals space £ 0.2 straight m$ [1]

Step 2: Calculate the percentage increase in net profit

$Percentage space increase space equals space fraction numerator Difference space in space net space profit over denominator 2022 space net space profit end fraction space cross times space 100 equals space fraction numerator £ 0.2 straight m over denominator £ 2.2 straight m end fraction space cross times space 100 equals space 9.09 percent sign$ [1]

Step 3: Identify whether the objective has been met

Valley Organics has met its objective to increase its net profit by 8%, achieving an increase of 9.09%. [1]

Performance over time

Financial performance can also be compared over time
- E.g. The revenue, gross profit and net profit, as well as profit margins, can be tracked and compared, side by side

Case Study

The table summarises Valley Organics Ltd.’s financial performance over the last four years.

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Business GCSE AQA