Profit and loss account - Assignment Example | Topics and Well Written Essays - 250 words

Profit and loss account - - Assignment Example This ratio determines the efficiency, profitability and liquidity level of the company. Profit margin is one of the ratios that is used to determine the amount of profit a company makes over time. Both A and B there is improved performance since the profit margin is seen increase in the year 2012 (Siddiqui, 2005). These two ratios determine the liquidity position of a company. While current ratio includes inventories, acid test ratio does not. They measure the capability of a company to meet up the obligations that are falling due. A ratio of higher than one is considered good. Both A and B there is improved performance since the acid test ratio increased in 2012 while the current ratio remained unchanged. These ratios measure the ability of the company to convert stock to cash. In both A and B there is reduction in debt collection period and this implies increased efficiency since the period it takes for the debts to be cleared is reduced. This in the end shows an improvement in the year