Evaluating Financial Performance (AQA GCSE Business)
Revision Note
Written by: Lisa Eades
Reviewed by: Steve Vorster
Current Performance & 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
[1]
Step 2: Calculate the percentage increase in net profit
[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.
Year | 2020 | 2021 | 2022 | 2023 |
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Key performance indicators
In terms of revenue, Valley Organics' best performance occurred in 2021
Its revenue in 2021 was 64% higher than in 2020
In terms of gross profit, Valley Organics' best performance occurred in 2023
Its gross profit in 2023 was 9% higher than in 2022
In terms of net profit, Valley Organics' best performance occurred in 2020
Its net profit in 2021 fell by 8%
Valley Organics achieved its highest gross profit margin of 59% in 2023
It achieved its highest net profit margin of 28% in 2020
Overall, despite impressive revenue, performance in 2021 was somewhat disappointing, with the lowest gross and net profit margins of the four years
Performance in 2023 was a significant improvement on 2021 and 2022 performance, with increased gross and net profit margins
Examiner Tips and Tricks
Try to avoid making a judgement on one performance criteria. Look at the whole picture, as outlined in the case study above, and be prepared to make a range of calculations to support your evaluation.
Comparison with Competitors
Business performance can be compared with that of rivals
It is particularly useful if competitors are engaged in very similar operations
They are of a similar size
They make or sell similar products
They use similar accounting processes
Case Study
The table summarises Valley Organics Ltd.'s financial performance with its two close rivals in 2023.
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Revenue | £12.7m | £9.2m | £11.6m |
Gross profit | £8.2m | £4.7m | £6.9m |
Net profit | £1.9m | £2.2m | £2.4m |
Key performance indicators
JGS Foods Ltd earned the highest amount of revenue in 2023
Its revenue was 9.5% higher than Valley Farms Ltd's revenue
JGS Foods Ltd earned the highest amount of gross profit in 2023
Its gross profit was 18.8% higher than Valley Farms Ltd's gross profit
Valley Organics Ltd earned the highest amount of net profit in 2023
Its net profit was 9.1% higher than Ferndale Farms Ltd's net profit
JGS Food Ltd achieved the highest gross profit margin of 65% in 2023
Ferndale Farms Ltd achieved the highest net profit margin of 24% in 2023
Financial Performance & Stakeholders
Stakeholders consult the information in financial statements for a variety of reasons
Stakeholder Interactions with the Financial Accounts
Stakeholder | How they use the Statement of Financial Position | How they use the Income Statement |
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Investors/Shareholders |
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Management |
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Lenders/Creditors |
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Suppliers |
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Employees |
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Government, regulatory bodies & tax authorities |
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Local community |
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