Revision Resource

3.5 – Assessing Competitiveness


3.5.1 – Interpretation of Financial Statements


  1. a) Statement of comprehensive income (profit and loss account):

Key information:

Explanation: This statement provides details on a company’s revenues, costs, and profits over a specific period, offering insights into its financial performance.

Stakeholder interest:

Explanation: Different stakeholders such as investors, creditors, and management use this statement to assess the company’s profitability and financial health.

  1. b) Statement of financial position (balance sheet):

Key information:

Explanation: This statement outlines a company’s assets, liabilities, and equity at a specific point in time, providing a snapshot of its financial position.

Stakeholder interest:

Explanation: Stakeholders like shareholders and creditors use this statement to evaluate the company’s liquidity, solvency, and the efficiency in using its assets.

3.5.2 – Ratio Analysis


  1. a) Calculate:

Gearing ratio:

Explanation: This ratio indicates the proportion of a company’s capital that is financed through debt, helping to assess its financial leverage and risk.

Return on capital employed (ROCE):

Explanation: ROCE measures the profitability of a company in relation to the capital employed, offering insights into the efficiency in generating profits from its capital.

  1. b) Interpret ratios to make business decisions:

Explanation: Ratio analysis helps in making informed business decisions by evaluating a company’s performance, liquidity, and financial stability.

  1. c) The limitations of ratio analysis:

Explanation: Ratio analysis has limitations such as not accounting for qualitative factors, potential manipulation of financial statements, and the impact of inflation.

3.5.3 – Human Resources


  1. a) Calculate and interpret the following to help make business decisions:

Labour productivity:

Explanation: This metric evaluates the output produced per employee, helping to assess the efficiency of the workforce.

Labour turnover and retention:

Explanation: These metrics indicate the rate at which employees leave and stay in the company, respectively, providing insights into employee satisfaction and organizational stability.


Explanation: This metric shows the frequency of employee absences, helping to gauge the work environment and employee well-being.

  1. b) Human resource strategies to increase productivity and retention and to reduce turnover and absenteeism:

Financial rewards:

Explanation: Offering financial incentives can motivate employees, enhancing productivity and retention.

Employee share ownership:

Explanation: This strategy involves employees owning shares in the company, fostering a sense of ownership and potentially reducing turnover.

Consultation strategies:

Explanation: Engaging employees in decision-making processes can improve morale and reduce absenteeism.

Empowerment strategies:

Explanation: Empowering employees to take on more responsibilities can enhance job satisfaction and reduce turnover.
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