Analysis of Profit Pathways

Abstract

When you have finished working through this chapter you should be able to

• Discuss how the ratios covered in previous chapters relate to each other and construct a profit tree to show the profitability pathways adopted by an organisation

• Make use of the information provided in the profit tree to construct a coherent and logical argument identifying the reasons behind an organisation’s performance and relating overall performance back to decisions and systems at the operational level

• Use the profit tree model to carry out a detailed comparative analysis and interpretation of two sets of accounts

• Make use of a spreadsheet to construct a template for the profit tree model

• Use the profit tree spreadsheet to examine the impact of a range of proposed changes at the operating level on the overall future performance of the business