Magazine article Teaching Business & Economics

An Easy Way into Financial Ratios

Magazine article Teaching Business & Economics

An Easy Way into Financial Ratios

Article excerpt

Extract from the OCR Business Studies Examiners Report, June 2008

Common Core Higher

5a (iii) and (iv) These questions discriminated at the higher end. Ratios used in the analysis of financial reports are difficult to learn and more difficult to apply.

5a (v) As in previous years, an evaluation question about final accounts was preceded by a question about the appropriate ratios, the idea being that this would act as a reminder about the use of ratios for evaluating business performance. This did not appear to have worked as well as in previous years. The vast majority of candidates restricted themselves to level 1 answers by referring to the data as presented and drawing appropriate conclusions. Where candidates did recognise the need to calculate the ratios for 2007 and make comparisons with 2006, most did not use this data to draw conclusions about the performance of the business.

Teaching a mixed ability class I find that students' response to our finance module varies greatly. There are those who thrive on the mathematical approach, one which provides a "right or wrong" answer, However there are many students who see finance as a branch of mathematics and, as such, think they will fail at it before they even start.

In speaking to students who dislike maths, I find two common attitudes. There are those who are convinced that they simply "cannot do maths" - any maths. There are also able students who are simply switched off by maths and feel that it is pointless. It was this second group of students that I set out to reach this year. However, in doing so, I managed to find a route into finance that opened it up to my entire group. It engaged all of them in a way I had not managed before.

The resource here is very simple; it did not take much preparation, yet it proved to be very effective. It is based on the type of exam question students are likely to face, one that requires a comparison of the performance of two firms.

The lesson

Before mentioning anything about ratio analysis, I asked students to look at the financial information provided on two firms (see the panel, which can be photocopied) and use this data to decide which company was more successful.

The data has been created to give the impression that Monstra Ivi art is a much more successful business. …

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