12 Flashcards
What does low current ratio mean?
The business may not be able to pay back it’s debts
What does a high current ratio mean?
The business has too many resources tied up in unproductive assets which could be invested more profitably
What does return on capital employed measure?
The efficiency with which the firm generates profit from the funds invested into the business.
Evaluate the usefulness of final accounts to potential buyers. (Give Advantages)
- Allows business to compare profits year on year
- Identify areas of strength and weakness.
- Attract investors
Evaluate the usefulness of final accounts to potential buyers. (Give disadvantages)
- Dates Quickly
- Based on Past Performance
- Quantitative Focus Mainly
Non-Current liabilities should be used to fund the purchase of …
Non-Current Assets
What is the purpose of an income statement?
To allow businesses to calculate profitability, in doing so the business can monitor it’s costs and sales and take immediate action if needs be. It will be compared year on year.
What is Net Profit and why is it important?
Net Profit = Gross Profit - Overheads.
- Provides opportunity for future growth / stability.
- Performance Management
- Attract Investors
What does a % over 50 in gearing mean?
It means the business is High-Geared - funded more through loan capital than share capital.
What does a % under 50 in gearing mean?
It means the business is Low geared - funded more by share capital than through loan capital
