204 Analysing financial performance Flashcards
Budget
A financial plan for the future, can be income, expenditure and profit
Budget variance
Difference between the actual and predicted outcome
Variance analysis
Checking actual outcomes against the predicted outcomes
Favourable analysis
The figure leads to MORE overall profit being made than was budgeted
Adverse variance
When the actual figure leads to LESS overall profit than was budgeted
Balance sheet
A statement of the firms assets, liabilities and shareholders/owners funds.
Shows net worth of a business at a specific point in time
Non-current (fixed) assets
Assets expected to be retained in the business for more than a year/long term. Used to produce the business output (machinery, vehicles, computers)
Current assets
Assets that are cash (bank account) or can be turned into cash in a year. Such as stock or money owed by customers
Current liabilities
Money owed by a business that is paid within a year. For example, trade payables and overdraft
Non current (long term) liabilities
Money owed that is repaid over more than a year, (bank loan, mortgage)
Net assets (formula)
The value of a company’s assets once the value of its liabilities has been deducted
(non current + current assets) - (current + non current liabilities)
Shareholder’s funds (equity)
Money invested into the business through sale of shares, includes retained profits and reserves
Working capital (formula)
Represents money needed in the business to pay for the day to day expenses
current assets - current liabilities
Capital employed (formula)
Amount of money used to finance a business long term. Either invested by shareholders or borrowed long term
Shareholders funds + non-current liabilities
Depreciation (formula)
Decreased value of a fixed asset overtime
Historical cost - Residual value/Useful life of asset
