204 analysing financial performance

Question 1

what is a balance sheet/statement of financial position

Answer 1

a statement of a businesses assets and liabilities at a specific point in time

Question 2

fixed/non current assets vs current assets

Answer 2

fixed = more than a year = land, buildings, equiptment, vehicles
current = cash in less than a year = stock, cash, receivables

Question 3

current liabilities vs non current

Answer 3

current = paid within a year e.g. overdraft, payables
noncurrent = repaid over more than a year e.g. bank loans, mortgage

Question 4

shareholder funds

Answer 4

fixed assets + (current assets - current liabilities) - long term liabilities
same as net assets which is total assets - total liabilities

Question 6

working capital

Answer 6

money needed to pay for day to day expenses
current assets - current liabilities

Question 7

capital employed

Answer 7

amount of money used to finance business in long term
shareholder funds + long term liabilities

Question 8

depreciation

Answer 8

decrease in value of fixed assets overtime
(historical cost - residual value) / useful life of asset

Question 9

roce (higher the better)

Answer 9

how effectively the capital invested in the business is being used to create profits in %
net profit before tax / (shareholder funds + non current liabilities)
x 100

Question 10

current ratio ( :1)

Answer 10

current assets / current liabilities
ideal between 1.5 - 2

Question 11

acid test ratio

Answer 11

current asset - stock / current liabilities
ideal is 1:1

Question 12

gearing ratio (%)

Answer 12

long term liabilities / capital employed x 100
looks at shareholder funds vs money borrows (loans)

Question 13

high gearing ratio interpreted

Answer 13

+ can borrow more if IR is low
- more costly and less likely to invest is IR increase