2.3

Question 1

What is a statement of comprehensive income

Answer 1

shows the revenue and costs over a period of time

Question 2

How do you calculate gross, operating and net profit

Answer 2

Gross profit = revenue - total costs
Operating profit = gross profit - overheads
Net/profit for the year = operating profit - financing costs (interest or tax)

Question 3

How do you calculate gross, operating and net profit margins

Answer 3

GPM = gross profit/revenue x 100
OPM = operating profit/revenue x 100
NPM = net profit/revenue x 100

Question 4

What is the difference between profit and cash

Answer 4

• cash is immediate whilst profit is over time
• profit is just revenue and costs whilst there are other ways of spending/gaining cash

Question 5

What is a statement of financial position

Answer 5

Shows value of a businesses assets and liabilities on a specific date

Question 6

What are non current assets

Answer 6

long term assets (buildings, machinery, vehicles)

Question 7

What are current assets

Answer 7

short term assets ( stock, cash in bank, receivables)

Question 8

What are current liabilities

Answer 8

Short term debts (short term loans, tax)

Question 9

What are non current liabilities

Answer 9

Long term debts (long term loans, mortgages)

Question 10

What is total equity

Answer 10

Total investments in a business (share capital, retained profits)

Question 11

Current ratio

Answer 11

current assets/current liabilities

Question 12

Acid test ratio

Answer 12

(Current assets - inventories)/current liabilities

Question 13

Working capital and how it is calculated

Answer 13

The cash spent and recieved in the day to day running of a business

current assets - current liabilities

Question 14

What is return on capital employed

Answer 14

What returns (profits) the business has made on the resources available to it

suggests how efficiently resources are being used to generate profits

Question 15

How is ROCE calculated

Answer 15

operating profit / capital employed x 100

capital employed = total equity + non current liabilities

Question 16

How can ROCE be improved

Answer 16

• increase the level of profit generted by the same level of capital employed
• maintain the level of profit generated by decreasing the amount of capital employed

Question 17

What is gearing

Answer 17

The proportion of assets invested into the business that are financed by long term borrowing

Question 18

Gearing formula

Answer 18

non current liabilities / capital employed x 100

capital employed = total equity + non current liabilities

Question 19

When is gearing considered to be high or low

Answer 19

high = 50%

low = 25%

Question 20

balance sheet

Answer 20

financial statement recording the assets and liabilities of a business on a particular day at the end of an accounting period