2.3 Managing Finance Flashcards
What goes in a trading profit + loss A/C
Revenue Cost of sales Gross profit Expenses Net profit Tax Dividends Retained profit
What goes a balance sheet
Fixed assets
Non current liabilities
Current assets
Current liabilities
What is fixed assets
Capital expenditure it is not everyday expenses such as a company car , buildings, factories which lasts longer than 12 months
What are non current liabilities
Long term loans , we have longer than 12 months to pay off e.g debenture
What is current assets , debtors and closing stock
Items we owe and turn into money after 12 months
We sell them on credit , they owe us money and they have 12 months to pay it back businesses prefer it before in order to pay creditors
Stock/products which are left over the end of the year
What is current liabilities
Loans that we owe and we have 12 months to pay it back e.g creditors
What is assets
We own which are valuable (generates income)
What is liability
We owe and have to pay back
What is the ideal figure for current ratio
2:1
For every pound we have , we 2 pounds to pay it off
What is the ideal figure for acid test
1:1
For every pound we have , we have one pound to pay back
What is business failure
It is the inability to keep a business going. This can be in relation to debts and liquidity or the profits being earned
reasons for business failure
No direct communication with the customer
Leadership breakdown
No real differentiation
Inability to make/create sufficient revenue streams
What is a trading profit + loss A/C
Either making a profit or a loss over the course of 12 months
What can cause good gross profit margin
Sales revenue
Lower cost of sales
ECS
Increasing prices but demand is inelastic
What are the is effects of good gross profit margin
Better chances are to cover expenses
What can cause bad gross profit margin
Low revenue
Increase of cost of sales
What are the effects of bad gross profit margin
Loss of money to cover expenses
What are the causes of good net profit margin
Low expenses
Higher gross profit margin
What are the effects of good net profit margin
More dividends
Higher retained profit
Shareholders likely to invest
Can invest in something
What are the causes of good current ratio
Good levels of stock
Debentures pay back quicker
Long term credit with creditors
Low/no bank overdraft
What are the effects of good current ratio ( also the same for acid test ratio)
Good ability to pay back short term debts
High working capital -able to meet unexpected expenses
Good relationship with suppliers - negotiate better
What can cause bad current ratio
Poor trade credit
Low stock
Bad debts
High overdraft
What are the effects of bad current ratio (also the same for acid test ratio )
Low relationship with suppliers -not able to pay short term debts
Low working capital - unable to meet unexpected expenses
What are this causes of good acid test ratio
Company is non reliant on closing stock to back debts
