2C Flashcards
Profit/loss statement or income statement
Tom-Total rev
Councell-Cost of sales
Goes-Gross profit
Out-O+E
On-Operating profit
Tuesday- tax and I
Nights- Net prof
Profit margins
X margin= X/TR
Gross profit=
Total rev-cost of sales
Operating profit=
Gross profit-O+E
Net profit/profit for the year=
Operating profit- T and I
What are cost of sales
Costs that are directly involved in producing the product
what are O+E
costs not directly related to producing a good/service
Why not just FC and VC
Because transport costs are a VC, but are O+E because they are not directly involved in producing the product.
What are balance sheets
Used by business to help them to understand their financial position at a given moment in time. They show the business’s assets and liabilities and how they are using their money.
What is an asset
These are what the business owns
What are liabilities
This is what a business owes
What are non-current assets
Assets that are owned by aa business which it uses over a long period of time-buildings, machinery
What are current assets
These are assets that the business can easily turn into cash -can include cash in the bank, includes stock and any money owed to the business
What are current liabilities
This is money that the business owes that it has to pay back within the next 12 months.
What are net current assets
Current assets- current liabilities
What are non-current liabilities
The money that the business owes and will have to pay in more than 12 months time. Includes long term loans and mortgages.
What are net assets
This shows a business the value of all the assets it owns.
all assets- all liabilities
What is capital employed
This is the long term and permanent capital of the business
Calculated by- Shareholders/ profit + non-current liabilities.
What is working capital (net current assets)
Working capital pays for the day to day running expenses. It is what the business owns.
CA-CL
To see how much money is left in the business
Good working capital-
Survive, cope in a crisis
Bad working capital-
Cant pay day to day expenses, financial difficulties
What is current ratio
Another way to find out whether there is enough working capital.
= Current assets/current liabilities
What is the target current ratio
1.5:1<
What is acid test ratio
-Stock is part of working capital
-However it might be difficult to sell stock quickly
-So businesses use the ATR to check liquidity if stock is not included in the calculation.
=Current assets-stock/Current liabilities
Financial reasons for business failure
Debt, poor cash flow, not, BE, raw materials cost too high, poor working capital.
Non-financial reasons for business failure
Poor PR, marketing failure, failure to react to consumer trends, shortage of raw materials, poor stock management
