2C

Question 1

Profit/loss statement or income statement

Answer 1

Tom-Total rev
Councell-Cost of sales
Goes-Gross profit
Out-O+E
On-Operating profit
Tuesday- tax and I
Nights- Net prof

Question 2

Profit margins

Answer 2

X margin= X/TR

Question 3

Gross profit=

Answer 3

Total rev-cost of sales

Question 4

Operating profit=

Answer 4

Gross profit-O+E

Question 5

Net profit/profit for the year=

Answer 5

Operating profit- T and I

Question 6

What are cost of sales

Answer 6

Costs that are directly involved in producing the product

Question 7

what are O+E

Answer 7

costs not directly related to producing a good/service

Question 8

Why not just FC and VC

Answer 8

Because transport costs are a VC, but are O+E because they are not directly involved in producing the product.

Question 9

What are balance sheets

Answer 9

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.

Question 10

What is an asset

Answer 10

These are what the business owns

Question 11

What are liabilities

Answer 11

This is what a business owes

Question 12

What are non-current assets

Answer 12

Assets that are owned by aa business which it uses over a long period of time-buildings, machinery

Question 13

What are current assets

Answer 13

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

Question 14

What are current liabilities

Answer 14

This is money that the business owes that it has to pay back within the next 12 months.

Question 15

What are net current assets

Answer 15

Current assets- current liabilities

Question 16

What are non-current liabilities

Answer 16

The money that the business owes and will have to pay in more than 12 months time. Includes long term loans and mortgages.

Question 17

What are net assets

Answer 17

This shows a business the value of all the assets it owns.
all assets- all liabilities

Question 18

What is capital employed

Answer 18

This is the long term and permanent capital of the business
Calculated by- Shareholders/ profit + non-current liabilities.

Question 19

What is working capital (net current assets)

Answer 19

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

Question 20

Good working capital-

Answer 20

Survive, cope in a crisis

Question 21

Bad working capital-

Answer 21

Cant pay day to day expenses, financial difficulties

Question 22

What is current ratio

Answer 22

Another way to find out whether there is enough working capital.

= Current assets/current liabilities

Question 23

What is the target current ratio

Answer 23

1.5:1<

Question 24

What is acid test ratio

Answer 24

-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

Question 25

Financial reasons for business failure

Answer 25

Debt, poor cash flow, not, BE, raw materials cost too high, poor working capital.

Question 26

Non-financial reasons for business failure

Answer 26

Poor PR, marketing failure, failure to react to consumer trends, shortage of raw materials, poor stock management