3.4

Question 1

Financial Statements

Answer 1

All public limited companies must provide annual accounts by law.
Private limited companies must provide Companies House with a copy of their annual accounts.
Profit and Loss Account
Balance Sheet

Question 2

Profitability

Answer 2

How profitable a company is. For every dollar os sales made, what percentage of that is retained by the business as profit?

Question 3

Liquidity

Answer 3

How able the business is to pay off short-term debts. Liquid assets are cash, if you need to liquidate something, you turn it into cash.
E.g. selling stock or assets

Question 4

Efficiency

Answer 4

Shows how effectively the organisation is performing.
E.g. how quickly stock is sold, how much profit is generated from each dollar sold

Question 5

Profit and Loss Account

Answer 5

Historical review of the performance of a business over the last financial year.
Divided into:
The Trading Account
The Profit and Loss Account

Question 6

Trading Account

Answer 6

Shows the difference between the cost to the business of buying the goods and the sales value of the goods when sold to the customer.
Sales Revenue
Cost of Goods Sold
Gross Profit

Question 7

Gross Profit

Answer 7

The profit (or loss) recorded as the difference between the business’ sales and cost of sales.

Question 8

Profit and Loss

Answer 8

Calculates the final profit (net profit) or loss that an organisation has made over a financial time period.
Lists any items of additional revenue or expenses:
- Wages
- Rent
- Insurance
- Advertising

Question 9

Corporation Tax

Answer 9

A tax on business profits payable to the Government.

Question 10

Interest

Answer 10

The cost incurred bt borrowing funds.

Question 11

Dividend

Answer 11

Proportion of the business profit paid to shareholders and dependent on the number of shares that they own.

Question 12

Balance Sheet

Answer 12

Shows the financial worth and financial position of a business at a particular point in time (usually the last day of a financial year). It is out of the date by the time its published. Shows:
Assets
Liabilities
Equity

Question 13

Assets

Answer 13

Things the business owns.
- Fixed: buldings, machinery that business has for longer than a year
- Intangible: reputation, brand name
- Current: can be easily turned into cash (stock, debtors, cash)

Question 14

Liabilities

Answer 14

What the business owns to others.
- Current Liabilities (>1 year): Creditors, overdraft, short-term loans.
- Long-term liabilities (<1 year): debentures, mortgage

Question 15

Net Assets

Answer 15

Shows the net value of the firm once short-term debts have been repaid.
Non current assets + net current assets

Question 16

Share Capital

Answer 16

Money put into organisation by the owners or shareholders.

Question 17

Equity

Answer 17

The money invested by the owner of the business to set it up. Money is owed to the owner by the business.