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Business - A Level 2 > 3.5 > Flashcards

3.5 Flashcards

(55 cards)

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1
Q

income statement

A

measures the business performance (income & costs) over a given period, usually a year

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2
Q

statement of financial position

A

snapshot of a business’s assets and its liabilities on a particular day

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3
Q

cash flow statement

A

shows how the business has generated and disposed of cash and liquid funds during a specific period

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4
Q

examples of non-current liabilities

A
  • long -term borrowing
  • other long term liabilities
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5
Q

examples of current liabilities

A
  • trade creditors (payables)
  • Short-term borrowing
    -accrues & provisions - e.g. tax
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6
Q

examples of non-current assets

A
  • land & buildings
  • plant & machinery
  • goodwill - value of the business for it containing due to loyal customers
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7
Q

examples of current assets

A
  • cash balances
  • trade debtors (receivables)
  • inventories ( stocks)
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8
Q

2nd side of the statement of financial position

A

+ share capital
+ reserves profit

= capital & reserves/ total equity

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9
Q

1st side of the statement of financial position

A

+ noncurrent assets
+ current assets
- current liabilities
- noncurrent liabilities

= net assets

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10
Q

what are payables

A

amount of money owed by a business to someone e.g. dividends

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11
Q

total equity

A

shareholders fund and retained profits

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12
Q

what are inventories

A

value of all the stock a firm holds

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13
Q

what are receivables

A

sums owed by customers who have bought items for credit

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14
Q

what are total current assets

A

sum of all current assets

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15
Q

what are net current liabilities

A

current assets - current liabilities

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16
Q

what are net assets

A

difference between total assets and total liabilities

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17
Q

what is share capital

A

investment giving shareholder part- ownership in the company, with the right to dividends

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18
Q

what is revenue

A

value of sales made in a trading period

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19
Q

what are costs of sales

A

direct costs for making the product

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20
Q

gross profit

A

revenue - operating costs

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21
Q

what are distribution and administration expenses

A

expenses incurred that are not tied to a core function in the business

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22
Q

what is operating profit

A

profit after deduction of costs of sales and overheads

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23
Q

what is tax

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A

mandatory contribution from a firm by a government entity

24
Q

what is profit attributable to shareholders

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A

subtracting net income to a portion that belongs to what are called minority interests

25
stakeholder interest in the statement of comprehensive income - Shareholders - Employees - Managers and directors - Suppliers - Government - Local community
- Shareholders - dividend payments - Employees - potential wage increase and job stability - Managers and directors - key performance data - Suppliers - continued success of the firm, to determine the trade credit offered to businesses - Government determines tax - Local community- effect for jobs in the community
26
statement of financial postion effect on liquidity
- contains the financial info required to judge the liquidity of the business - Liquidity is the ability of a business to meet its short-term commitments with its available assets
27
stakeholder interest in the statement of financial position
use the statement of financial position sith the statement of comprehensive income to perform ratio analysis and compare performance over time
28
Interest in the statement of financial position - Shareholders - Managers and directors - Suppliers and creditors
Shareholders - identify the asset structure of the business and their investment has been put to use - calculate the working capital of the business and determine its solvency Managers and directors - identify the financial position of the business at a given point in time - determine if there are enough liquid current assets to pay its bills Suppliers and creditors - judge the solvency of the business to determine the risk when offering firms trade credit - firms with low levels of working capital may find it difficult to pay short-term debt, so suppliers offer trade credit, with stricter terms
29
liquidity ratios
asess whether a business has sufficient cash equivalent current assets to be able to pay its debts as they fall due
30
current asset ratio
current assets/ current liabilities
31
acid test ratio
current assets (excluding stocks) / current liabilities
32
gearing ratio
non-current liabilities / capital employed x 100
33
Evaluating a highly geared business
- More than 50% of its capital employed is long-term loans - High interest to be paid on this - low profit to pay to shareholders - seen as a risk for further investment difficult to raise loan capital
34
steps to reduce gearing
- Issuing more shares to increase share capital - retaining profits to avoid borrowing
35
capital employed equation
total equity + non current liabilities
36
return on capital employed
operating profit/ capital employed x 100
37
what does the return on capital employed measure
How well a business generates profits from the funds invested in the business
38
key uses of ratios
- profitability - liquidity - financial efficiency
39
why ratios may not be reliable
- subjective judgments - Different businesses have different accounting policies - manipulate accounting information
40
what ratios don't mention:
- competitive advantages - quality - ethical reputation - future prospects - changes in the external environment
41
what does the gearing ratio
proportion of finance that is provided by debt relative to the finance provided by equity.
42
benefits of a statement of financial position
see if the business can acquire capital, rather than selling non-current assets - so they can cope with more debt from long-term loans if their non-current assets are larger than non-current liabilities
43
benefit of high gearing
can fund growth, as they are making a profit, so can fund expansion gaining a competitive advantage
44
main measures of employee effectiveness
- labour turnover - % of staff who leave during a period - labour productivity - output per employee - absenteeism - % of staff who are absent - labour retention - % of staff staying
45
what is labour retention
the ability fo a business to keep its employees within the firm
46
labour retention formula
no. of staff staying/ average no. of staff employed x 100
47
what is labour turnover
% of the workforce that leaves a business within a given time period
48
labour turnover formula
no of employees leaving during period / average no employed during period x 100
49
problems of high staff turnover
- high costs (recruitment & training) - disruption to productivity - increased pressure on remaining staff - standard of quality & customer service may drop
50
ways to improve staff turnover
- effective recruitment and training - rewards and pay - reward staff loyalty - job enrichment - opportunities fro promotion
51
labour productivity formula
output per period (units)/ number of employees at work
52
ways to improve labour productivity
- measure performance & set targets - invest in employee training - operations management
53
absenteeism formula (absent)
no of staff absent during a period / total no. of days that should have been worked x100
54
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Business - A Level 2 (10 decks)

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