3.5 Flashcards
income statement
measures the business performance (income & costs) over a given period, usually a year
statement of financial position
snapshot of a business’s assets and its liabilities on a particular day
cash flow statement
shows how the business has generated and disposed of cash and liquid funds during a specific period
examples of non-current liabilities
- long -term borrowing
- other long term liabilities
examples of current liabilities
- trade creditors (payables)
- Short-term borrowing
-accrues & provisions - e.g. tax
examples of non-current assets
- land & buildings
- plant & machinery
- goodwill - value of the business for it containing due to loyal customers
examples of current assets
- cash balances
- trade debtors (receivables)
- inventories ( stocks)
2nd side of the statement of financial position
+ share capital
+ reserves profit
= capital & reserves/ total equity
1st side of the statement of financial position
+ noncurrent assets
+ current assets
- current liabilities
- noncurrent liabilities
= net assets
what are payables
amount of money owed by a business to someone e.g. dividends
total equity
shareholders fund and retained profits
what are inventories
value of all the stock a firm holds
what are receivables
sums owed by customers who have bought items for credit
what are total current assets
sum of all current assets
what are net current liabilities
current assets - current liabilities
what are net assets
difference between total assets and total liabilities
what is share capital
investment giving shareholder part- ownership in the company, with the right to dividends
what is revenue
value of sales made in a trading period
what are costs of sales
direct costs for making the product
gross profit
revenue - operating costs
what are distribution and administration expenses
expenses incurred that are not tied to a core function in the business
what is operating profit
profit after deduction of costs of sales and overheads
what is tax
mandatory contribution from a firm by a government entity
what is profit attributable to shareholders
subtracting net income to a portion that belongs to what are called minority interests
liquidity ratios
asess whether a business has sufficient cash equivalent current assets to be able to pay its debts as they fall due
current asset ratio
current assets/ current liabilities
acid test ratio
current assets (excluding stocks) / current liabilities
gearing ratio
non-current liabilities / capital employed x 100
capital employed equation
total equity + non current liabilities
return on capital employed
operating profit/ capital employed x 100
return on capital employed evaluation
- higher % the better
- leased equipment not included
- trends?
key uses of ratios
- profitability
- liquidity
- financial efficiency
why ratios may not be reliable
- subjective judgments
- different businesses have different accounting policies
- manipulate accounting information
what ratios don’t mention:
- competitive advantages
- quality
- ethical reputation
- future prospects
- changes in the external environment
what does the gearing ratio
proportion of finance that is provided by debt relative to the finance provided by equity.
what does the ROCE ratio show
how much money is made by the firm compared to the amount put into the business
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
benefit of high gearing
can fund growth, as they are making a profit, so can fund expansion gaining a competitive advantage
risks of gearing
- variable interest rates, so you’ll have higher repayment
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
what is labour retention
the ability fo a business to keep its employees within the firm
labour retention formula
no. of staff staying/ average no. of staff employed x 100
what is labour turnover
% of the workforce that leaves a business within a given time period
labour turnover formula
no of employees leaving during period / average no employed during period x 100
problems of high staff turnover
- high costs (recruitment & training)
- disruption to productivity
- increased pressure on remaining staff
- standard of quality & customer service may drop
ways to improve staff turnover
- effective recruitment and training
- rewards and pay
- reward staff loyalty
- job enrichment
- opportunities fro promotion
labour productivity formula
output per period (units)/ number of employees at work
ways to improve labour productivity
- measure performance & set targets
- invest in employee training
- operations management
absenteeism formula (absent)
no of staff absent during a period / total no. of days that should have been worked x100
