3.5 Flashcards

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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

17
Q

what is share capital

A

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

18
Q

what is revenue

A

value of sales made in a trading period

19
Q

what are costs of sales

A

direct costs for making the product

20
Q

gross profit

A

revenue - operating costs

21
Q

what are distribution and administration expenses

A

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

22
Q

what is operating profit

A

profit after deduction of costs of sales and overheads

23
Q

what is tax

A

mandatory contribution from a firm by a government entity

24
Q

what is profit attributable to shareholders

A

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

25
Q

liquidity ratios

A

asess whether a business has sufficient cash equivalent current assets to be able to pay its debts as they fall due

26
Q

current asset ratio

A

current assets/ current liabilities

27
Q

acid test ratio

A

current assets (excluding stocks) / current liabilities

28
Q

gearing ratio

A

non-current liabilities / capital employed x 100

29
Q

capital employed equation

A

total equity + non current liabilities

30
Q

return on capital employed

A

operating profit/ capital employed x 100

31
Q

return on capital employed evaluation

A
  • higher % the better
  • leased equipment not included
  • trends?
32
Q

key uses of ratios

A
  • profitability
  • liquidity
  • financial efficiency
33
Q

why ratios may not be reliable

A
  • subjective judgments
  • different businesses have different accounting policies
  • manipulate accounting information
34
Q

what ratios don’t mention:

A
  • competitive advantages
  • quality
  • ethical reputation
  • future prospects
  • changes in the external environment
35
Q

what does the gearing ratio

A

proportion of finance that is provided by debt relative to the finance provided by equity.

36
Q

what does the ROCE ratio show

A

how much money is made by the firm compared to the amount put into the business

37
Q

benefits of a statement of financial position

A

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

38
Q

benefit of high gearing

A

can fund growth, as they are making a profit, so can fund expansion gaining a competitive advantage

39
Q

risks of gearing

A
  • variable interest rates, so you’ll have higher repayment