3.5 Assessing Competitiveness Flashcards
What is the statement of comprehensive income
shows a firms incomes and outgoings in a time period
Gross Profit equation
revenue-cost of sales
operating profit equation
gross profit- other expenses
net profit equation
operating profit- interest and other costs
what is the statement of financial position (aka balance sheet)
shows the liquidity of a firm
what is liquidity
a firms ability to pay for debts with its assets
what’s the difference between current and non current assets with examples of NCA
non current assets are assets owned for the long term eg. buildings, machinery
current assets are assets that can quickly be turned to cash
what’s the difference between current and non current liabilities with examples
non current liabilities are liabilities that don’t need to be paid back within the next 12 months eg mortgages, bank loans
current liabilities need to be owed soon such as an overdraft
what is the gearing ratio used for
to show how much of a firms finance is from non current liabilities
gearing ratio (%) equation
non current liabilities/ capital employed x 100
capital employed equation
total assets - current liabilities
what is ROCE
return on capital employed is the profit made from capital invested
ROCE (%) equation
operating profit/ capital employed x100
implications of a low gearing
most finance comes from shareholders etc
less risky as not as much interest payments need to be made
implications of a high gearing
most funds come from borrowing (due to non current liabilities being higher)
riskier as a rise in interest will decrease profits
