3.5 Assessing Competitiveness: Glossary Flashcards
Cost of Sales
Costs directly linked to the production of the goods or services sold e.g. raw materials
Exceptional items
Any unusually large or infrequent transaction
Statement of Comprehensive Income (Profit and Loss Account)
A formal financial document that summarises a business’ trading activities and expenses to show whether the business has made a profit or a loss
Profitability
Profitability measures the efficiency of a business in generating profit. They can be measured through profit margins, these measure profit as a percentage of sales revenue
Statement of Financial Position (Balance Sheet)
A balance sheet is a financial statement that shows the assets, liabilities and capital of a business on a particular date.
Working Capital
This is amount of money available for the day to day running of the business. A negative figure can be a problem for some businesses that may need to pay for outstanding debts, but do not have enough spare cash to do so.
Assets
Are owned by the business or owed to the business.
Liabilities
Someone or individual the business owes money to. It also shows the source of capital the business has raised in order to purchase its assets.
Non-current Assets
Assets they expect to retain for more than one year.
Current Assets
Assets that are likely to be converted into cash by the next balance sheet.
Current Liabilities
Debts that will be paid within one year or less e.g. trade credit
Long-term Liabilities
These are debts that will take longer than one year to pay.
Total Equity
This is the assets (usually cash) received from the shareholders plus any profits made by the company through trading that remain undistributed. This should be equal to your Net Assets.
Gross Profit Margin
Gross Profit Margin= (Gross Profit)/Revenue x 100
Operating Profit Margin
Operating Profit Margin= (Operating Profit)/Revenue x 100
Profit for the Year (Net Profit) Margin
Net Profit Margin= (Net Profit)/Revenue x 100
Current Ratio
Current Ratio= (Current Assets)/(Current Liabilities) ∶1
Acid Test Ratio
Acid Test Ratio= (Current Assets-Inventory)/(Current Liabilities) ∶1
Gearing
Gearing= (Non Current Liabilities)/(Capital Employed) x 100
Return on Capital Employed (ROCE)
ROCE= (Operating Profit)/(Capital Employed) x 100
Capital Employed
Capital Employed= Non Current Liabilities+Total Equity
Profitability Ratios
Illustration of the relative profitability of the business.
Ratio Analysis
A numerical approach to investigating account by comparing two related figures.
Window Dressing
The legal manipulation of accounts by a business to present a financial picture to its benefit.
Labour productivity
Labour Productivity= (Output per period)/(Number of Employees at Work)
Labour turnover
Labour Turnover= (Number of Staff Leaving During the Year)/(Average Number of Staff) x 100
Rate of absenteeism
Absenteeism= (Number of Staff Absent (in a time period))/(Average Number of Staff) x 100
