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Business - Theme 3 > 3.5.1 Interpretation of financial statements > Flashcards

3.5.1 Interpretation of financial statements Flashcards

1
Q

What are the alternative names for an income statement?

A

A statement of comprehensive income

Profit and loss account

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2
Q

What is an income statement?

A

A historical record of the trading of a business over a specific period that shows the profits or loss made by the business.

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3
Q

What is the structure of an income statement?

A 
Revenue
Costs of sales 
GROSS PROFIT
Fixed overheads
OPERATING PROFIT
Net financing costs
PROFIT BEFORE TAX
Corporation tax 
PROFIT FOR THE YEAR
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4
Q

What are cost of sales also known as?

A

direct costs

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5
Q

What is the current rate of corporation tax?

A

19%

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6
Q

What is profit for the year also known as?

A

net profit

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7
Q

What is included in net financing costs?

A
  • interest gained or lost on loans
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8
Q

What factors impact revenue?

A

demand
marketing
degree of competition
price

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9
Q

What factors impact the costs of sales?

A

running costs
new technologies
output (E.O.S/D.E.O.S)
suppliers

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10
Q

What factors impact gross profit?

A

production method

controlling of costs

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11
Q

What factors impact fixed overheads?

A

cost of rent

staff relations

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12
Q

What does operating profit give an insight into?

A

INTERNAL TRADING ACTIVITIES

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13
Q

What stakeholders are involved in the income statement and why?

A 
Investors = worthwhile to invest, success?
Staff = job security and performance? pay rise
Government = level of tax, grant? ethical practices
Suppliers = successful?
Shareholders = controlling interest possibly?
Banks = viable for loan
Owner = reducing costs and direction of the business
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14
Q

What is a balance sheet also known as?

A

A statement of financial position

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15
Q

In layman’s terms, outline what a balance sheet shows?

A

The way capital has been raised and how that capital is used.

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16
Q

What is a balance sheet?

A

A financial document that takes a snapshot of the business’ assets and liabilities summarising a businesses net worth.

17
Q

What two basic things make up a balance sheet?

A

assets and liabilities

18
Q

How often can a business make a balance sheet?

A

anytime

19
Q

Why would a business want to make a balance sheet before agreeing to a large-long term loan?

A

As a method of window dressing, the business would want to create a balance sheet before as it would improve liquidity ratios.

20
Q

What is the structure of a balance sheet?

A 
Non-current assets
Current assets
Current liabilities
WORKING CAPITAL/NET CURRENT ASSETS
Non-current liabilities
NET ASSETS
Financed By
TOTAL EQUITY
21
Q

What are examples of non-current assets?

A

land/building/plant and machinery/goodwill

22
Q

What is goodwill?

A

How people perceive your brand

23
Q

What are examples of current assets?

A

stock, debtors, cash,

24
Q

What are debtors also called?

A

receivables

25
Q

What are examples of non-current liabilities?

A

mortgage

26
Q

What is the equation for working capital?

A

Current assets - current liabilities

27
Q

How do you work out net assets?

A

(Non-current assets + net current assets) - NCL

28
Q

What is another term for net current assets?

A

working capital

29
Q

What two values should equal?

A

total equity and net assets

30
Q

What do the profit margin equations show you?

A

Shows % of profit which is revenue

31
Q

What does ROCE show you?

A

% of the capital got back from an investment

32
Q

What is liquidity a measure of?

A

the ability to pay short-term debts

33
Q

What things should you work out when asked to compare financial performance?

A
  • ROCE
  • Profit Margins
  • Ratios (Acid/Current)
  • Gearing

Business - Theme 3 (22 decks)

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