3.7 Analysing the strategic position of a business Flashcards
Define balance sheets
Balance sheets provide a snapshot of the assets and liabilities of a business at a point in time
What are balance sheets also referred to as?
Financial statements
What is an asset?
What the business owns
What are liabilities?
What the business owes
What are non-current assets (fixed assets)?
Assets that provide a benefit for the business in the long term
Give 2 examples of fixed assets (non-current assets)
Buildings and machinery
What is a current asset?
Assets that will be used up or sold in the short term and the cash balances kept in the business
Give 3 examples of current assets
Stocks, Debtors and cash
What are current liabilities?
What the business owes in the short term
Give 2 examples of current liabilities
Creditors and bank overdraft
What are non-current liabilities?
What the business owe in the long term
Give 3 examples of non-current liabilities
Loans, mortgage and car finance
What is working capital?
The money available for the day to day runnings of a business
Working capital formula
Current assets - current liabilities
Net assets formula
Net current assets + non-current assets - long term liabilities
What is capital employed always equal to?
Net assets = capital employed
Capital employed formula
non-current liabilities + total equity
What is a creditor?
An individual or business that has lent funds to a business and is owed money
Define income statement
A financial statement showing a businesses revenues and costs and thus its profit or loss over a period of time
What are the 6 types of financial ratios?
- Current ratio
- Gearing
- ROCE
- Payables days
- Receivables days
- Inventory turnover
What is the current ratio?
Current assets : current liabilities
Gearing formula
[Non current liabilities / (total equity + non current liabilities)] X 100
What does ROCE stand for?
Return on capital employed
ROCE formula
[Operating profit / (total equity + non current liabilities)] X 100