3.7.2

Question 1

Cash flow

Answer 1

Cash flow is the movement of money in and out of a company.

The cash flow statement is a financial statement that reports on a companies sources and usage of cash over a specified time period.

Question 2

Public limited company

Answer 2

It is a business that is managed by directors and owned by shareholders, therefore can offer shares to the public and is listed on the stock market.

A Plc. Also needs to be more open and public about its details than a private company.

Question 3

Corporation tax

Answer 3

Is a tax imposed by a jurisdiction on the income or capital of corporations or analogous legal entities.

Question 4

Costs of goods sold

Answer 4

Costs of goods sold is the carrying value of goods sold during a particular period.

It is the direct costs of producing the goods sold by a company.

Question 5

Creditors

Answer 5

A creditor or lender is a party that has a claim on the services of a second party.

It is a person or institution to whole money is owed

Question 6

Gross profit

Answer 6

The profit a business makes after subtracting all the costs that are related to manufacturing and selling it’s products or services.

Calculated by:
total sales - costs of goods sold

Question 7

Liability

Answer 7

Something a person or company owes.

Usually a sum of money.

Question 8

Liquidity

Answer 8

Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price. Cash is the most liquid of assets, while tangible items, such as property, are less liquid.

Question 9

Operating profit

Answer 9

It’s total earnings from its core business functions for a given period, excluding the deduction of interest and taxes.

Question 10

Reserves

Answer 10

Reserve is the profit achieved by a company where a certain amount of it is put back into the business.

Question 11

Revenue

Answer 11

Revenue is the total amount of income generated by the sale of goods or services related to the company’s primary operations. Also known as gross sales.

Calculated by:
revenue = price x quantity.

Question 12

Stock exchange

Answer 12

A stock exchange is a centralised location where the shares of publicly traded companies are bought and sold. Stock exchanges differ from other exchanges because the tradable assets are limited to stocks, bonds and exchange traded products (ETPs).

Question 13

Current ratio

Answer 13

The ratio of Current Assets: Liabilities.

Expressed x:1.

x being current assets to every £1 of liabilities or debt.

Question 14

Gearing ratio

Answer 14

Gearing refers to the relationship, or ratio, of a company’s debt-to-equity (D/E). Gearing shows the extent to which a firm’s operations are funded by lenders (e.g. bank loans) versus shareholders.

Question 15

ROCE ratio

Answer 15

Return on capital employed (ROCE) is a financial ratio that measures a company’s profitability in terms of all of its capital.

Question 16

Gross profit margin ratio

Answer 16

The gross profit margin ratio shows the percentage of sales revenue a company keeps after it covers all direct costs associated with running the business. Calculated by:
Gross profit margin = [(Net revenue - Direct expenses)/(Net revenue)] x 100

Question 17

Operating profit margin

Answer 17

Operating Profit Margin is a profitability or performance ratio that reflects the percentage of profit a company produces from its operations, prior to subtracting taxes and interest charges. It is calculated by:
Operating profit margin = (Operating profit)/(Total revenue)

Question 18

Inventory turnover ratio

Answer 18

Inventory turnover is the rate that inventory stock is sold, or used, and replaced. The inventory turnover ratio is calculated by:

Inventory turnover ratio = (Costs of goods)/(Average inventory)

A higher ratio tends to point to strong sales and a lower one to weak sales.

Question 19

Receivables days’ ratio

Answer 19

The debtor (or trade receivables) days ratio is all about liquidity. The ration focuses on the time it takes for trade debtors to settle their bills.

Question 20

Earnings

Answer 20

A company’s earnings are its after-tax net income. This is the company’s bottom line or its profits. Earnings are perhaps the single most important and most closely studied number in a company’s financial statements.

Question 21

Inter firm comparisons

Answer 21

A comparison of two or more similar business units with the objective of finding the competitive position to improve the profitability and productivity of those business units.

Question 22

Bad Debts

Answer 22

Bad debt refers to loans or outstanding balances owed that are no longer deemed recoverable and must be written off. This expense is a cost of doing business with customers on credit, as there is always some default risk inherent with extending credit.

Question 23

Going concern

Answer 23

A business that is operating and making a profit.

Question 24

Net realisable value

Answer 24

Net realisable value (NRV) is a valuation method, common in inventory accounting, that considers the total amount of money an asset might generate upon its sale, less a reasonable estimate of the costs, fees, and taxes associated with that sale or disposal.

Question 25

Profit Quality

Answer 25

Profit quality is the degree to which profit is likely to continue into the future, i.e. the sustainability of the profit.

Question 26

Rights issues

Answer 26

A rights issue is when a company offers its existing shareholders the chance to buy additional shares for a reduced price. Usually the discounted price will stand for a specified time frame, after which it is returned to normal.

Question 27

Window dressing

Answer 27

Window dressing is a strategy used by mutual fund and other portfolio managers to improve the appearance of a fund’s performance before presenting it to clients or shareholders. To window dress, the fund manager sells stocks with large losses and purchases high-flying stocks near the end of the quarter or year.