3.7.2 Analysing the existing internal position of a business to assess strengths and weaknesses

Question 1

balance sheet

Answer 1

financial statement recording the assets and liabilities of a business on a particular day at the end of an accounting period

Question 2

income statement

Answer 2

accounting statement showing a firm’s sales revenue over a trading period and all the relevant costs generated to earn that revenue. it shows the profit/loss made during the period

Question 3

ratio analysis

Answer 3

technique for analysis a business’s financial performance by comparing one piece of accounting information with another

Question 4

profitability

Answer 4

a measure of financial performance that compares a business’s profit to some other factors such as capital employed or revenue

Question 5

liquidity ratios

Answer 5

allow managers and others interested to monitor a business’s cash position by comparing current assets or current liabilities

Question 6

gearing

Answer 6

analyses how firms have raised their long term capital

Question 7

efficiency ratios

Answer 7

measure the effectiveness with which management controls the internal operations of the business

Question 8

profit quality

Answer 8

the degree to which profit is sustainable

Question 9

profit utilisation

Answer 9

the way in which profit is used

Question 10

current ratio (liquidity equation) formula

Answer 10

current assets / current liabilities

Question 11

gross profit margin (profitability equation) formula

Answer 11

gross profit / revenue x 100

Question 12

operating profit margin (profitability equation) formula

Answer 12

operating profit / revenue x 100