3.7.2 Financial ratio analysis Flashcards

1
Q

Sales revenue

A

The initial value of money made, at the start of the income statement

On the income statement

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2
Q

Cost of sales

A

Also known as variable costs; expense of the sales, eg, purchases and delivery

On the income statement

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3
Q

Gross profit

A

Least accurate value of profit

On the income statement

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4
Q

Calculation for gross profit?

A

Sales revenue - Cost of sales

On the income statement

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5
Q

Expenses

A

Also known as fixed costs; expenses that are always charged no matter what, eg. rent, salaries, depreciation, etc

On the income statement

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6
Q

Operating profit

A

Relatively accurate measurement of profit

On the income statement

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7
Q

Operating profit calculation?

A

Gross profit - Expenses

On the income statement

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8
Q

Tax

A

Corporate tax often calculated as a percentage of the operating profit.

On the income statement

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9
Q

Net profit

A

The final most accurate valuation of the profit of that financial year

On the income statement

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10
Q

Assets

A

anything belonging to the business that brings in revenue

On the balance sheet

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11
Q

Non current assets

A

Assets that will take more than a financial year to be liquidised.

On the balance sheet

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12
Q

Current assets

A

Assets that can be liquidised within a financial year

On the balance sheet

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13
Q

Examples of current assets

A
  • Inventory
  • trade receivables
  • other receivables
  • cash and cash equivalents
    (in order of hardest to easiest to turn into cash)

On the balance sheet

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14
Q

Examples of non current assets

A

Vehicles, premises, machinery

On the balance sheet

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15
Q

Non current liabilities

A

Liabilities that are not predicted to be paid back within the next financial year

On the balance sheet

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16
Q

Liabilities

A

Things that the business owes/debt

On the balance sheet

17
Q

Examples of non current liabilities

A

Bank loans and debentures

On the balance sheet

18
Q

Current liabilities

A

Liabilities that are expected to be paid back within the next financial year

On the balance sheet

19
Q

Examples of current liabilities

A
  • Payables,
  • Short term bank loans
  • overdrafts
  • other payables

On the balance sheet

20
Q

working capital calculation

A

current assets - current liabilities

On the balance sheet

21
Q

Net assets calculation

A

NCA + WC - NCL

On the balance sheet

22
Q

Total equity calculation

A

Retained revenue+ Share capital

On the balance sheet

23
Q

Retained revenue

A

remaining profits from the previous year

On the balance sheet

24
Q

GPM and calculation

A

Gross profit margin
(gross profit/revenue) x 100%

On the balance sheet

25
Q

OPM and calculation

A

Operating profit margin
(operating profit/revenue) x 100%

On the balance sheet

26
Q

PM and calculation

A

Profit margin
(net profit/revenue) x 100%

On the balance sheet

27
Q

ROCE and calculation

A

Return On Capital Employed
(operating profit/capital employed) x 100%

On the balance sheet

28
Q

Liquidity calculation

A

(current assets/current liabilities) : 1

also known as the current ratio

29
Q

Ideal liquidity

A

2:1

30
Q

Gearing

A

(non current liabilities / capital employed ) x 100%

31
Q

Ideal gearing ratio

A

Less than 50%

32
Q

Why can a high gearing ratio sometimes be acceptable

A

Loans are often taken out to start investments and this means that the business is going to earn their money back quickly and pay back their debts, dropping a gearing of 85% to maybe 35% within a couple of years

33
Q

Net assets

A

Shows the value of the business

On the balance sheet

34
Q

What does gearing assess

A

Gearing assesses whether a business is a risk from having too much debt

35
Q

What does the inventory turnover ratio measure

A

It measures how often a business replaces its stock in a year

36
Q
A