5.4 Statement of financial position Flashcards
What is a statement of financial position?
A document that shows the value of a business’s assets and liabilities at a point in time.
What are assets?
Items of value owned by a business.
What are current assets?
Assets owned by the business for less than one year (e.g., raw materials, cash).
What are non-current assets?
Assets owned by the business for more than one year (e.g., buildings, land, company cars).
What are liabilities?
Debts owed by the business.
What are current liabilities?
Debts owed by the business for less than one year (e.g., bank overdrafts, wages).
What are non-current liabilities?
Debts owed by the business for more than one year (e.g., long-term bank loans, creditors).
What is total equity?
The value of a business after subtracting its liabilities from its assets (only for limited companies).
What is shareholders’ funds?
The total money invested in a business by its shareholders/owners.
What is the formula for shareholders’ funds?
Shareholders’ funds = Total Assets – Total Liabilities.
What happens when total equity increases or decreases?
The shareholder’s stake in the company will be worth more or less, respectively.
What is working capital?
The difference between current assets and current liabilities.
What is the formula for working capital?
Working Capital = Current Assets - Current Liabilities.
What is capital employed?
The long-term and permanent capital invested in a business (Non-current liabilities + Total Equity).
What is the formula for Return on Capital Employed (ROCE)?
ROCE = 100 × Profit before tax / Capital employed.
What can shareholders learn from a balance sheet?
Shareholders can see the value of their stake and analyze how expansion has been financed (e.g., loans, retained profits, or increased share capital).
What are the main categories of assets on a balance sheet?
Non-current assets and current assets.
What are the main categories of liabilities on a balance sheet?
Non-current liabilities and current liabilities.
What does an increase in shareholders’ funds indicate?
It indicates an increase in the value of the business and shareholder equity.
What is the significance of retained profit in a statement of financial position?
Retained profit shows the portion of profit kept within the business for reinvestment rather than paid out as dividends.
