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Business > 8. Internal / Financial Analysis > Flashcards

8. Internal / Financial Analysis Flashcards

1
Q

What are Balance Sheets?

A

Lists of Assets and Liabilities.

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2
Q

What do Balance Sheets represent?

A

A snapshot of a firm’s finances at a fixed point in time.

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3
Q

What do Balance Sheets show regarding company assets?

A

The value of all the capital invested in the business.

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4
Q

What is the formula for calculating net assets?

A

Total fixed and current assets minus total current and long-term liabilities.

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5
Q

What are the two primary components of a Balance Sheet?

A
  • Assets
  • Liabilities
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6
Q

What are Assets?

A

Things the business owns.

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7
Q

What are Non-current Assets?

A

Assets likely to be kept for more than a year.

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8
Q

What is an example of a Non-current Asset?

A

Property, machinery, or production equipment.

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9
Q

What happens to Non-current Assets over time?

A

They often lose value due to depreciation.

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10
Q

What are Current Assets?

A

Assets that can be converted into cash within the accounting year.

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11
Q

What do Current Assets include?

A
  • Receivables
  • Inventories
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12
Q

What are Liabilities?

A

Debts the business owes.

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13
Q

What are Current Liabilities?

A

Debts that need to be paid off within a year.

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14
Q

What are examples of Current Liabilities?

A
  • Overdrafts
  • Taxes
  • Payables
  • Dividends
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15
Q

What are Non-current Liabilities?

A

Debts that will be paid off over several years.

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16
Q

What are Bad Debts?

A

Debts that debtors won’t ever pay.

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17
Q

What happens to Bad Debts on the Balance Sheet?

A

They are written off and recorded as an expense.

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18
Q

Fill in the blank: The total current liabilities are deducted from total fixed and current assets to give the value of ‘________’.

A

assets employed

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19
Q

True or False: Bad debts can be included on the balance sheet as an asset.

A

False

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20
Q

What does it indicate if a balance sheet doesn’t balance?

A

Something has gone horribly wrong.

21
Q

What do brackets mean on a balance sheet?

A

They indicate negative numbers.

22
Q

Describe what the non-current assets of a bakery might be.

A

Examples include ovens, baking equipment, and property.

23
Q

What is working capital?

A

The finance available for day-to-day spending

Working capital is crucial for a business’s liquidity.

24
Q

How is working capital calculated?

A

Working capital = current assets - current liabilities

Current liabilities include overdrafts, payables, and tax due.

25
Q

Why is sufficient working capital essential for a business?

A

Businesses can’t survive without enough working capital to pay liabilities

It is important to collect money quickly to maintain cash flow.

26
Q

What happens if a business ties up too much working capital in inventories?

A

They can’t use these to pay current liabilities until turned into cash

Excessive inventories can lead to liquidity issues.

27
Q

How much cash should a business maintain?

A

Just enough to pay short-term debts

Too much cash is ineffective for earning profits.

28
Q

What is the impact of inflation on a business’s cash needs?

A

Inflation increases costs, requiring more cash

Wages and stock holding costs rise during high inflation.

29
Q

What is fixed capital or capital expenditure?

A

Money used to buy non-current assets

Examples include factories and equipment.

30
Q

Why do businesses need to control their debtors?

A

To ensure timely payments and maintain cash flow

Unpaid debts can lead to financial difficulties.

31
Q

What is the importance of managing stock levels?

A

To meet market demand without overstocking

Appropriate stock levels prevent cash flow issues.

32
Q

How is stock valued according to accounting conventions?

A

At cost or net realizable value, whichever is lower

Net realizable value is the amount the company could sell the stock for currently.

33
Q

What is depreciation?

A

The decrease in an asset’s value over time

Causes include wear and tear, breakdowns, and obsolescence.

34
Q

What are the reasons assets lose value?

A
  • Wear and tear
  • Breakdowns
  • Becoming outdated

Depreciation affects financial statements and asset valuation.

35
Q

What does a business do to reflect asset depreciation in accounts?

A

Calculate depreciation each year

This provides a true reflection of what the asset could sell for.

36
Q

Fill in the blank: The drop in value of a business asset over time is called _______.

A

depreciation

37
Q

True or False: Non-current assets do not need financing for capital expenditure.

A

False

Businesses need capital expenditure for startup, growth, and replacement.

38
Q

Current ratio

A

Current assets / current liabilities
Ideal 1.5 -2.0

39
Q

Liquidity

A

How easy it is for an asset to be turned to cash

40
Q

Return on capital employed

A

Operating profit / total equity + non current liabilities x100

Shows how much money is made by the business

41
Q

Total equity + non current liabilities also known as what ?

A

Capital employed

42
Q

Inventory turnover

A

Cost of sales / cost of average stock held

Shows the amount of times the stock is all sold out in the year

43
Q

Receivables / payables days

A

Receivables/ payables divided by cost of sales X365

Shows amount of days it takes for

44
Q

Gearing

A

Shows the ratios of debts of the business

NC liabilities / capital employed x 100

45
Q

Rewards of high gearing

A

Extra funds for expansion
And gain a comp advantage

46
Q

Risk of gearing

A

Not being able to afford repayments of loans especially when interests are high

47
Q

Core competences

A

Unique features that make the business competitive

Hard for competitors to copy

48
Q

Elkingtons triple bottom line

A

Includes : profit , people and the planet in a Venn diagram

Business (10 decks)

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