A03 and A04 Flashcards
What is gross profit?
Gross profit is the revenue from sales minus the cost of goods
What is operating profit?
Operating profit is the profit earned from a firm’s normal core business operations.
What are liquidity/solvency ratios?
Liquidity/solvency ratios measure a company’s ability to meet its short-term obligations.
What is gearing?
Gearing refers to the ratio of a company’s debt to its equity.
What is inventory turnover?
Inventory turnover measures how many times a company’s inventory is sold and replaced over a period.
What is return on capital employed (ROCE)?
ROCE is a financial ratio that measures a company’s profitability and the efficiency with which its capital is employed.
What are income statements?
Income statements, or profit and loss accounts, summarize revenues and expenses to show profit over a specific period.
What are statements of financial position?
Statements of financial position, or balance sheets, provide a snapshot of a company’s assets, liabilities, and equity at a specific point in time.
What is profitability?
Profitability measures a company’s ability to generate income relative to its revenue, assets, or equity.
What is solvency?
Solvency refers to a company’s ability to meet its long-term debts and financial obligations.
Key ratios include current ratio, acid-test ratio, and gearing.
What is activity in financial terms?
Activity measures how efficiently a company uses its assets to generate revenue.
Key metrics include inventory turnover, trade receivables collection period, trade payables payment period, and asset turnover.
What are the strengths and limitations of financial information?
Financial information provides insights for decision-making but may have limitations such as not reflecting future performance or qualitative factors.
