A2-3.7.2

Question 1

What is a balance sheet?

Answer 1

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

Question 2

What is a balance sheet also known as?

Answer 2

‘Snapshot’ of businesses financial position

Question 3

What are non-current assets? e.g?

Answer 3

Assets owned by a business that it expects to retain for year or more
e.g land, property, machinery, vehicles

Question 4

What are intangible non-current assets? e.g

Answer 4

Assets that don’t have physical form e.g brands

Question 5

What are tangible non-current assets? e.g

Answer 5

Assets that have physical form e.g land, machinery

Question 6

What are current assets ? e.g

Answer 6

Assets that will be cash in the next 12 months

Question 7

What are inventories?

Answer 7

‘stock’ + raw materials + items necessary for production + finished products to be sold

Question 8

What are current liabilities ?

Answer 8

What they owe -> debts to be repaid in year

Question 9

What are trade + other payables known as?

Answer 9

creditors

Question 10

What are creditors?

Answer 10

Money which the business owes + has to be paid in 12 months

Question 11

What are trade + other receivables known as ?

Answer 11

debtors

Question 12

What are debtors?

Answer 12

Debts owed to the business + due to payment within yr e.g trade creditors

Question 13

What does cash + other current assets include?

Answer 13

‘cash in hand’ + money in bank account

Question 14

What is an overdraft?

Answer 14

Short-term form of borrowing where business can withdraw more money than it has in bank account, up to an agreed limit

Question 15

What is an example of a tax payable?

Answer 15

Corporation tax

Question 16

What are net current assets?

Answer 16

Money used for day to day running of business

Question 17

What are current assets also known as?

Answer 17

‘working capital’

Question 18

How do you calculate net current assets?

Answer 18

current assets - current liabilities

Question 19

What are non-current liabilities ? e.g

Answer 19

Debts the business does not expect to repay within a year

e.g mortgage

Question 20

What do net assets show?

Answer 20

What the business is worth -> what would be left to owners if net assets were sold + liabilities were paid

Question 21

What are the ways of calculating net assets?

Answer 21

Non current assets + net current assets - net current liabilities
OR
(non-current assets + current assets) - (non current liabilities + current liabilities )

Question 22

What is share capital?

Answer 22

Total value of shares purchased by shareholder

Question 23

What are reserves + retained earning ?

Answer 23

Accumulation of ‘retained profit’ from previous yrs trading

Question 24

What is retained profit?

Answer 24

Profit been re-invested into company

Question 25

What is total equity?

Answer 25

Shareholders fund

Question 26

How do you calculate total equity ?

Answer 26

share capital + reserves & retained earnings

Question 27

What does total equity equal

Answer 27

Net assets

Question 28

How do you calculate the gross profit margin?

Answer 28

Gross profit ------------------- x100 sales revenue

Question 29

How do you calculate gross profit ?

Answer 29

sales rev - cost of sales

Question 30

How do you calculate operating profit margin ?

Answer 30

Operating profit ------------------------- x100 sales revenue

Question 31

How do you calculate operating profit ?

Answer 31

Gross profit - expenses

Question 32

How do you calculate return on capital employed ?

Answer 32

Operating profit ----------------------- x100 (total equity + non current liabilities )

Question 33

How do you calculate capital employed ?

Answer 33

Total equity + non current liabilties

Question 34

How do you calculate inventory (stock) turnover ?

Answer 34

Cost of sales ------------------- average inventories held

Question 35

How do you calculate receivables (debtors ) days ?

Answer 35

Receivables ----------------- x365 sales rev

Question 36

How do you calculate payables (creditors ) days ?

Answer 36

Payables -------------- x365 sales rev

Question 37

How do you calculate current ratio?

Answer 37

current assets ---------------------- current liabilities

Question 38

What is the idea current ratio?

Answer 38

1.5:1 to 2:1

Question 39

What would a current ratio of 3:1 mean?

Answer 39

High. | businesses resources are tied up in unproductive assets that should be reinvested for more profit

Question 40

What is the ideal gearing ratio?

Answer 40

50%

Question 41

What does a gearing ratio over 50% mean?

Answer 41

They are highly geared so they rely upon borrowed funds. They pay high interest rates before their dividends + reinvestment in business

Question 42

What is an income statement ?

Answer 42

Statement of accounting showing a firm's sales revenue over a trading period + all the relevant costs generated to earn the revenue

Question 43

How do you calculate gross profit?

Answer 43

sales rev - cost of sales

Question 44

How do you calculate operating profit ?

Answer 44

gross profit - expenses

Question 45

Where does profit for year go?

Answer 45

Some paid as dividends to shareholders | some reinvested in business

Question 46

What is the best measure of profit quality?

Answer 46

operating profit

Question 47

Why is profit quality important ?

Answer 47

allows directors to see likelihood of profit source continuing for an amount of time

Question 48

What is the quality of the profit said to be if it has arisen due to a one-off circumstance ?

Answer 48

Low, as it is unlikely to continue in future

Question 49

What are exceptional items ?

Answer 49

One off large financial transactions from ordinary trading activities

Question 50

What are extraordinary items ?

Answer 50

Large transactions outside the normal trading activities of company. aunt expected to reoccur

Question 51

Why are exceptional items bad?

Answer 51

They are so big they risk distorting businesses trading account

Question 52

Who are interested in business's income statement ?

Answer 52

``` Shareholders Managers Employees HM revenue Customers ```

Question 53

How do you calculate gearing ratio?

Answer 53

Non current liabilities ------------------------------------------------- x100 non current liabilities - total equity