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A-level Business Mr Lawell > A2-3.7.2 > Flashcards

A2-3.7.2 Flashcards

1
Q

What is a balance sheet?

A

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

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2
Q

What is a balance sheet also known as?

A

‘Snapshot’ of businesses financial position

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3
Q

What are non-current assets? e.g?

A

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

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4
Q

What are intangible non-current assets? e.g

A

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

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5
Q

What are tangible non-current assets? e.g

A

Assets that have physical form e.g land, machinery

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6
Q

What are current assets ? e.g

A

Assets that will be cash in the next 12 months

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7
Q

What are inventories?

A

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

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8
Q

What are current liabilities ?

A

What they owe -> debts to be repaid in year

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9
Q

What are trade + other payables known as?

A

creditors

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10
Q

What are creditors?

A

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

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11
Q

What are trade + other receivables known as ?

A

debtors

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12
Q

What are debtors?

A

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

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13
Q

What does cash + other current assets include?

A

‘cash in hand’ + money in bank account

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14
Q

What is an overdraft?

A

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

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15
Q

What is an example of a tax payable?

A

Corporation tax

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16
Q

What are net current assets?

A

Money used for day to day running of business

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17
Q

What are current assets also known as?

A

‘working capital’

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18
Q

How do you calculate net current assets?

A

current assets - current liabilities

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19
Q

What are non-current liabilities ? e.g

A

Debts the business does not expect to repay within a year

e.g mortgage

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20
Q

What do net assets show?

A

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

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21
Q

What are the ways of calculating net assets?

A

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

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22
Q

What is share capital?

A

Total value of shares purchased by shareholder

23
Q

What are reserves + retained earning ?

A

Accumulation of ‘retained profit’ from previous yrs trading

24
Q

What is retained profit?

A

Profit been re-invested into company

25
Q

What is total equity?

A

Shareholders fund

26
Q

How do you calculate total equity ?

A

share capital + reserves & retained earnings

27
Q

What does total equity equal

A

Net assets

28
Q

How do you calculate the gross profit margin?

A

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

29
Q

How do you calculate gross profit ?

A

sales rev - cost of sales

30
Q

How do you calculate operating profit margin ?

A

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

31
Q

How do you calculate operating profit ?

A

Gross profit - expenses

32
Q

How do you calculate return on capital employed ?

A

Operating profit
———————– x100
(total equity + non
current liabilities )

33
Q

How do you calculate capital employed ?

A

Total equity + non current liabilties

34
Q

How do you calculate inventory (stock) turnover ?

A

average inventories held

35
Q

How do you calculate receivables (debtors ) days ?

A

Receivables
—————– x365
sales rev

36
Q

How do you calculate payables (creditors ) days ?

A

Payables
————– x365
sales rev

37
Q

How do you calculate current ratio?

A

current liabilities

38
Q

What is the idea current ratio?

A

1.5:1 to 2:1

39
Q

What would a current ratio of 3:1 mean?

A

High.

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

40
Q

What is the ideal gearing ratio?

A

50%

41
Q

What does a gearing ratio over 50% mean?

A

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

42
Q

What is an income statement ?

A

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

43
Q

How do you calculate gross profit?

A

sales rev - cost of sales

44
Q

How do you calculate operating profit ?

A

gross profit - expenses

45
Q

Where does profit for year go?

A

Some paid as dividends to shareholders

some reinvested in business

46
Q

What is the best measure of profit quality?

A

operating profit

47
Q

Why is profit quality important ?

A

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

48
Q

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

A

Low, as it is unlikely to continue in future

49
Q

What are exceptional items ?

A

One off large financial transactions from ordinary trading activities

50
Q

What are extraordinary items ?

A

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

51
Q

Why are exceptional items bad?

A

They are so big they risk distorting businesses trading account

52
Q

Who are interested in business’s income statement ?

A 
Shareholders 
Managers 
Employees 
HM revenue 
Customers
53
Q

How do you calculate gearing ratio?

A

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

A-level Business Mr Lawell (4 decks)

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