acounting Flashcards
what is the role of financial accounting in a business
calculation of closing stock value,
calculation of taxable profit
audit process
disclosure related to directors pay
what is the role of financial management in a small business
deciding profit margin of a particular product
budgeting for next month/ year
what is the role of financial management in a small business
working capital management to avoid an overdraft
negotiation with suppliers to delay payment
what is the cash flow
measurements of cash
what is the statement of financial position
an overview of what the company owns and owes
(balance sheet)
what a business owes
current liabilities
non current liabilities
equity
what is equity
And what is included in the balance sheet
book value of shareholder capital
(what a business owe to its owners)
share capital
retained earnings (from the year)
final profit from income statement
treasury shares
withdrawals are minuses from equity
what do non current assets involve
intangible assets
property
deferred tax assets
investment property
Minus the depreciation
(the value worked out plus the existing depreciation in the table)
what do current assets involve
cash
trade receivables (debtors)
inventories (closing) check the date
prepaid expenses
what is the difference between gross amount and net book value
gross amount is the original value of an item when purchased and the net book value his the current value of the item
what do current liabilities involve
accounts payable
taxes payable
accused expenses
dividends
interest
what is retained earnings
profit saved for future use
What is the payback period
the amount of time it takes to recoup the original investment.
Net present value
the sum of all future cash flows over the investment’s lifetime, discounted to the present value
Pay back calculation
- minus annual returns from investment to work out how many years it will take
- (what is still owedl/ remaining payback) X12
How to calculate net present value.
- multiply each return by discount factor
- add all values up
- minus the cost of investment
NPV is always 1 at year 0 because the money hasn’t yet devalued.
how to calculate contribution per unit
selling price- variable cost per unit
break even calculation
fixed cost/ contribution per unit
what is break even
the level of output needed for a firm to cover its costs
Limitations of break-even
- assumes all stock is sold at the same price
- doesn’t take into account the future value of money
- variable costs are likely to change (COVID)
Advantages of break even
- can better be understood by non-financial managers.
- calculations are quick and easy
- can support loans and application
- may be motivational
how to calculate book value
All Assets – All Liabilities = Net Asset (Book Value)
how to calculate total value of a company
value of one share X total shares issued.
positives of asset-based valuation
A company is in financial difficulty – to know the value of assets that may be used as a collateral.
A company is in financial difficulty – to compare benefits of current performance and selling assets
When takeovers are proposed – to know minimum value of assets
Some company’s valuation is composed primarily in their tangible assets – eg. Investment Trusts