Analysing financial performance budgets sheets Flashcards
What is a balance sheet?
A formal financial document that summarises the net worth of a business at a given point in time.
What is an income statement?
a formal financial document that summarises the business’ trading activities and expenses to show where they have made a profit or a loss over a period of time.
What is a non- current assets?
Likely to be kept by the business for more than one year
- Vehicles
- Machinery
- Land
What is a current assest?
Likely to be turned into cash with a year
- Inventory (stock)
- Receivables
- Cash
What is a non-current liability?
Debts that the business have more than one year
- Loans
- Mortgage
What is a current liability?
Debts that the business may have to repay within a year
- Overdraft
- Payables
What is net current assest?
Total current assets - Current liabilities
What is net assets?
The net worth of the business’ assets
What is share capital?
Financed raised from the sale of shares
What is total equity?
The value of shareholders’ funds
What is working capital?
A measure of a firms’ liquidity/ability to meet day to day expenses
Working capital = Current assets - Current liabilities
What is capital employed
The value of all the long term finance that has been invested
Capital employed = long term liabilities + shareholders’ capital
Shareholders’ capital = Share capital + retained profits
What is depreciation?
When non-current assets lose value e.g. through wear and tear
How to calculate depreciation?
( Original costs - Expected final value ) / Expected life
What is ratio analysis?
The selection, calculation and interpretation of a ratio analysis
What are the three types of ratios
Liquidity
Profitability
Gearing
What does liquidity measure?
It measures a firms short term survival i.e. its ability to meet short term debts
How can liquidity be measured?
Current ratio:
Current assets : Current liabilities
Acid test:
Liquid assets : Currents liabilities
Liquid assets = current assets - stock
How can profitability be measured?
Return on capital employed
Net profit / (Total equity + long term liabilities) x 100
What is gearing?
It means what percentage of the firm is funded through long term loans.
How is gearing calculated?
Long term liabilities / Total equity + Long term liabilities x 100
Why is depreciation important for a income statement?
It gives a true reflection of its value
would give false representation of business value
would affect company reputation
LEGAL REQUIREMENT
