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Business > Assessing A Business- Ratios > Flashcards

Assessing A Business- Ratios Flashcards

1
Q

Why is the bank a stakeholder?

A

-want to know if you can afford to repay loans and bank overdrafts

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2
Q

Why are shareholders stakeholders?

A

-want to know if there is a profit and how much dividend they will receive

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3
Q

Why are consumers stakeholders?

A

They will loose faith in a business that is struggling and will hesitate to shop in the business for fear of the business’s closing

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4
Q

Why are employees stakeholders

A
  • want to know if their job is safe

- want to know if they can get a pay rise

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5
Q

Why would the C.E.O./Managerr be a stakeholder ?

A
  • want to know what better decisions have to be made
  • want to know if they are doing better than competitors
  • want to know if there is any way of being more cost and profit efficient
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6
Q

Why isRevenue commissioner a stakeholder?

A

-want to know how much profit you made and how much tax you will pay

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7
Q

Why are suppliers/creditors stakeholders?

A

-want to know if the company can repay their debts to them

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8
Q

Definition - stakeholder

A

Parties that are interested in seeing how the company is doing
Eg. Bank, shareholders, consumers, employees, C.E.O., etc.

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9
Q

Why are competitors stakeholders?

A

They want to know how their company is better/worse than theirs

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10
Q

ROCE (what sector, what it stands for, formula)

A
  • Profitability
  • Return on Capital Employed
     Net Profit  -----------------      X     100  =    % Capital employed
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11
Q

Gross Profit Percentage/ Gross Profit Margin

Sector and formula

A

Profitability

Gross Profit
————- X 100 = %
Sales

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12
Q

Net profit margin (sector and formula)

A

Profitability

Net profit
———- X100= %
Sales

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13
Q 
Current ratio (working capital )
(Sector and formula)
A

Liquidity

Current Assets: Current Liabilities

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14
Q

Acid test ratio (sector and formula)

A

Liquidity

Current assets-Closing Stock: current liabilities

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15
Q

Rate of stock turnover (sector and formula)

A

Efficiency

Cost of sales
————– = ____times
Average stock

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16
Q

Average stock

A

Efficiency

Opening stock+closing stock
—————————— =
2

17
Q

Solvency

A

Total assets: outside liabilities

18
Q

Dividend policy

A

D./nd paid
———- x 100= %
Issued share capital

19
Q

Profitability (definition)

A

Shows how successful the managers of the company were at gaining a profit

20
Q

Liquidity

A

The ability of the company to pay it’s debts when they are due

21
Q

Solvency

A

Ability for the business to pay off debts. A firm is ‘soveny’ when it has more current assets than liabilities

22
Q

Dividend policy (definition)

A

How much dividend is paid to shareholders

23
Q

Efficiency definition

A

Measures how well the assets of a company are being used

24
Q

Overtrading when a company had a negative working capital (more liabilities than assets)

A

-when a company had a negative working capital (more liabilities than assets)

25
Q

ROCE comment

A

Always compare to the ratio to the RISK FREE INVESTMENT of 4% (Ie. Interest on money saved in bank)

26
Q

Net profit margin/percentage comment

A

-‘for every €1 in sales we make XX cent profit (the xx is the percentage in CENTS)

27
Q

Gross profit margin comment

A
  • For every €1 in sales we make XX profit
  • BEFORE EXPENSES
  • Net profit is a truer reflection of profitability than gross profit percentage
28
Q

Current ratio

A
  • for every €1 of debt we have XX to cover it

- ideal is 2:1

29
Q

Acid test ratio comment

A
  • for every €1 of debt we have XX to pay for it
  • ideal 1:1
  • truer reflection of liquidity than current ratio
30
Q

Stock Turnover

A
  • expect to have increased or stayed the same
  • high stock turnover= goods are sold more
  • comment on types of goods that are being changed (non perishable?)
31
Q

Dividend paid comment

A
  • same or increased
  • for every €1 share the shareholders will receive X cent
  • good/bad for shareholders?
32
Q

Terms of reference opening line on a report assessing a business

A

This is a report comparing and commenting on the performance of ____ LTD, for the years 2015 and 2016 based on the information given by ____ LTD.

Business (20 decks)

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