Assessing competitiveness 3.5 Flashcards
What in the income statement?
Measures a businesses performance (income & costs) and profits or losses, over a given period of time, usually one year
What is a balance sheet?
A snapshot of the businesses assets and liabilities on a particular day
What is a cash flow statement?
Shows how the business has generated and disposed of cash and liquid funds during a period of time
What does an income statement consist of?
Revenue, costs of sales, gross profit, other expenses, operating profit, interest/taxes, net profit
What does a balance sheet include?
1) Net assets
2) Capital and reserves
What are capital and reserves?
Share capital and reserves (equity)
Some of examples of non-current assets and current assets
Non-current assets - land and buildings, machinery, Goodwill
Current assets - Cash balances, debtors (receivables), inventory)
Some of examples of non-current liabilities and current liabilities
Non-current - Long-term borrowings and others
Current - Trade creditors (payables), short term borrowings (overdraft)
What is the order of a balance sheet?
Non-current assets
Current assets
Current liabilities
Net assets
Non-current liabilities
Total equity
What is ratio analysis?
Measures the financial performance of a business which can be used o compare between other businesses
What does a gearing ratio calculate?
How much of a businesses investments is borrowed
What would be considered a good gearing ratio? Why
A low geared ratio because this means that the business has borrowed less than a quarter than the total capital employed in the organisation
The business may not have as much liquidity problems because less is being borrowed
How do we calculate gearing ratio?
(Long term liabilities/capital employed) x100
How to calculate capital employed and what does it show?
Total equity + non current liabilities or total assets - current liabilities
How many assets have been used in an investment to make earnings
What does ROCE show?
Return on capital employed is a financial ratio that measures a company’s profitability in terms of all of its capital.
How do you calculate ROCE?
(Operating profit/capital employed) x 100
What are 2 things that operating profits depend on?
1) One offs that may have occurred that year causing a spike in OP.
2) Leasing’s. Capital employed won’t be as large as someone purchasing assets meaning ROCE may appear higher
What are 3 limitations of ratio analysis?
1) Over-time - Businesses can change in size and diversify over time
2) Differences between businesses - A business may operate in two different industries will require different capital ratios
3) Financial years - A business may have a different financial year to another business so could be misleading
What is the formula for labour producitivity?
Output per period/number of employees
What is labour productivity?
This is the total output per worker, which shows how productive they are
What are the benefits and costs of labour productivity?
- Increased output means benefit from economies of scale
- Performance related pay
Costs: - quality of the goods may not be as good
What is the formula for labour turnover?
(Number of staff leaving/average number of staff employed) x 100
How to calculate average number of staff employed?
Staff at the beginning of the time period + staff at the end / 2
What is labour turnover?
This is the total number of staff that leave the business. This number should be as low as possible.
