Balance Sheets Flashcards
Gearing ratio
Non current liabilities
————— x 100
Capital employed
Gearing definition
How much a company is funded by debt (borrowings) compared to its equity (own money)
What does a high gearing and low gearing mean?
High gearing= High debt : Low equity
Low gearing= Low debt: High equity
Current Ratio Formula
Current Ratio= current assets/ current liabilities
What does a high current ratio and a low current ratio mean?
High CR (>1) = High current assets: Low Current liabilities, suggesting a good short-term financial health
Low CR (<1) = Low current assets: High current liabilities, suggesting potential liquidity problems
Current ratio definition
Current ratio is a financial metric that measures the company’s ability to pay its short-term debts. It compares the company’s assets (owns) to its liabilities (owes).
Capital employed definition
Capital employed is the amount of capital a company uses to generate profits including debt capital and equity capital.
Debt capital and equity capital definition
Equity capital- capital invested by shareholders or owners
Debt capital- loans or borrowings to finance business operations.
2 Capital employed formulas
-Total assets- current liabilities
-Equity- non- current liabilities
Assets definition
Resources owned by the business which can be classified into two. Current assets and non current assets
Current assets definition, examples and formula
Assets that are expected to be converted into cash or consumed WITHIN one year
Examples:
Cash
Inventory
Account receivables
Formula:
Cash+ inventory+ account receivables + other current assets
Non current assets definition, examples and formula
Non current assets are long term investments that are NOT expected to be converted into cash in one year
Examples:
-Property, Plant and Equipment (PPE)
(E.g Land, buildings,machinery)
-Intangible assets
-Investments
Formula:
PPE + Intangible assets + investment
Liabilities definition
Obligations that the business owes to external parties. This is classified into two.
Current- liabilities
Non current liabilities
Current liabilities definition, examples and formula
Obligations that are due to be paid within one year
Examples:
-Account Payables: money owed to suppliers
-Short-Term Loans: loans that need to be paid within one year e.g overdrafts
-Accrued Expenses: expenses that have to incurred but not paid
Formula:
Account payables + short term loans + accrued expenses + other current liabilities
Non current liabilities definition, examples and formula
Non current liabilities are loans that don’t require payment within one year
Examples:
-Long term loans: ( bank loans)
-Bonds payables: Debt securities issued by the company
- Deferred tax liabilities: taxes owed in the future
Formula:
Long term loans+ bonds payables + deferred tax liabilities
