Business Analysis Flashcards
suggest 3 reasons why preparing and keeping accurate accounts are essential
future predictions
see if their are any problems
amend any problems
how do you work out gross profit?
gross profit/turnover x 100
how do you work our net profit?
net profit/turnover x 100
what is the difference between gross profit and net profit?
gross profit is before tax and expenses
how do you work out net profit margin?
gross profit-expenses/turnover x 100
what is return of capital employed?
the efficiency of funds invested in the business, so for every £1 invested, how many % profit it makes
how do you work out current ratio?
current assets/current liabilities
what is current ratio?
it measure the liquidity of a company i.e. the rate of assets to liabilities ( how well can the company pay its debts)
how do you work out acid test ratio?
current assets-stock/current liability
what is the difference between current and acid test ratio?
current includes stock
what is a gearing ratio?
looks at the long term financial stability of a company- how much do they rely on long term borrowing to fund day to day activities
how do you work out return of capital employed?
net profit/ total capital employed x100
how do you work out gearing?
long term loans/capital employed x100
what does total capital employed include?
ordinary share capital preference shares reserves debentures long-term loans
what are 4 limitations of financial analysis?
it is just a snapshot
window dress
creative accounts-postpone withdrawal
sale lease back
