Business Finance Flashcards
Stock turnover ratio
how many times a business replenishes it stock inventory or how long it takes for its inventory to be replenished (all sold) – higher the value, the better
Debtor days ratio
number of days it takes a firm to collect money from its debtors – the lower the value, the better
Creditor days
number of days it takes for a business to pay its trade creditors – depends on whether higher or lower is better
Gearing Ratio
used to assess a firm’s long-term liquidity position by comparing a company’s debt to its capital – a higher ratio means that a firm must pay more interest on profit this year so a lower ratio is preferable
gross profit margin
percentage of sales, how much money a business has after subtracting the direct costs (costs of goods sold
) – higher, better
net profit margin
the percentage of sales revenue you have left after deducting operating expenses, depreciation, amortization, interest, and income taxes – higher, better
return on capital employed
a financial ratio that can be used to assess a company’s profitability and capital efficiency – the higher the better
current ratio
liquidity ratio that assesses the company’s ability to pay its short-term debts with its current assets – the higher the ratio, the more capable you are at paying you debts
acid test ratio
liquidity ratio assessing how well current assets can cover current liabilities – should exceed 1
profit and loss account
financial statement of a firm’s trading activities for some time – also known as income statement
balance sheet
information on the value of organization assets, liabilities, and capital invested by owners
cash flow forecast
expected inflow and outflow of cash
cash flow statement
actual flow of cash in the past
working capital
money needed for day to day running of a business
receipts
monthly income of cash
payments
outflows of a business
assets
items of monetary value owned by the business
liabilities
amount of money owed by the business
equity
value of business belonging to owners ( or shareholders )
fixed asset
asset owned by a business lasting longer than 12 months
current asset
cash or liquid asset likely to turn into cash within 12 months (cash, debtors, stock)
current liabilities
debts settled within one year of the balance sheet date ( tax, dividends, overdrafts )
long-term liabilities
debts to be repaid after 12 months ( debentures, mortgages, bank loans )
intangible assets
non-physical assets that can earn revenue for a business (brand, patents, trademarks)
depreciation
fall in value of an asset over some time
straight-line method
depreciating an asset by the same amount each year
reducing balance method
depreciating an asset by the same percentage each year, so most of the decreased value will occur in the first few years
debtors
a company or individual who owes money
stocks
capital earned by the issue of shares
creditors
an individual or company owed money to
debentures
a long-term liability that usually has a term of greater than 10 years
loan capital
money required to run a business raised from loans rather than shares
investment appraisal
analysis done to consider the profitability of an investment – considering the life of the asset, affordability, and strategic fit
budgets
a spending plan based on income and expenses
average rate of return
evaluates the profitability of an investment (percentage) – the higher, the better the investment
net present value
financial metric to evaluate the profitability of an investment by comparing the value of expected future cash flows to the initial investment – positive value means profitable, negative value means not profitable
capital employed
the total amount of capital a firm uses to operate
