Cash, Profit, Liquidity and Profitability Flashcards
Cash, profit, liquidity and profitability are all linked to the health of an enterprise.
Analysing them will reveal what?
Analysing them will reveal whether an enterprise is:
1) Solvent - able to pay its debts
Or
2) Insolvent
Cash is the money that an enterprise has. It is what?
It is:
1) The coins and notes on the premises
2) Money in the bank
Cash is the money that an enterprise has. It is the coins and notes on the premises and money in the bank.
The value of an enterprise’s cash appears in the statement of financial position as a what?
The value of an enterprise’s cash appears in the statement of financial position as a current asset
Cash is the money that an enterprise has. It is the coins and notes on the premises and money in the bank.
The value of an enterprise’s cash appears in the statement of financial position as a current asset.
It is the most … form of an asset?
It is the most liquid form of an asset
Cash is the money that an enterprise has. It is the coins and notes on the premises and money in the bank.
The value of an enterprise’s cash appears in the statement of financial position as a current asset.
It is the most liquid form of an asset as it means the enterprise is able to do what?
It is the most liquid form of an asset as it means the enterprise is able to pay its short-term debts
Cash is the money that an enterprise has. It is the coins and notes on the premises and money in the bank.
The value of an enterprise’s cash appears in the statement of financial position as a current asset.
It is the most liquid form of an asset as it means the enterprise is able to pay its short-term debts.
These debts include …
These debts include suppliers who may not be willing to continue to supply the enterprise
Cash is the money that an enterprise has. It is the coins and notes on the premises and money in the bank.
The value of an enterprise’s cash appears in the statement of financial position as a current asset.
It is the most liquid form of an asset as it means the enterprise is able to pay its short-term debts.
These debts include suppliers who may not be willing to continue to supply the enterprise, which could mean what?
These debts include suppliers who may not be willing to continue to supply the enterprise, which could mean it will be unable to make a profit
The difference between cash and profit:
What is profit?
Profit is what is left once all costs have been deducted from revenue
The difference between cash and profit:
Profit is what is left once all costs have been deducted from revenue. Figures for profit appear where?
Figures for profit appear in the statement of comprehensive income
The difference between cash and profit:
Profit is what is left once all costs have been deducted from revenue. Figures for profit appear in the statement of comprehensive income.
Profit only becomes cash once what?
Profit only becomes cash once the enterprise has received payment for its products
The difference between cash and profit:
Profit is what is left once all costs have been deducted from revenue. Figures for profit appear in the statement of comprehensive income.
Profit only becomes cash once the enterprise has received payment for its products. How long could this take?
This could take several weeks
What is liquidity?
Liquidity is:
1) The ability of an enterprise to pay its debts
2) The ability of an enterprise to convert its assets into cash
Liquidity is the ability of an enterprise to pay its debts and the ability of an enterprise to convert its assets into cash.
An enterprise with good (positive) liquidity will …
An enterprise with good (positive) liquidity will have sufficient net current assets to pay its creditors
Liquidity is the ability of an enterprise to pay its debts and the ability of an enterprise to convert its assets into cash.
An enterprise with good (positive) liquidity will have sufficient net current assets to pay its creditors. It means the enterprise is what?
It means the enterprise is solvent - can pay its debts
Liquidity is the ability of an enterprise to pay its debts and the ability of an enterprise to convert its assets into cash.
An enterprise with good (positive) liquidity will have sufficient net current assets to pay its creditors. It means the enterprise is solvent - can pay its debts.
An enterprise with poor (negative) liquidity …
An enterprise with poor (negative) liquidity may not be able to pay its debts
Liquidity is the ability of an enterprise to pay its debts and the ability of an enterprise to convert its assets into cash.
An enterprise with good (positive) liquidity will have sufficient net current assets to pay its creditors. It means the enterprise is solvent - can pay its debts.
An enterprise with poor (negative) liquidity may not be able to pay its debts.
The enterprise may …?
The enterprise may:
1) Become insolvent
2) Have to cease trading
Liquidity and cash:
If an enterprise needs to pay debts in the near future, such as what?
If an enterprise needs to pay debts in the near future, such as wages, heating and lighting
Liquidity and cash:
If an enterprise needs to pay debts in the near future, such as wages, heating and lighting, it will need to have access to what?
If an enterprise needs to pay debts in the near future, such as wages, heating and lighting, it will need to have access to cash
Liquidity and cash:
If an enterprise needs to pay debts in the near future, such as wages, heating and lighting, it will need to have access to cash.
Liquidity is the ability of an enterprise to pay its debts and the ability of an enterprise to convert its assets into cash.
For example, if a business has to pay its suppliers £5,000 in 10 days’ time but only has £2000 in cash, what could it do?
For example, if a business has to pay its suppliers £5,000 in 10 days’ time but only has £2000 in cash, it could:
1) Sell one of its fixed assets, such as a company vehicle it no longer requires
Or
2) Sell some of its inventory (stock) at reduced prices
What is profitability?
Profitability is the ability of an enterprise to turn revenue into profit
Profitability is the ability of an enterprise to turn revenue into profit.
What is this known as?
This is known as its profit margin
Profitability is the ability of an enterprise to turn revenue into profit.
This is known as its profit margin.
What is the profit margin?
The profit margin is the amount of profit generated from each £1 generated in sales revenue
Profitability is the ability of an enterprise to turn revenue into profit.
This is known as its profit margin.
The profit margin is the amount of profit generated from each £1 generated in sales revenue.
So, a profit margin of 20% means the enterprise is …
So, a profit margin of 20% means the enterprise is generating £0.20 from each £1 of sales revenue
Profitability is the ability of an enterprise to turn revenue into profit.
This is known as its profit margin.
The profit margin is the amount of profit generated from each £1 generated in sales revenue.
So, a profit margin of 20% means the enterprise is generating £0.20 from each £1 of sales revenue.
The size of profit margin will vary.
What does a high profit margin mean?
A high profit margin means the enterprise will make a large profit
Increasing profitability:
How can an enterprise increase its profitability?
An enterprise can increase its profitability by:
1) Raising prices without demand falling
Or
2) Lower its costs without a noticeable change to the product or service
