cash, profit, liquidity and profitability Flashcards
what are all cash, profit, liquidity and profitability linked to?
the health of an enterprise
what will analysing the enterprises will reveal?
whether an enterprise is solvent - able to pay its debts - or Insolvent.
what is cash?
the money that an enterprise has
it is the coins and notes on the premises and money In the bank
cash:
where does the value of an enterprise’a cash appear in?
the balance sheet (statement of financial position) as a current asset
cash:
why is cash the most liquid form of asset?
as it means the enterprise is able to pay its short-term debts
cash:
what could mean for the enterprise to unable to make a profit?
the debts Include suppliers who may not be willing to continue to supply the enterprise
what is liquidity?
the ability of an enterprise to pay its debts
how will an enterprise have good (positive) liquidity?
will have sufficent net current assets to pay its creditors. It means the enterprise is solvent - can pay its debts.
how will an enterprise have a poor (negative) liquidity?
may not be able to pay its debts. The enterprise may become insolvent and have to cease trading
liquidity and cash:
what will an enterprise need if it needs to pay debts in the near future?
it will need to have access to cash
liquidity and cash:
what are 3 examples of an enterprise that needs to pay off its debts?
wages, heating and lighting
liquidity and cash:
The ability of an enterprise to convert its assets into cash is known as what?
it’s liquidity
liquidity and cash:
what could an enterprise sell if needs to pay to it suppliers £5000 in 10 days time but only has £2000 in cash?
it could sell one of its fixed assets, such as a company vehicle it no longer requires, or sell some of its inventory (stock) at reduced prices.
differences between cash & profit:
what is profit?
what Is left once all costs have been deducted from revenue
differences between cash & profit:
where does figures for profit appear?
In the profit and loss account
differences between cash & profit:
when will profit become cash?
once the enterprise has recelved payment for its products. This could take several weeks.
what is profitability?
the ability of an enterprise to turn revenue Into profit
what is profit also known as?
profit margin
what is the profitability of the amount of generated from each what?
each £1 generated in sales revenue
what does a profit margin of 20% mean?
the enterprise is generating £0.20 from each £1 of sales revenue
how can an enterprise increase its profit? (2)
by raising prices without demand falling
or lower it’s costs without a noticeable change to the product/service
what does a high profit margin mean?
that the enterprise will have a large profit
