Ch 17 Flashcards
Define; Interpreting
examining the relationship between items, to explain cause & effect of changes in performance
Define; Profitability
-ability of the business to earn profit (compared to sales or assets)
Define; Liquidity
-ability of business to meet its short term debts
Define; Efficiency
-ability of business to manage its assets & liabilities
Define; Stability
-ability of business to meet it short term debts & continue operation in long term
Define; Trend
-pattern formed by changes in a item over a period
Define; Variance
-difference between budgeted & actual figures
Define; Benchmark
-acceptable standard against which firms actual performance be assessed
Financial Indicators
measures business performance with two mediums
- Return on Owners Investment (ROI)
- Return on Assets (ROA)
- Asset Turnover (ATO)
- Net Profit Margin (NPM)
- Gross Profit Margin (GPM)
Return on Owners Investment
-assesses how effectively the firm has used its owners capital to earn profit
ROI= net profit/av. capital. X 100
Debt Ratio
-prop of the firms assets funded by external sources
Debt Ratio= t. liabilities/t. assets X 100
Define; Gearing
-the extent to which the firm relies on borrowed funds to purchase of assets
Return on Assets
-assesses how effectively a business uses its assets to earn profit
ROA= net profit/av. total assets. X 100
Asset Turnover
-assesses how productively the business has earned its revenue using its assets
ATO= sales/av total assets
Expense Control
-firm’s ability to control its expenses (decrease expense or increase sales)
