Chapter 13: Ratios Flashcards
Balance sheet
A statement of the wealth of a business
Showed assets owned and liabilities owed
Statement of Financial Affairs
Working capital
Finance for day-to-day running expenses
Equity capital
Total value of the funds in the business owned by the shareholders
How to manage working capital
Proper stock control
Credit control - Incentives
Increase prices
Raise finance
Effects of High gearing ratio
Reduced dividends
Pressure on management
Risk of liquidation
Difficulty raising finance
Current assets
Money in bank
Current libilities
Accrued expenses
Debt capital
Total value of long term debt owed by the business
Debt/equity finance
Shows how much long-term debt has been borrowed compared to how much equity finance has been invested by the owners
Hearing
Leverage
Profit and loss account
Account of income earned, expenses incurred and profit made by the business
Income Statements
Reasons for low gross profit
Cost of raw materials is too high
Selling prices are too low
Reasons for Low Net Profit
Expenses are too high
Creditors
People the business owes money to
Ratios
Current Ratio/Working Capital Ratio Acid Test Ratio/Quick Ratio Net profit margin Gross profit margin Gearing Ratio/Debt-Equity Ratio R.O.I/R.O.C.E
Capital employed
Total finance used by a firm in the current year
• Issued share capital -> did sell
• Authorized share capital -> can sell
• Long term Liabilities
