Chapter 4- Analysing financial performance

Question 1

What is a trading profit and loss account?

Answer 1

Measures the businesses performance over a given period of time (one year)

It is also known as an income statement

Question 2

What does an income statement look like?

Answer 2

Sales revenue
- Cost of sales
=Gross profit
- Expenses (fixed costs)
= Net profit
- Corporation tax @ 20%
= Profit after tax
- Dividends
= Retained profit

Question 3

What is the formula for gross profit margin?

Answer 3

Gross profit/ Sales reven
ue X 100

Question 4

What is the formula for net profit margin?

Answer 4

Net profit/ Sales revenue X 100

Question 5

What is a balance sheet?

Answer 5

A snapshot of the businesses assets (what it owns) and its liabilities (what it owes) at a particular time

Question 6

What does a balance sheet look like?

Answer 6

Current assets
- Stock
- Debtors
- Cash and bank

Current liabilities
- Bank overdrafts and loans
- Creditors
- Other
Total current liabilities

Net current assets (working capital)

Total long term liabilities (non-current)

Net assets

Shareholder funds
- Share capital
- Retained profit (reserves)

Question 7

What is a non-current asset

Answer 7

Anything you have for more than 12 months- long term

E.g. Land and buildings, plant and machinery