Componant 2 Flashcards
Debtors
People who owe the business money
Trade creditors
Businesses to which the business owes money
Must be payed within 12 months
Drawings
Money taken out of the business by the owner
Working capital
The day to day finance available for running a business
Capital expenditure
Spending on new fixed assets
Fixed assets
Items owned by the business which do not change in the short term e.g buildings, machines, vehicles
Current assets
Assets which can e converted into cash quickly e.g stock, debtors
Current liabilities
What the business owes, must be paid within 12 months (overdraft)
Long term liabilities
Money owed to others that will take more than a year to pay back e.g. bank loan
Formula for working capital
Current assets - current liabilities
Formula for net assets
Fixed assets + current assets - current liabilities
formula for Net profit
Capital employed - opening capital + drawings
Formula for current ratio
Current assets / current liabilities :1
ROCE formula
Net profit / capital employed x 100
Acid test ratio formula
Current assets - stock / current liabilities :1
Gearing ratio formula
Long term liability / capital employed x 100
Satisfactory current ratio
between 1.5 and 2
satisfactory ROCE `
20% or greater
Satisfactory acid test
1:1
