Engineering Management Flashcards
List types of Trading Mechanisms
Sole Trader
Partnership
Limited Cmpany
Public Limited Company
Unincorporated Association
Describe a sole trader’s management
few formalities
trader can make contracts and employ people
trader owns all assets and liabilities
profits are personal income liable to income tax
Describe a partnership’s management
Two or more sole traders
Governed by a partnership agreement
Jointly own assets and liabilites
Profits are income of partners
can create limited partnerships
Describe a limited company’s management
A seperate legal person under law
shares distributed to directors
legal formalities must be observed
Liability is limited, some to banks/lenders
Describe a public limited company’s management
A separate legal person
Shares distributed or traded to public
Legal formalities must be observed
Liability is limited
Profit are income of company shared between shareholders
Describe an unincorporated association
Formed by a group of people like sports clubs, charities, etc
No formal legal requirements because it is not a legal body, meaning committee is liable for debts and cannot borrow money
Management holds turst of members
What does a profit and loss report tell you?
A graph of company cash against time
If the business is heading in the right direction
If your generating cash
where costs are
What your tax bill will be
Where you are in profit cycle
Gross Profit/Loss equation
Sales + Cost of Sales = Gross Profit or Margin or loss
Net Profit and loss report equation
Sales - Cost of Sales - Overhead - Depreciation = Net Profit or loss before tax
What costs do overhead cover?
Rent/leasing
Interest on equipment
Admin costs
Bills
Permanent IT and maintenance
Fixed and Current Assets and Liabilities
Assets - Liabilitiies = Capital
Assets
Current: Within 1 year, like short term debtors, stock, prepayments
Fixed: Over 1 year, Plant, machinery, buildings
Liabilities
Current : Creditors Within 1 year, like short term creditors, bank charges
Fixed : Creditors Over 1 year, like Long term loans
Costs of sales vs units made graph curves
Linear: Material costs, labor, power bil, overtime
Stepwise: set-up, extra shifts, extra equipment rental
log: raw material bulk purchase, worker experience
Account Adjustments
Balance sheet should be objective assement of business
Subjective elements include: Opinion of accountant, manipulation of accounts
Adjustments include: Accurals (allowance for something with no paper work yet), provisions and prepayments
What are certain types of stock worth?
Sale price - sell price of stock
Cash Price - what was paid for it?
Zero - cant be sold
Negative - would cost to sell
Cash forecast
very important document when starting company
buffers between ins and outs
closing cash = opening cash + payments - reciepts
Cash vs Profit
Cash is fact, profit is opinion
Sales and purcahses may be on credit
Some costs are charged in advance
Accurals and provisions do nothing for cash reserves
Sources of cash outflow
purchase of fixed assets, stock, etc
Paying off creditors
Repaying loans
Overheads
Sources of cash inflow
Direct sales
Share capitals
Grants
Loans
Overdrafts
Asset sales
Last periods profits
What do accounting ratios provide and not provide?
Provide a quick calculation, numbers used for industry comparisons
Do not provide: Absolute numbers
What aspects of the business does an accounting ratio give a view of?
Profitability - does business gives good return rate?
Cash flow health/Liquidity
Efficiency of the business
Would a capital investment improve the business
Profitability ratio: Gross Profit to sales percentage calc
( Gross Profit / Sales )*100
Gives average mark up, but ignores overheads and depreciation
Profitability ratio: Net profit to sales percentage calc
( Net profit / Sales )*100
Takes into account overheads and depreciation
Return on Investment / Return of Capital employed percentage calculation
ROI = ( Net profit / Capital employed ) *100
measure of how much you are making using assets
Cash flow ratio: Current ratio
Current ratio = current assets / current liabilities
cushion for short term creditors, usually 2:1