Equation Definitions Flashcards
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Gross Profit definition
To assess whether the business is adding sufficient value when converting its raw materials to inventories to finish products.
Operating Profit definition
To assess whether the overall performance of the business is efficient in terms of creating profit from its main operations
ROCE Definition
to assess whether the business is making a sufficient level of profit from the capital it has available.
Current Ratio Definition
To see if the business is likely to run out of liquid assets in the short term whether a cash flow problem is likely to arise
Gearing Definition
To measure how reliant the business is on borrowed money to gauge the impact of higher interest rates and assess whether a business might be vulnerable from having to repay loans.
Inventory turnover definition:
Calculate how many times a year a business can sell its stock or inventory, this measures the speed at which a business can convert its inventories into sales.
Receivables days:
Discover time taken for debtors to pay back their debts, this asses whether individual receivables are likely to become bad debt.
Payable days:
to discover the time taken for a business to pay back their debts to supplies, to assess whether the business is in danger of defaulting on this.
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