F Flashcards
What are the 4 types of profit?
- gross
-net
-net after tax
-operating
How do you work out gross profit?
net sales minus the cost of goods sold
How do you work out operating profit?
gross profit minus any selling/aministritive expenses
How do you work out net profit?
the operating proft minus any other expense before tax
How do you work out net profit after tax?
final profit figure once the business has met its tax liabilities
How do you work out loss?
Cost of product - selling price
When do prepayments occur?
when the business pays for something in advance
Why should you make adjustments for depreciation?
assets fall in value over time as they age
- if asset depreciates to quickly profit will fall
- depreciation is too slow inflates profits
What are reserves?
they are funds that the business set aside, intended to be spent on an asset or make payment with shareholders
What does SOFP show?
- actual value of a business
- progress when compared to numbers over a year
- whether the business is borrowing money and how interest rate will affect it
- whether business uses short or long term loans
What are liabilities?
Share Capital, borrowings, otehr creditors and reserves.
What are total assets of the business equal to?
fixed and current assets
What are assets equal to?
liabilities
What can happen with non-current assets?
- tangible or intangible
- depreciate in value
- get depreciated
What is net book value?
the cost of a non-current asset before it is depreciated
What is the equation for net assets?
net assets = current assets + fixed assets - current liabilities.
What are examples of current liabilites?
Bank overdraft
trade payables
Accruals
What are exmaples of current assets?
inventories
trade receivables
prepayments
money in cash or in the bank
What is opening capital?
value of investment by the owners
What is transfer of profit or loss?
statement of comprenhensive income the profit or loss of the business
What are drawings?
funds that could be either salaray or wages taken by the owners
What is closing capital?
equal to the opening capital plus or minus
(drawings, transfer of profit or loss and opening capital)
What is the equation for annual depreciation?
asset purchase price -
estimated salvage value
___________________________________________
estimate useful life of asset
What is reducing-balance depreciation?
is a method slightly more complicated as it requires a series of calculations every year.
What are prepayments?
used when an invoice has been paid in advance of current accounting period
What is profitability of a business?
measured by profit margins, mark up and efficiency using capital
What is liqudity?
business’s ability to cover its current liability with its current assets
What is efficiency?
business’s ability to collect and pay debts and its use of stock.
Whhat is the equation for net assets?
Current assets + fixed assets - current liabilities
What is opening capital?
value of investment by owners
What is drawings?
funds that can be either salary or wages taken by the owners
What is closing capital?
equal to opening capital plus or minus - Drawings, and transfer of profit or loss
What is transfer of profit or loss?
statement of comprehensive income showss profit or loss of the business
What are non-current assets?
those that are not intended to be converted into cash into short term
What are current assets?
assets that are intended to be converted into cash in the short term
What are non-current liabilities?
due after more than a year like a mortgage.
What are accurals?
these are stock assets or other items that have been recieved from a supplier but the invoices have either not been received or not yet due
What is annual deoreciation?
asset purchase price -
estimated salvage value
_________________________
estimated useful life of asset
What is gross profit margin?
what enables a business to work out their gross profit on goods sold after deducting their costs
what is gross profit measured as?
a percentage of revenue
What is the formula for gross profit margin?
Gross profit
_____________ times by 100
revnue
What is the mark up formula for?
Gross profit
_____________ times by 100
cost of sales
What is mark up?
percentage added to the cost to create the seeling price,
what is gross profit measured as?
percentage of cost of sales
What is net profit margin?
a ratio that measures the profit made by the business after all expenses have been deducted shows profit
What is return on capital employed?
the return on money invested into the business by owners and investors
What is the formula for net profit?
net profit
__________ * 100
revenue
What is the formule for return on capital employed?
net profit before interest and tax
___________________________________ *100
capital employed
What is current ratio?
the measure of a business’s assets compared to its liabilities, shows if a business is being managed properly
What is liquid capital ratio?
an acid test ratio, removes inventory from calculation as can be hard to turn this quickly into cash to pay of debts
What is the formula for current ratio?
Current assets
________________
Current liabilities
What is the equation for liquid capital ratio formula?
(current assets - inventory)
______________________________
current liabilities
What is the equation for trade recievable days?
(Trade recievables/credit sales)*365
What is trade recievale days?
a ration that measures the average amount of days it takes debtors to pay invoices
What is the equation for trade payable days?
(trade payables/credit purchases)*365
What is trade payable days?
average number of days it takes a business to pay suppliers
What is the equation for inventory turnover?
(average inventory/cost of sales)*365
What is inventory turnover?
the average number of days a business holds up its stock.
What is an issue with ratios being an average?
figures used for ratio calculations are taken away from the business
Why is it an issue that ratios highlight problems?
they don’t explain why there is an issue or how to fix it
Whats an issue on ratios being based on data that could change?
if numbers change than data changes and could become innacurate
Why is it an issue that it is difficult to cimpare ratios with competitors?
how people do accounting varies from business to business and data changes meaning rival busines situations could change
What may accoutniing practices used by a business do?
distort performance, figures in accounts could be misleading.
Why is poor performance misleading?
does not mean that the business is failing, market could be competitive and lower profits but could still be making decent profits is all in persepctive of how business typically does.
