Finance

Question 1

What’s the formula for gross profit

Answer 1

(Sale revenue)- (cost of sales)

Question 2

What’s the formula for the profit of the year

Answer 2

(Gross profit)- (expenses)

Question 3

What’s the formula for the gross profit percent

Answer 3

Gross profit divided by sales revenue x100

Question 4

What’s the formula for the profit of the year percent

Answer 4

Profit of the year divided by sales revenue x100

Question 5

What is the return on equity employed

Answer 5

Shows the percent of investment returned to a shareholders

Question 6

What’s the equation for the return on equity employed

Answer 6

Profit for the year divided by opening equity (opening share capital on sofp) x100

Question 7

How to increase the profit of the year pear etc 4

Answer 7

• decrease expenses, eg lay off temporary workers and find cheaper supplier
• increase selling price eg make products more expensive and use market strategy to improve sales revenue

-increase sale revenue by implemting new advertising campaign or sales, new target market

• increase current assets- easy to get quick cash and Improve cash sales

Question 8

What are the advantages of ratios 3

Answer 8

-layer out clearly and helps with decision making and allow comparisons with other years

• help compare firms perform as against a competitors

-helps monitor and identify issues/ trends that can be resolved

Question 9

What are the limitations of ratios 3

Answer 9

-info is collected from historic data, can’t be changed and may be outdated

-doesn’t account for external factors which could impact the ratios

Doesn’t measure the human element of the firm eg a really good employee may be more expensive

Question 10

What’s non- current assets

Answer 10

Shows the current value of major purchases that help the running of a business

Eg delivery vans

Question 11

What are current assets

Answer 11

Assets that show the cash or the near cash available to the firm.

Includes stocks ready to sell

Question 12

What are current liabilities

Answer 12

Any debts a business owes that need to be paid back within a year

Question 13

What are net assets

Answer 13

Value of the company once all the liabilities have been taken away from the assets

Question 14

What are equity and reserves

Answer 14

Money that have been invested by the owners and profits that have been kept by the business