Finance Flashcards
What is the Ratio for profitability?
- Gross Profit Ratio
- Net Profit Ratio
- Return on Equity Ratio
What is the Ratio for efficiency?
- Accounts Receivable Turnover Ratio
- Expense Ratio
What is the Ratio for liquidity?
Current Ratio
What is the Ratio for Solvency
Debt to Equity Ratio
Formula for net profit ratio
net profit / sales
formula for gross profit ratio
gross profit / sales
formula for return on equity ratio
net profit / total equity
formula for expense ratio
total expenses / sales
formula for accounts receivable turnover ratio
sales / accounts receivables
formula for current ratio
current assets / current liabilities
formula for debt to equity ratio
total liabilities / total equity
what is profitability
profitability is the ability to maximize profits
how can a business maximize its profits
the business can reduce costs, monitor revenue and cash policies; cost and expenses; inventory and asset levels
what is growth
growth is the ability to increase business size in the long term - this can be internal growth (hiring more staff) or external growth (merging/acquiring new businesses)
what does growth depend on
the businesses ability to develop and use asset structure in order to increase sales, profit and market share
what is efficiency
the ability for a business to minimise costs and manage assets in order to maximise profits and have profitability and financial stability
what is profitability
using business resources effectively to reduce costs
what is financial stability
how efficiently the business is achieving its financial obligations
how can a business achieve efficiency
a business must monitor cash, inventory and collection of receivables
what is the strategic role of financial management?
- long term (10 years)
- involves efficient financial management that monitor and plans financial resources
- achieves finance goals
What happens when there is an ineffective financial management
- insufficient funds to pay to suppliers
business is unable to pay for inputs → no products made/sold → business doesn’t generate any cash - not enough capital for expansion :
business doesn’t have enough money to expand → no increase in market share/ target market → decrease of competitiveness - delays in accounts payed:
not paying bills on time → stress on businesses and creditors
