Financial analysis Flashcards
Examples of non-current assets
property
land
production equipment
Examples of current assets
Receivables
Cash
Inventories/stock
Example of current liabilities
Overdraft
Payables
Dividends
Example of non-current liabilities
Mortgages
Loans
What should a manager do is gross profit is low
Reducing the cost of making the product
Increase the selling price
What should a manager do if operating profit is low
Reduce operating expenses eg marketing costs
Disadvantages of financial analysis
Ignores qualitative data
Internal factors eg market share, employees etc are not considered
External factors eg market environment or economy
Ideal current ratio
1.5-2
How to improve liquidity
by decreasing stock levels, speeding up collection of debts owed, or slowing down payments to suppliers
Rewards of high gearing for a business
extra funds for expansion.
Can be attractive during a growth phase- trying to become market leader - growing profits, product portfolio, - invest to gain competitive advantage
When interest rates are low
Risk of high gearing for a business
If interest rates increase
ADV of ratio analysis
used to spot trends -SWOT
help managers with decision making
Good for potential investors
Cons of ratio analysis
Internal strengths do not appear eg quality of staff
Doesn’t take into account economic environment
Doesn’t take into account changes in interest rates of technological advancements
Benchmarking
the process of measuring your company’s performance against industry leaders or best practices to identify areas for improvement
Elkington’s triple bottom line
model that can be used to judge overall performance
Profit - financial value
people - social value, the way it treats employees and the community
planet - impact on the environment
Businesses set objectives for performance in all three areas
Core competences
capabilities of a business that are unique to that business and give it a competitive advantage over rivals
- a business should be able to change it to meet changing demands of market
