financial data Flashcards
where can a company source information (6)
- reported financial data can be sued to make comparisons with other companies
- annual reports = used to draw conclusions on performance & see if aims were achieved
- government statistics = accurate source shows info on inflation and economic growth
- market data can be used to compare with competitors
- customer surveys can be used to measure customer satisfaction levels
- environmental and safety standards can be used to value an organisations achievement in its objectives
what can financial information be used for (3)
- identify trends
- compare performance over a number of years
- compare performance with that of competitors
what can be found in the income statement (5)
- sales revenue e.g. money received from sales
- less cost of sales e.g. cost of making and buying goods sold
- gross profit e.g. profit made from buying and selling goods
- less expenses (operating costs e.g. annul running costs)
- profit for the year (operating profit) the final profit made after a deduction of expense
why sales/expenses/profits change (4)
- rising sales = increase in customers e.g. extending the market or improving customer loyalty. or increase in prices charged
- rising expenses indicates poor efficiency/overspend. company should aim to increase sales
- reduction in expenses indicates improved efficiency and improved cash flow
- rising profits indicates that the business has reduced expenses whilst increasing revenue
what does statement of financial position show?
assets - liabilities = equity
what are non current assets
significant long term purchases e.g. property, machinery, equiptment
what are current assets
assets that change in value regularly e.g. inventory, trade receivables (customers that owe business money e.g. credit), cash in the bank
what are current liabilities
money owed that will be repaid within one year e.g. bank overdraft
what are non-current liabilities
money owed that willi take longer than a year to be paid back e.g. mortgage, loans and debentures (loans repaid on a specific date with interest)
what is equity
how the company is financed by the owners e.g. share equity, retained profits
what is capital expenditure (3)
- payments made that willi benefit the business over a year
- purchase, installations or upgrades of non current assets
- does not impact on profit calculation in the income statement
what is revenue expenditure (3)
- payments made that will benefit the business over a short period of time
- annual operating costs e.g. higher expense = lower profits
- this would include repair and maintenances of non-current assets
profitability ratio analysis (5)
- profit for the year shows the amount of profit made as a % of sales revenue
- return on equity invested ratio shows the profit made as a % of the equity invested
- the higher the percentage the better the performance
- managers can identify reasons for poor performance and take corrective action
- used to compare performance better than just comparing profit level
liquidity (cash flow) meaning (4)
- liquidity is the ability to have access to cash or near cash assets to meet needs of a running business
- vital for short term success of a business - cash inflows should be greater than cash outflows
- many business go into liquidation and close down because of lack of liquidity no because of lack of profitability
- business must keep records of its cash flow and use it to monitor and control movement of cash
Liquidity ratio (4)
- ratio measure ability of a business to access cash in order to meet short term debts
- difference between current assets and current liabilities
- the desired current ratio is 2:1
- high ratio indicates poor inventory management
