Financial statements Flashcards
What is the definition of financial accounting?
Used to report in a regulated and standard way the financial position of a business to external creditors, investors and lenders
What is the definition of management accounts?
Used to create organisation goals by identifying, measuring, analysing, interpreting and communicating financial information to managers
For informing management about operational business metrics
What is the main difference between management accounting and financial accounting?
Financial accounting - backwards looking
Management accounting - forwards looking to plan for the future
What are budgets used for?
Used to quantify the decision made in operational planning
How are budgets used by management accountants?
Used to look at the difference between the actual amounts spent and the estimated amounts in the budget
What is a profit and loss statement?
A financial statement that summarises the revenue, costs and expenses incurred during a specified period (month, quarter, year)
What is another name for a profit and loss statement?
Income statement
P&L
What is the definition of gross profit?
Calculated by deducting the cost of sales for the period from the turnover generated in the same period
What is the definition of operating profit?
Total earnings from its primary/core business functions for a given period, excluding the deduction of interest and taxes
What is the definition of net profit?
The amount remaining after all trading expenses incurred in a period have been deducted from the total turnover generated in the same period
What is the equation for net profit?
Total revenue - Total expenses
What is the EBITA/EBITDA?
Earnings before interest, taxes, and amortization
Earnings before interest, taxes, depreciation, and amortization
What is the definition of turnover?
The total value of work undertaken, and goods sold in a period
(Regardless of whether they have been paid for by the client)
What is the definition of fixed costs?
Expenses that do not vary with the level of income or activity of the business. These are the ongoing expenses of running the business other than the cost of sales.
What is the definition of variable costs/cost of sales/direct costs?
Expenses that change according to the level of activity of the business
What is the calculation for gross profit percentage?
(Gross profit/Turnover) x 100
What is the calculation for cost of drugs and disposables as a percentage of turnover?
(Cost of sales/Turnover) x 100
What is the calculation for net profit percentage?
(Net profit//Turnover) x 100
What is the calculation for the staff cost as a performance indicator?
(Staff cost/Turnover) x 100
What annual financial accounts are submitted to HMRC as an analysis of business performance?
Profit and loss statement
A balance sheet
Cash flow statement
What is a balance sheet?
A snapshot financial statement taken at a single moment in time that capture the company’s assets, liabilities and shareholders (owners) equity in the business
What are assets?
What the company owns
Something that belongs to the business
What are liabilities?
What a business owes to others
What can the balance sheet not be used to assess?
Trends
What is the equation for working out the assets?
Liabilities + owners’ equity
(eg. mortgage + owners equity of house = homeowners assets)
What is a cash flow statement?
The amount of money coming in and going out of a business
(not the same as profit)
What is the cash flow statement a measure of?
Business strength - helps determine whether the company has enough liquidity (cash) to pay its expenses
Why is a cash flow statement important?
Tells the business exactly how much money it has available at any given time
What is the definition of an asset?
Something that belongs to the business
What is the definition of current assets?
Cash or cash equivalents - items that can be converted into cash within 12 months eg. trading stock)
What are fixed assets?
Items that the business expects to have for over a year e.g., property and cars
What are current liabilities?
The amounts owed that must be paid within the next 12 months
eg. tax, national insurance
What are long term liabilities?
Amounts that are owed that are not expected to be paid within the next 12 months
eg. mortgage
What is balance sheet capital?
Any financial assets a company has eg.
Cash
Cash equivalents - such as stocks and investments
Company facilities and equipment
What is the definition of a key performance indicator?
A standardised calculation using quantifiable data
A management tool to reflect the performance trends and progress of key metrics
How are key performance indicators used?
Compared to a standard (benchmarked)
Or compared to previous calculations
To be acted upon to bring change
What financial KPIs are used in veterinary practice to measure overall financial performance of a business?
Total practice revenue/turnover
Net profit percentage
Revenue centres as a percentage of total revenue
Return on sales
Debt to equity ratio
What does return on sales mean?
How much profit a business generates from each pound of total income
What do different debt to equity ratios mean?
Too much debt - may have difficulty repaying loans
Too little debt - business may not be realising its growth potential
What is inventory turnover?
The number of times the stock is turned over per year
More turnover results in less outdated stock and less stock on hand
What is the ideal inventory turnover?
8-12 times per year
What is days in stock?
The number of days an average inventory item is held in stock
Can tell whether low turnover items should be held in stock or not
What is the equation for the average debtors outstanding over a period of time?
Average debtors outstanding over a period of time = (opening receivables + closing accounts receivables) / 2
What are debtor days?
The average number of days it takes the company to collect payment (debt) after a sale is made - the lower the figure the better
What are some sales KPIs?
Vet productivity
Transaction sales
What is vet productivity? How is it measured?
The number of full time equivalent vets in the practice even when some vets might be part time
Measured in full-time equivalents (FTE)
What should the revenue per full time vet be?
4-5 times the vets salary
What are some transaction sales?
Average transaction value
Annual transaction per active client
What is cost control?
The management of business expenses
What are some common cost control KPIs?
Total costs to total revenue percentage
Cost centres to total revenue percentage
What is a common vet staff costs percentage of total revenue?
40-60% in the UK
What is a common drug/medical supply cost percentage of total revenue?
15-18%
What should the first to second consultation ratio be?
100%
What is the average transaction value?
How much money a client spends each time they visit/purchase something from a practice
What is the average annual transactions per active client?
Measures how many times on average a client visits the practice in a year
What is the calculation for average transaction value?
ATV = total revenues / number of transactions
What is the calculation for average annual transactions per average client?
Number of transactions / number of active clients
What KPI is used to assess how much income you are generating as a vet compared to other vets?
Average transaction value
What KPI is used to measure if drug/medical supply are charging correctly?
Cost centres to total revenue percentage
