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Professional Studies 4 > Financial statements > Flashcards

Financial statements Flashcards

1
Q

What is the definition of financial accounting?

A

Used to report in a regulated and standard way the financial position of a business to external creditors, investors and lenders

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2
Q

What is the definition of management accounts?

A

Used to create organisation goals by identifying, measuring, analysing, interpreting and communicating financial information to managers
For informing management about operational business metrics

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3
Q

What is the main difference between management accounting and financial accounting?

A

Financial accounting - backwards looking
Management accounting - forwards looking to plan for the future

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4
Q

What are budgets used for?

A

Used to quantify the decision made in operational planning

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5
Q

How are budgets used by management accountants?

A

Used to look at the difference between the actual amounts spent and the estimated amounts in the budget

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6
Q

What is a profit and loss statement?

A

A financial statement that summarises the revenue, costs and expenses incurred during a specified period (month, quarter, year)

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7
Q

What is another name for a profit and loss statement?

A

Income statement
P&L

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8
Q

What is the definition of gross profit?

A

Calculated by deducting the cost of sales for the period from the turnover generated in the same period

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9
Q

What is the definition of operating profit?

A

Total earnings from its primary/core business functions for a given period, excluding the deduction of interest and taxes

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10
Q

What is the definition of net profit?

A

The amount remaining after all trading expenses incurred in a period have been deducted from the total turnover generated in the same period

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11
Q

What is the equation for net profit?

A

Total revenue - Total expenses

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12
Q

What is the EBITA/EBITDA?

A

Earnings before interest, taxes, and amortization
Earnings before interest, taxes, depreciation, and amortization

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13
Q

What is the definition of turnover?

A

The total value of work undertaken, and goods sold in a period
(Regardless of whether they have been paid for by the client)

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14
Q

What is the definition of fixed costs?

A

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.

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15
Q

What is the definition of variable costs/cost of sales/direct costs?

A

Expenses that change according to the level of activity of the business

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16
Q

What is the calculation for gross profit percentage?

A

(Gross profit/Turnover) x 100

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17
Q

What is the calculation for cost of drugs and disposables as a percentage of turnover?

A

(Cost of sales/Turnover) x 100

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18
Q

What is the calculation for net profit percentage?

A

(Net profit//Turnover) x 100

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19
Q

What is the calculation for the staff cost as a performance indicator?

A

(Staff cost/Turnover) x 100

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20
Q

What annual financial accounts are submitted to HMRC as an analysis of business performance?

A

Profit and loss statement
A balance sheet
Cash flow statement

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21
Q

What is a balance sheet?

A

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

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22
Q

What are assets?

A

What the company owns
Something that belongs to the business

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23
Q

What are liabilities?

A

What a business owes to others

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24
Q

What can the balance sheet not be used to assess?

A

Trends

25
Q

What is the equation for working out the assets?

A

Liabilities + owners’ equity
(eg. mortgage + owners equity of house = homeowners assets)

26
Q

What is a cash flow statement?

A

The amount of money coming in and going out of a business
(not the same as profit)

27
Q

What is the cash flow statement a measure of?

A

Business strength - helps determine whether the company has enough liquidity (cash) to pay its expenses

28
Q

Why is a cash flow statement important?

A

Tells the business exactly how much money it has available at any given time

29
Q

What is the definition of an asset?

A

Something that belongs to the business

30
Q

What is the definition of current assets?

A

Cash or cash equivalents - items that can be converted into cash within 12 months eg. trading stock)

31
Q

What are fixed assets?

A

Items that the business expects to have for over a year e.g., property and cars

32
Q

What are current liabilities?

A

The amounts owed that must be paid within the next 12 months
eg. tax, national insurance

33
Q

What are long term liabilities?

A

Amounts that are owed that are not expected to be paid within the next 12 months
eg. mortgage

34
Q

What is balance sheet capital?

A

Any financial assets a company has eg.
Cash
Cash equivalents - such as stocks and investments
Company facilities and equipment

35
Q

What is the definition of a key performance indicator?

A

A standardised calculation using quantifiable data
A management tool to reflect the performance trends and progress of key metrics

36
Q

How are key performance indicators used?

A

Compared to a standard (benchmarked)
Or compared to previous calculations
To be acted upon to bring change

37
Q

What financial KPIs are used in veterinary practice to measure overall financial performance of a business?

A

Total practice revenue/turnover
Net profit percentage
Revenue centres as a percentage of total revenue
Return on sales
Debt to equity ratio

38
Q

What does return on sales mean?

A

How much profit a business generates from each pound of total income

39
Q

What do different debt to equity ratios mean?

A

Too much debt - may have difficulty repaying loans
Too little debt - business may not be realising its growth potential

40
Q

What is inventory turnover?

A

The number of times the stock is turned over per year
More turnover results in less outdated stock and less stock on hand

41
Q

What is the ideal inventory turnover?

A

8-12 times per year

42
Q

What is days in stock?

A

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

43
Q

What is the equation for the average debtors outstanding over a period of time?

A

Average debtors outstanding over a period of time = (opening receivables + closing accounts receivables) / 2

44
Q

What are debtor days?

A

The average number of days it takes the company to collect payment (debt) after a sale is made - the lower the figure the better

45
Q

What are some sales KPIs?

A

Vet productivity
Transaction sales

46
Q

What is vet productivity? How is it measured?

A

The number of full time equivalent vets in the practice even when some vets might be part time
Measured in full-time equivalents (FTE)

47
Q

What should the revenue per full time vet be?

A

4-5 times the vets salary

48
Q

What are some transaction sales?

A

Average transaction value
Annual transaction per active client

49
Q

What is cost control?

A

The management of business expenses

50
Q

What are some common cost control KPIs?

A

Total costs to total revenue percentage
Cost centres to total revenue percentage

51
Q

What is a common vet staff costs percentage of total revenue?

A

40-60% in the UK

52
Q

What is a common drug/medical supply cost percentage of total revenue?

A

15-18%

53
Q

What should the first to second consultation ratio be?

A

100%

54
Q

What is the average transaction value?

A

How much money a client spends each time they visit/purchase something from a practice

55
Q

What is the average annual transactions per active client?

A

Measures how many times on average a client visits the practice in a year

56
Q

What is the calculation for average transaction value?

A

ATV = total revenues / number of transactions

57
Q

What is the calculation for average annual transactions per average client?

A

Number of transactions / number of active clients

58
Q

What KPI is used to assess how much income you are generating as a vet compared to other vets?

A

Average transaction value

59
Q

What KPI is used to measure if drug/medical supply are charging correctly?

A

Cost centres to total revenue percentage

Professional Studies 4 (10 decks)

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