internal analysis Flashcards
what is a balance sheet
a balance sheet is a screenshot of a firms assets and liabilties
what is an asset
an asset is something the business owns
what is a liability
liabilities are depts that the business owes to others
what is a current / non-current asset - give examples
a current asset is something the business has for less than a year -cash in the till, recivables (things owed to the business from others ) ,inventories
a non-currrent asset is something the business will have for more than one year. For example matchines veacles or offices
what is a current / non-current liability - give examples
a current liabilty is a dept that the business owes for under a year - tax dividends payables
the non- current liabilty is a dept that a business owes that will take much longer to pay off - for example loans or morgages
what is working capital
working capital is the finance that a business has avalabe for day to day spending
how is working capital calculated
current asset - current liabilities = working capital/ net assets
what can other people judge from a firms balance sheet
by comparing balance sheets a firm could find trends in the data and make judgements accordingly - for example a sharp increase in non-current assets could indicate an enediour to grow
or low liabilites could show that the business isn’t willing to take risks
what does an imcome statement show ?
An income statement shows the revenue and expenses of a company
why are income statements especially important for PLC’s ?
A PLC has to publish their income statement publically, it can then be viewed by shareholders, potential shareholder as well as competitors
what measurements of profit does an income statement display
gross profit
operating profit
profit beofre tax
profit after tax
retained profit
what is everything displayed on an income statement
revenue
cost of sales
gross profit
operating expenses
operating profit
other expenses
proft before tax
tax
profit after tax
dividends
retained profit
what can a business do with their profits
- pay dividends to shareholders
-reinvents (assets)
both ?
why are financial ratios useful to a business
Ratios are useful because they turn data from the balance sheet and income statement in to simple to understand numerical form
what does return on capital employed show (not the calculation the meaning instead)
return on capital employed shows how much money the business has made in comparison to how much money has been put into the business
what is the formula for calculating ROCE
operating profit / total equity + non-current liabilities
what does the current ratio show (not the calculation the meaning instead)
the current ratio presents the amount of assets for every liability
how is current ratio calculated
current asset / current liabilities
what does inventory turn over show (not the calculation the meaning instead)
inventory turn over presents how much a company replaces inventory relative to its cost of sales.
how is inventory turnover calculated
cost of sales / cost of average stock held
what is payable days (not the calculation the meaning instead)
payable days shows the amount the business owes to other creditors to the cost of sales a business makes over a year.
what is the calculation for payable days
payable days = payables / cost of sales x 365
what is the receivable days
this is like the opposite of payable days and displays the amount of money owed to the business (receivables) to the amount of sales revenue generated by the people who owe them money
so how is receivable days calculated
receivables/ sales revenue x 365
what is gearing (not the calculation the meaning instead)
gearing shows what proportion of a business’s finance comes from non-current liabilities and how much comes from reserves
what is the calculation for gearing
non-current liabilities / total equity + non-current liabilities x 100
what would it mean if a business’s gearing was over 50%
if a business’s gearing was over 50% then this shows that the business is highly geared and the majority of their finances come from non-current liabilities
what would it mean if a business’s gearing is below 25%
this means that the business has very little finance coming from long term dept. - possibly not taking enough risk - wont grow
how does gearing show if a business is venerable to interest rates
if a business is highly geared and then interest rates go up then they would suffer - paying more
describe kaplan and nortons balance scorecard
Kaplan and Nortons balance score card looks at four different aspects of a business
-financial perspective - e.g looking at areas of ratios or balance sht ect
- the internal business process perspective - e.g capacity of efficiency
-the customer perspective - e.g improving customer loyalty
-the learning growth perspective- improve labour retention or staff dev
describe elkingtons triple bottom line
profit
people
planet
