L4M8 Outcome 2 Flashcards
How do you work out the amount of cash received?
Accounts receivable at start of year + sales - accounts receivable at end of year = cash received in year.
£400,000 + 2,000,000 - 500,000 = £1,900,000.
How do you calculate the correct volume of sales in cash flow analysis?
Accounts receivable at beginning of year + sales - cash received = Accounts receivable at end of year.
£400,000 + £2,000,000 - cash received = £500,000
What are the two main objectives of financial ration analysis?
- To track performance, to identify trends and any concerns.
- To compare the supplier’s performance with other organisations to get a competitive advantage.
What is the formula for the gross profit margin?
Gross profit margin = gross profit/sales x 100
What is the formula for the net profit margin?
Net profit margin - net profit/sales x 100
What do profit margin ratios tell us?
They demonstrate an organisation’s ability to convert sales into profits. They can also demonstrate a company’s cost base.
What does EBITDA stand for?
Earnings before interest, tax depreciation and amortisation.
What does a current ratio tell us?
The ability to pay short term liabilities with current assets. It tells us whether a firm can use its assets to pay off debts. It has to be higher than 1.
What does a quick ratio tell us?
The ability to pay current liabilities with current assets. current assets/current liabilities - inventory (stock).
What are current assets and liabilities?
Assets which will be sold/used up in one year of business. Current liabilities are debts for the year.
What is the gearing ratio and what does it tell us?
The proportion of an organisation’s borrowing against its equity. Long term debt + short term debt + overdrafts / shareholders’ equity.
What is the mark up and margin ratios?
Mark up is price-cost/cost. Margin is price-cost/price.
Mark up is amount of profit expressed as a % of cost. Margin is profit expressed as a % of price.
What are the advantages of breakeven analysis?
Tracking costs, negotiations, how many units need to be produced, procurement and whether it is worth selling.
What are the disadvantages of breakeven analysis?
All costs may not be known; fixed point in time; have to use the same currency; time consuming! Also does not take into account waste; price strategies or fluctuations.
