Revision lesson 4 - paper 2 Flashcards
What is the formula for gross profit margin
GPM = (Gross profit / revenue) x 100
What is the formula for operating profit margin
OPM = (Operating profit / revenue) x 100
What is the formula for net profit margin
NPM = (Net profit / revenue) x 100
What is the difference between cash and profit
Profit is recorded when a product is bought, cash is the funds a business has to hand
What is the formula for contribution per unit (CPU)
CPU = selling price per unit - variable cost per unit
What is the formula for total contribution
TC = CPU x number of units sold
What is the formula for break even
BE = fixed costs / CPU
What are the 2 formulas for profit
Profit = total contribution - fixed costs
Profit = total revenue - total costs
What is the formula for total revenue
Revenue = selling price x units sold
What is a statement of comprehensive income
Measures businesses performance over a given time period, comparing income and costs
What is a statement of financial position
Snapshot of the business’ assets and liabilities on a particular day
What is a cash flow statement
Shows how the business has generated and disposed of cash and liquid funds during a period of time
What is the formula for current ratio
Current ratio = current assets / current liabilities
What does it mean if current ratio is below 1.5
Not enough working capital, may show over borrowing/trading
What does it mean if current ratio is above 2
Money is tied up unproductively
What is the formula for acid test ratio
ATR = (current assets - inventory) / current liabilities
What is working capital
Funds for the day to day running of a business
What are some ways a business can improve liquidity
Overdraft, short term loans, sell stock, reduce costs
What does gearing show
Proportion of the long term finance that has come from loans
What is the formula for gearing
Gearing = (non current liabilities / capital employed) x 100
What does it mean if gearing is greater than 50%
Highly geared - finance business using external finance
What does it mean if gearing is less than 50%
Low geared - finance business using internal finance
What is the formula for ROCE ratio
ROCE = (operating profit / capital employed) x 100
What does ROCE stand for
Return on capital employed
What is ROCE used for
Measures profitability of a business
What is an attractive ROCE for investors
20%+
