Section 7 Flashcards
1
Q
what is operational gearing?
A
examines the sensitivity of profits to sales revenue (turnover).
More precisely the % change in operating profits that result from a 1% change in sales revenue.
2
Q
what is liquidity
A
In accounting, liquidity (or accounting liquidity) is a measure of the ability of a debtor to pay their debts as and when they fall due. It is usually expressed as a ratio or a percentage of current liabilities. Liquidity is the ability to pay short-term obligations.
3
Q
what is profitability?
A
Profitability is a situation in which an entity is generating a profit.
4
Q
what could be said about a company with low gearing?
A
One that is predominantly financed by equity
