Unit 3 Page 71-80 Flashcards
What does break even help with?
Planning, monitoring, control, target setting
Statement of comprehensive income features
Statement of profit and loss
Shows whether a businesses turnover has grown or shrunk
Statement of financial position
Balance sheet - shows assets, liabilities and capital of a business
Shows progress and the actual worth of a business.
What is a fixed asset?
Items used by a business to generate income
What are non-current assets?
Not intended to be converted into cash in the short term
Can depreciate in value over time
What are current assets?
Intended to be converted into cash in the short-term e.g. stock
What are current liabilities?
Short-term debts
What are non-current liabilities?
Those that are due after more than a year e.g. long term bank loan
Capital
Cash or other assets that have been introduced to the business.
What are prepayments?
When an invoice has been paid in advance of the current accounting period.
Gross profit margin definition
Enables a business to work out the gross profit after deducting their cost.
Measured as percentage of revenue
Mark up definition
The percentage added to the cost to create the selling price
Net profit margin definition
Measures the profit made by the business after all expenses have been deducted.
More accurate measure of performance than gross profit margin
ROCE definition
Measures the return on capital as a percentage of the capital employed.
Shows how effectively the business uses the money invested.
Current ratio definition
Measures a businesses assets compared to its liabilities.
Shows whether a business is being managed properly.
Liquid capital ratio definition
Removes inventory from the calculation as this may be difficult to quickly turn into cash.
Trade receivable days definition
Measures average number of days debtors take to pay their invoices
Trade payables days definition
Measures average number of days for the business to pay its suppliers.
Inventory turnover
Measures average number of days a business holds its stock.
Helps to determine when to reorder.
Limitations of ratios
1) ratios are averages
2) ratios highlight problems but dont explain them
3) based on data that may have changed
4) figures in accounts may be misleading
5) difficult to compare ratios with those of competitors
6) poor performance does not always mean the business is failing.
