Unit 5: Chapter 26 Flashcards
Analysis of accounts
What is capital employed?
how much money invested in the business
shareholders equity plus non-current liabilities and is the long-term and permanent capital invested in a business
What is shareholders equity?
the value of a business to its owners after subtracting all its liabilities from its assets
What should you compare your business accounts to?
last year accounts, and competitors
(accounts available for public limited companies)
What is liquidity?
the ability of a business to pay back it’s short term debts, how much cash is in the business
What is profitability?
the measurement of profit made relevant to either the value of sales achieved or the capital invested into the business
What are the profitability ratios?
gross profit margin, net profit margin, return on capital employed
What is the formula for gross profit margin?
gross profit/revenue * 100
What is the formula for gross profit?
revenue - cost of sales
What is sales turnover?
cost of sales
What is the formula for net profit margin?
net profit/revenue * 100
What is the formula for net profit?
gross profit - expenses
What is the formula for return on capital employed?
net profit/capital employed * 100
What is the formula for capital employed?
shareholders equity + non-current liabilities
What is the formula for shareholders equity?
total assets - total liabilities
What are the liquidity ratios?
current ratio, acid test ratio
What is the formula for current ratio?
current assets/current liabilities
What is formula for the acid test ratio?
current assets - stock/current liabilities
