Unit 7 - Analysing the strategic position of the business

Question 1

Current assets

Answer 1

Current assets = inventories + receivables + cash and other cash equivalents

Question 2

Working capital or Net current assets

Answer 2

Net current assets = current assets - current liabilities

Question 3

Net assets

Answer 3

Net assets = (non current assets + working capital) - non current liabilities

Question 4

Assets employed 1

Answer 4

Assets employed = net current assets + non current assets

Question 5

Total equity

Answer 5

Total equity = share capital + reserves

Question 6

Capital employed

Answer 6

Capital employed = total equity + non current liabilities

Question 7

Assets employed 2

Answer 7

Assets employed = Capital employed

Question 8

Gross profit

Answer 8

Gross profit = revenue - cost of sales

Question 9

Operating profit

Answer 9

Operating profit = gross profit - expenses

Question 10

Profit before tax

Answer 10

Profit before tax = Operating profit + finance income - finance costs

Question 11

Profit for the year

Answer 11

Profit for the year = profit before tax - taxation

Question 12

Earnings per share

Answer 12

Earnings per share = profit for the year / number of shares issued

Question 13

Gross profit margin

Answer 13

Gross profit margin = (gross profit / sales revenue) x 100

Question 14

Operating profit margin

Answer 14

Operating profit margin = (operating profit / sales revenue) x 100

Question 15

Profit for the year margin

Answer 15

Profit for the year margin = (profit for the year / sales revenue) x 100

Question 16

Return on capital employed

Answer 16

ROCE = (operating profit or profit before tax / total equity) + non current liabilities x 100

Question 17

Current ratio

Answer 17

Current ratio = current assets / current liabilities

Question 18

Gearing

Answer 18

Gearing = (non current liabilities / total equity) + non current liabilities x 100

Question 19

Payables days

Answer 19

Payables days = payables / costs of sales x 365

Question 20

Receivables days

Answer 20

Receivables days = receivables / annual revenue x 365

Question 21

Inventory turnover

Answer 21

Inventory turnover = costs of goods sold / average inventories held

Question 22

Concentration ratio

Answer 22

Concentration ratio = add up the market share if a specific number of business in that market e.g. top 3

Question 23

Payback

Answer 23

Payback = add up the annual returns from an investment until the cumulative total equals the initial costs

Question 24

Average rate of return

Answer 24

ARR = (total net return / number of years) / initial costs x 100