Unit 7- Financial Position Flashcards
What is an exceptional item
A one off big expense or income in the normal activities of the business
e.g. tax, interest, refurbishment, set up costs, dividends
What is an extraordinary item
Forms of expenses or incomes outside of the everyday activities of the business
E.g. joint venture projects, income from financial investment, redundancies, fines
Gross profit
Revenue - cost of sales
Operating profit
Gross profit- operating expenses
Profit for the year
Operating profit - appropriation account (interest, tax, dividends)
What is an asset
Something that the business owes/owed that is worth something
What is non current asset
A company’s long term investments that aren’t easily converted into cash/ not expected to become cash within 1 year
E.g. intangible assets, property, vechiles, equipment
What is a current asset
Resources that a business aims/ expects to use of sell within a year (always changing value)
E.g. cash in the bank, inventory, debtors (receivables)
What is a debtors (receivables)
Money owed by customers for goods/ services they have received but haven’t paid yet
What is current liabilities
Dents the business owns that must be paid during the year
E.g. creditors, short term loans
What is creditors
Money owed by the business to its vendors
What is non current liabilities
Financial obligations in a company balance sheet that aren’t expected to be paid within 1 year
E.g. long term loans
What is equity
the amount of money the owner of an asset would be paid after selling it and any debts associated with the asset were paid off.
E.g. share capital, reserves (including profit and loss)
What is share capital
The money a company raises by issuing common or preferred stock
What is reserves
Retained profit = net profit you set aside after paying dividends
What is net assets
How much the business is worth
TOTAL ASSETS - TOTAL LIABILITIES (same as equity)
What is the purpose of a statement of financial position (4)
- measure the side and scale of the business
- measures the total value of a business
- understand more about the business
- identify liquidity position (ability to pay short term debts)
What is working capital
Measure of liquidity
CURRENT ASSETS - CURRENT LIABILITIES (short term)
What is working capital
Measure of liquidity
CURRENT ASSETS - CURRENT LIABILITIES (short term)
What is the purpose of working capital (3)
- shows sources of capital and finance
- analyse trends over time
- investors see improvements
Good level of working capital depends on… (6)
- low debts
- lots of assets ( high liquidity)
- high sales/cashflow/profit
- efficiency of inventory control
- good credit control
- bargaining power of supplier and customer
Poor working capital can lead to…(4)
- cash flow problems
- debt if firm can’t pay supplier or creditor in time
- poor reputation
- legal action
