Week 2 Flashcards
What is a going concern?
We assume the company will be in existence/operating for the forseeable future.
What is the accruals concept?
We account for items in the Income statement in the period to which they relate rather than in the period in which they are received/paid in cash.
What are non-recurring items?
Typically arise outside the ordinary course of business (e.g. gain on disposal of a subsidiary).
What are unusual income and expenses?
Income and expenses with limited predictive value.
What are income and expenses that have limited predictive value?
Income and expenses have limited predictive value when it is reasonable to expect that income or expenses that are similar in type and amount will not arise for several future annual reporting periods.
Income and expenses from the recurring remeasurement of items measured at a current value would not normally be classified as unusual
EBIT
Earnings before interest and tax.
Unlevered - before the impact of debt finance. Does not factor in debt. Means you can compare companies with very different financing structures.
Same as operating profit
NOPAT
Net operating profit after tax.
The taxed EBIT
EBIT x (1-t) [t=tax rate]
If you want to compare companies operating in different tax regimes this is helpful.
Gross profit
What money is the core part of your business making
EBITDA
Earnings before interest, tax, depreciation and amortisation
Reserves represent
undistributed surpluses
Shareholder funds is another word for?
Equity
Gross profit margin equation
Gross profit / sales
EBIT margin equation
EBIT / sales
What is a return measure?
Profit number / investment number
Return on capital employed
Operating profit/ capital employed
