11 Accounting Flashcards

Question

What is the formula for Return On Investment/Capital employed

Answer 1

(Net profit➗Capital Employed)x100

Answer 2

Bad trend Making lower return than last yr Managers performed badly,less money Need to reduce capital employed or increase net profit

Answer 3

Good trend Making better return than last yr Managers improved their performance,made more money

Answer 4

Investors/Shareholders -Ratios improving=better profits=good dividends=more likely to invest Employees -Ratios improving=secure jobs=possible pay raise Lenders/Bankers -Ratios improving=more likely able to repay loan interest Government -Ratios improving=more tax revenues from the business Competition -Ratios improving=threat to others

Answer 5

examines, whether the business has enough cash available to pay short-term bills when they’re due 2 ratios: Working Capital/Current ratio Acid test ratio

Answer 6

current assets ➗ current liabilities

Answer 7

2:1 Meaning business should have twice the ammount that it owes If ratio less=doesn’t have enough to pay its bills If ratio much higher=Too mych spare cash lying around

Answer 8

Good trend Business has more cash than last yr Maybe it paid off some bank overdraft

Answer 9

Bad trend Less cash than last year Wil have difficulty paying bills on time Creditors will then cut off businesses credit Maybe increased bank overdraft and spent all the borrowed money Should sell any investments to inc cash

Answer 10

(Current assets-Closing stock)➗Current liabilities Ideal ratio 1:1 Less ghen this =illiquid Higher business is liquid and has no difficulty pauong bills on time

Answer 11

good trend more cash than last year maybe paid off its overdraft

Answer 12

Bad trend less cash than last year. Difficulty paying bills on time could lead to creditors cutting off businesss credit, maybe bought large amount of stock which remains unsold business should have a sale.

Answer 13

suppliers-improving means more likely to be able, pay invoice in full and on time Employees-job is more secure, more likely to be paid on time Lenders/bankers- more likely to repay a loan and interest in full and on time Governments- more likely to pay taxes in full on time

Answer 14

examines the **capital structure** of the business (how its financed) shows **how much of the Capital** has come from **long-term loans**, and how much has come from **shareholders** indicates **how much long-term debt** the business is carrying, whether it’s too much or not Too much long term debt is bad

Answer 15

Long term debt. ➕ Equity shares +preference shares. +Retained Ernings

Answer 16

There is no ideal ratio

Answer 17

how much money it has borrowed in long-term loans relative to the amount owners of the business invested in it

Answer 18

**total** amount of **money invested by owners of business** consist of **original amount** of money owners put in (issued ordinary/equity share capital) and all **profits** that owners **reinvested** (retained earnings)

Answer 19

Debt>Equity >1:1 Business has borrowed more money than the shareholders have invested

Answer 20

Debt=Equity =1:1 Borrowed exactly same amount as shareholders have invested

Answer 21

1.How much the business has borrowed relative to how much owners have invested -low,high,neutral gearing 2.How much interest she can expect business will have to pay back. -High geared =more interest to pay back 3.If business is in danger of going bankrupt. -High geared=lots of loans to pay back 4.If business able to take out more loans or not -High geared=lots of loans so hard to convince bank to get another

Answer 22

Bad trend More long term loans outstanding than last yr Maybe took out another one? Should sell more shares to reduce ratio

Answer 23

Good trend Less long term loans outstanding than last yr Maybe paid back long term loan/sold some shares? Should continue with this strategy

Answer 24

Shareholders/Investors: -Increasing=more profits being used to pay interest=fewer dividends=less likely to buy shares. Employees: -Increasing=less secure jobs as risk of bankruptcy=less likely pay raise Bankers: -Increasing=less likely to repay loan+interest in full on time Suppliers: -Increasing=more likely to go bankrupt,less likely pay invoice Government: -Increasing=More likely to go bankrupt and not pay tax

Answer 25

Only analyse historical figures. Mightnt be true indicators of whatll happen in the future May calculate accounting figures differently. Change calculation method from one year to next=inaccurate Limited picture of a businesss. Only show financial info. No insight to important aspects of business such as staff morale.

Answer 26

How good the gross profit number is by judging it against the size of the business’s sales figures

Answer 27

Look at how good net profit number is by judging it against the size of the business sales figures. 6% net profit percentage means that cor every 100€ product the business sells, it gets to keep 6€

Answer 28

How good net profit number is by judging it against total amnt of money invested. Less than 2%=bad

Answer 29

See if business has enough cash by comparing its current assets with its current liabilities

Answer 30

How much cash business has in an emergency situation. When we exclude stock, business shiuld have exactly the amount that it owes Lets a business know its liquidity position in an emergency We exclude stock as stock is hard to turn into cash very quickly