2.3 Flashcards
(21 cards)
What is a statement of comprehensive income
shows the revenue and costs over a period of time
How do you calculate gross, operating and net profit
Gross profit = revenue - total costs
Operating profit = gross profit - overheads
Net/profit for the year = operating profit - financing costs (interest or tax)
How do you calculate gross, operating and net profit margins
GPM = gross profit/revenue x 100
OPM = operating profit/revenue x 100
NPM = net profit/revenue x 100
What is the difference between profit and cash
- cash is immediate whilst profit is over time
- profit is just revenue and costs whilst there are other ways of spending/gaining cash
What is a statement of financial position
Shows value of a businesses assets and liabilities on a specific date
What are non current assets
long term assets (buildings, machinery, vehicles)
What are current assets
short term assets ( stock, cash in bank, receivables)
What are current liabilities
Short term debts (short term loans, tax)
What are non current liabilities
Long term debts (long term loans, mortgages)
What is total equity
Total investments in a business (share capital, retained profits)
Current ratio
current assets/current liabilities
Acid test ratio
(Current assets - inventories)/current liabilities
Working capital and how it is calculated
The cash spent and recieved in the day to day running of a business
current assets - current liabilities
What is return on capital employed
What returns (profits) the business has made on the resources available to it
suggests how efficiently resources are being used to generate profits
How is ROCE calculated
operating profit / capital employed x 100
capital employed = total equity + non current liabilities
How can ROCE be improved
- increase the level of profit generted by the same level of capital employed
- maintain the level of profit generated by decreasing the amount of capital employed
What is gearing
The proportion of assets invested into the business that are financed by long term borrowing
Gearing formula
non current liabilities / capital employed x 100
capital employed = total equity + non current liabilities
When is gearing considered to be high or low
high = 50%
low = 25%
balance sheet
financial statement recording the assets and liabilities of a business on a particular day at the end of an accounting period
