3.7

Question 1

What is a Balance Sheet?

Answer 1

A Document that Sumerises the businesses net worth of a business at a given point in time

Question 2

What is an Income Statement?

Answer 2

A Document that summarises a businesses trading activities and expenses to show wether the business has made a profit or a loss

Question 3

Give the steps of a ratio from 1 to 7

Answer 3

1) Identify reason for Investigation
2) Decide on relevant ratios
3) Gather relevant information
4) Interpret ratio
5) Make Appropriate comarisons
6) Take action based on results
7) Apply the above process again to measure success of the actions taken in stage 6

Question 4

What are the 3 main 3 Ratio analysis questions?

Answer 4

1) How is the business trading?
2) How strong is their financial Position?
3) What are the future opportunities for the business

Question 5

What is a Interfirm?

Answer 5

Comparing 2 Different firms

EG: Tescos and Sainsbury’s

Question 6

What is an Intrafirm?

Answer 6

Comparing within the firm

Question 7

What does IFRS stand for?

Answer 7

International Financial Reporting Standards

Question 8

What does SWOT stand for?

Answer 8

Strength. Weakness. Opportunity. Threat

Charli smells

Question 9

What does ROCE stand for?

Answer 9

Return on capital employed

Question 10

What does a Gear Ratio do?

Answer 10

Shows how a business is financed + Is concerned with long term financial stability of a business

Question 11

What is the equation for ROCE?

Answer 11

Operating Profit/Profit Before Tax Divided By Total Equity + Non-Current Liabilities X100

Question 12

If
Operating Profit = £280,000
Capital Employed = £ 1,400,000
what is ROCE?

Answer 12

20

Question 13

What are a businesses 4 functional areas?

Answer 13

Finance
Marketing
Operations
Human Resources

Question 14

What are some limitations of financial performance indecators (List 3)

Answer 14

1) Limited focus (Wishes of the shareholders)
2) Focus on short term
3) Internal Perspective, the success of the business can depend on external factors

Question 15

What is Labour Turnover

Answer 15

Employees entering and leaving the business

Question 16

What is a core competence?

Answer 16

Something Unique A Business Has/ Something A Business Can Do Strategically Well

Question 17

What are the 3 Elements of Elkington’s triple bottom line?

Answer 17

People,Planet,Profit

Question 18

What is the equation for Liquidity ratio?

Answer 18

Current assets divided by current liabilities

Question 19

What are Liquidity Ratios?

Answer 19

The measure of a businesses ability to survive in the short time

Question 20

What are 3 benefits of having a strong current assets to liabilities

Answer 20

1) Gives employees confidence
2) Greater motivation for employees
3) Greater relationships with suppliers

Question 21

What are the 5 forces Michel Porter developed?

Answer 21

1) Degree of rivalry
2) Entry Threat
3) Threat Of Substitutes
4) Barning Power Of Buyers
5) Barning Power Of Suppliers

Question 22

Short-termism

Answer 22

business prioritising current performance

Question 23

What are some negatives of short termism?

Answer 23

Focus on short term profits
managers increase share price
shareholders sell shares more often

Question 24

What are Short-Term Metrics

Answer 24

Metrics that uses the businesses historical performance to help decide if growth + Return on investment for shareholders can be sustained

Question 25

Whats the equation for Gearing ratio?

Answer 25

non current liabilities divided by capital employed (Total Equity + Non-Current Liabilities) X100

Question 26

What is a High Gearing Ratio?

Answer 26

When the company has more debt than it does Equity

Question 27

What is a benefit of high capital gearing?

Answer 27

Relatively few shareholders making it easier for existing shareholders to keep control of the business

Question 28

What Does Inventory Turnover Measure?

Answer 28

How many times a year a business sells and replaces its inventory

Question 29

What Is The Equation For Inventory Turnover?

Answer 29

Cost Of Sales Divided By Inventories

Question 30

How Can Inventory Turnover Be Increased?

Answer 30

By selling off or disposing of slow moving inventory Negotiate with seller so inventory can be returned if it doesn’t sell

Question 31

What uses high inventory turnover?

Answer 31

Fast food restaurants, Supermarkets, etc

Question 32

What Uses Low Inventory Turnover?

Answer 32

Construction, Engineering, Industrial Distribution, etc

Question 33

What Is Payback Period?

Answer 33

Method that measures how long it takes for an investment to make enough money to pay back the Investment

Question 34

What are the benefits of payback period?

Answer 34

1) Simple and easy to calculate 2) Focuses on cashflows 3) Straight forward to compare competing projects

Question 35

What are the drawbacks of payback period?

Answer 35

1) May encourage short-term thinking 2) Takes no account of the "Time Value Money" 3) Ignores qualitative aspects of the decision

Question 36

What Is The Equation For Payback Period?

Answer 36

Amount still to be paid back divided by Net cash flow for the year in which the payback occurs X12

Question 37

What is Cumulative Cash Flow?

Answer 37

Cash Flow from previous year + The net cash flow from that year

Question 38

What is Capital Investment?

Answer 38

Process of purchasing non-current assets

Question 39

What's the Equation For NPV?

Answer 39

Cashflow X Discount factor = Present value Add up all annual NPV's then - the initial investment Pos/ Zero/ Neg