3.7.2 Flashcards
(27 cards)
Cash flow
Cash flow is the movement of money in and out of a company.
The cash flow statement is a financial statement that reports on a companies sources and usage of cash over a specified time period.
Public limited company
It is a business that is managed by directors and owned by shareholders, therefore can offer shares to the public and is listed on the stock market.
A Plc. Also needs to be more open and public about its details than a private company.
Corporation tax
Is a tax imposed by a jurisdiction on the income or capital of corporations or analogous legal entities.
Costs of goods sold
Costs of goods sold is the carrying value of goods sold during a particular period.
It is the direct costs of producing the goods sold by a company.
Creditors
A creditor or lender is a party that has a claim on the services of a second party.
It is a person or institution to whole money is owed
Gross profit
The profit a business makes after subtracting all the costs that are related to manufacturing and selling it’s products or services.
Calculated by:
total sales - costs of goods sold
Liability
Something a person or company owes.
Usually a sum of money.
Liquidity
Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price. Cash is the most liquid of assets, while tangible items, such as property, are less liquid.
Operating profit
It’s total earnings from its core business functions for a given period, excluding the deduction of interest and taxes.
Reserves
Reserve is the profit achieved by a company where a certain amount of it is put back into the business.
Revenue
Revenue is the total amount of income generated by the sale of goods or services related to the company’s primary operations. Also known as gross sales.
Calculated by:
revenue = price x quantity.
Stock exchange
A stock exchange is a centralised location where the shares of publicly traded companies are bought and sold. Stock exchanges differ from other exchanges because the tradable assets are limited to stocks, bonds and exchange traded products (ETPs).
Current ratio
The ratio of Current Assets: Liabilities.
Expressed x:1.
x being current assets to every £1 of liabilities or debt.
Gearing ratio
Gearing refers to the relationship, or ratio, of a company’s debt-to-equity (D/E). Gearing shows the extent to which a firm’s operations are funded by lenders (e.g. bank loans) versus shareholders.
ROCE ratio
Return on capital employed (ROCE) is a financial ratio that measures a company’s profitability in terms of all of its capital.
Gross profit margin ratio
The gross profit margin ratio shows the percentage of sales revenue a company keeps after it covers all direct costs associated with running the business. Calculated by:
Gross profit margin = [(Net revenue - Direct expenses)/(Net revenue)] x 100
Operating profit margin
Operating Profit Margin is a profitability or performance ratio that reflects the percentage of profit a company produces from its operations, prior to subtracting taxes and interest charges. It is calculated by:
Operating profit margin = (Operating profit)/(Total revenue)
Inventory turnover ratio
Inventory turnover is the rate that inventory stock is sold, or used, and replaced. The inventory turnover ratio is calculated by:
Inventory turnover ratio = (Costs of goods)/(Average inventory)
A higher ratio tends to point to strong sales and a lower one to weak sales.
Receivables days’ ratio
The debtor (or trade receivables) days ratio is all about liquidity. The ration focuses on the time it takes for trade debtors to settle their bills.
Earnings
A company’s earnings are its after-tax net income. This is the company’s bottom line or its profits. Earnings are perhaps the single most important and most closely studied number in a company’s financial statements.
Inter firm comparisons
A comparison of two or more similar business units with the objective of finding the competitive position to improve the profitability and productivity of those business units.
Bad Debts
Bad debt refers to loans or outstanding balances owed that are no longer deemed recoverable and must be written off. This expense is a cost of doing business with customers on credit, as there is always some default risk inherent with extending credit.
Going concern
A business that is operating and making a profit.
Net realisable value
Net realisable value (NRV) is a valuation method, common in inventory accounting, that considers the total amount of money an asset might generate upon its sale, less a reasonable estimate of the costs, fees, and taxes associated with that sale or disposal.
