6.5 Analysing The Financial Performance of a Business

Question 1

What do financial statements allow?

Answer 1

Allows shareholders, managers and investors to make informed future decisions and understand business performance

Question 2

If business’ like PLC’s and LTD’s don’t make financial statements, what happens?

Answer 2

They recieve fines since its a legal requirement for them

Question 3

What are the advantages of financial statements?

Answer 3

They allow a business to spot trends
They allow comparison with other businesses

Question 4

What are the disadvantages of financial statements?

Answer 4

Very time consuming to make
Difficult to hide financial information from competitors or potential investors

Question 5

What does the ‘cost of sales’ refer to?

Answer 5

The variable costs from making/providing a service

Question 6

How do you calculate gross profit?

Answer 6

Revenue - cost of sales

Question 7

How do you calculate Net profit?

Answer 7

Gross profit - total expenses

Question 8

What are current assets

Answer 8

Short term assets that are owned for less than 12 months

Question 9

What are fixed assets?

Answer 9

Long term assets that are owned for more than 12 months

Question 10

What are current liabilities (short term debts)?

Answer 10

Any debt a business owes that needs to be paid back within a year

Question 11

What are long term liabilities (short-term debts)?

Answer 11

Any debt a business owes that is paid back over more than a year

Question 12

How do you calculate gross profit margin?

Answer 12

(Gross profit / sales revenue) x 100

Question 13

How do you calculate net profit margin? (%)

Answer 13

(Net profit / sales revenue) x 100