7.2

Question 1

what is an income statement

Answer 1

Statements that show a business trading income and expenditure over the previous 12 months

Question 2

what are exceptional items and example

Answer 2

exceptional items are large (usually one-off) financial transactions arising from normal trading activities
example: cutting large quantities of staff

Question 3

what are extraordinary items and example

Answer 3

extraordinary items are large transactions outside of normal trading activities, thus they are not expected to recur
example: loss due to flooding/ fires

Question 4

what is window dressing and why would a business do it

Answer 4

window dressing is the manipulation of financial accounts to improve the appearance of its performance.
A business window dresses to attract investors, to avoid tax and to close possible mergers/ takeovers.

Question 5

methods of window dressing

Answer 5

overstating brand value, hiding poor investments/costs, exceptional/ extraordinary items,

Question 6

what is a balance sheet

Answer 6

a balanced sheet is a statement of a firm’s financial position about its assets and liabilities.
It shows how a business is being funded and how they are being used/invested.

Question 7

how would the following stakeholders use the balance sheet:
shareholders
suppliers
managers

Answer 7

shareholder -> dividends/ how good returns will be
suppliers -> to see if they can pay them (payables)
managers -> indication of performance

Question 8

shareholder capital calc

Answer 8

(total equity) / capital invested in the business

Question 9

factors that influence the amount of working capital a firm needs to hold

Answer 9

• volume of sales
• the amount of trade credit offered by the business
• if the firm is growing
• rate of inflation

Question 10

Name all ratio analysis

Answer 10

• Gross Profit Margin
• Net Profit Margin
• Return on capital employed
• Current ratio
• Gearing