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Flashcards in Finance Deck (14):
1

Causes of cash flow problems

To much money tied up in inventory
Offering customers too much credit
Low levels sales
Owners taking too much money
Purchasing non current assets

2

How can cash flow problems be solved?

Invest advertising campaign get more sales
Sell assets not needed
Find cheaper suppliers
Reduce drawings
Lease assets instead of buying

3

Uses of ratio analysis

Easier compare figures when analysing data
Compare figures against industry averages
Spot trends
Compare to previous years

4

Limitations of ratio analysis

Information historical so out of date
Not take into account recent investments
Not consider external factors
Not reveal information such as staff moral

5

Gross profit ratio

(Gross profit divided by sales) x 100

6

Profit for the year ratio

(Net profit / sales ) x 100

7

Profit mark up

(Gross profit / cost goods sold) x 100

8

Current ratio

Current assets / current liabilities

9

Acid test

(Current assents - inventory) / current liabilities

10

Return on equity employed

(Profit for the year / opening equity) x 100

11

What are debentures?

The company borrows a large sum of money and pays interest annually. The loan is paid back at the end of a specific period of time

12

What is an advantage and disadvantage of debentures?

Advantage
Able to raise large amounts of finance
Only have to pay back interest till the end of the loan period

Disadvantage
If the business fails to repay the loan the company that leant the money can seize the businesses assets

13

What is sale and lease back?

Where the business sells assets to another company and then leases them back when they need them

14

What are the advantages and disadvantages of sale and lease back?

Advantages
Generates large amounts of capital from selling assets
No longer responsible for maintenance and repair

Disadvantages
Over time it can be more expensive to rent
The reduce in assets can make it more difficult to get finance in future