Finance Quiz Flashcards
What is the accounting equation?
Assets = Liabilities + Owners Equity
What is meant by liquidity?
The extent to which a business can meet its financial obligations in the short term.
What is meant by solvency?
The ability of the business to meet its financial commitments in the longer term.
A balance sheet includes what of the following. Gross Profit Net Profit COGS Current Assets
Current Assets
Comment for current ratio
A ratio of 2:1 is recommended, otherwise reduce current liabilities such as overdrafts using retained profits.
Non current assets can be sold to increase current assets.
Comment for gearing - debt to equity ratio
The goal is to have more equity and less debt otherwise the business is vulnerable to interest rate rises.
Business should have a debt to equity ratio of 50-70%.
Sell non current assets to pay for liabilities, use profits to pay debts.
Comment of improving collectors debtors efficiency by accounts receivable.
Offer discounts for early payments.
Suspend credit to bad payers.
Comment on improving gross to profit ratio
Increase selling price.
Buy cheaper stock.
Comment on improving net profit ratio
For every $1 of sales the business retains __ cents as net profit.
Source cheaper suppliers.
Increase selling price.
Comment on rate of return on owners equity.
For every $1 of equity contributed, they receive __ cents in return.
Improve gross profit ratio.
Improve net profit.
What is fraud
A wide range of activities that centre around gaining a financial advantage by deception or dishonesty.
