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Business Unit 7 (Analysing strategic position) > financial ratio > Flashcards

financial ratio Flashcards

1
Q

What can we use an income statement for?

A

Gross/Operating profit margin

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2
Q

What can a balance sheet be used for?

A

liquidity/gearing/efficiency ratios

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3
Q

What is non-current liabilities and current liabilities? (balance sheets)

A

debts not expected to pay in a year and debts due within a year

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4
Q

What is current assets (balance sheet)

A

Assets to use/sell within a year - pay off liabilities

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5
Q

What does balance sheets help us understand about the business?

A

Equity
Liabilities
How the business is financed

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6
Q

What does income statements help us understand about the business?

A

Changes in sales revenue
Operating costs

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7
Q

What does Profitability ratio show

A

Compare profit to revenue and investment (performance)

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8
Q

How does knowing profitability ratios help?

A

Compare the performance
Change aspects (eg operations/price) to reduce costs to gain profit

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9
Q

What are the profitability ratios equations (3)

A

gross profit margin = gross profit/revenue x 100
net profit margin ^
operating profit margin ^

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10
Q

What does return on capital employed (ROCE) ratio show

A

how effective they make profit from the investment

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11
Q

How to improve ROCE

A

increase operating profit
reduce capital employed

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12
Q

ROCE equation

A

operating profit/capital employed (total equity and non current liabilities)

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13
Q

What does current ratio show

A

its a liquidity ratio, showing if the business has capital to pay short-term debts

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14
Q

current ratio equation

A

current assets/current liablities

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15
Q

What is the problem with a current ratio less than 1

A

Struggle to pay short term debts

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16
Q

What does a Gearing ratio show

A

how raised long-term finance, how much is from loans

17
Q

What is the result of high geared business

A

More than 50% capital is loans
Vulnerable to increases in interest rates

18
Q

What is inventory turnover ratio show

A

success at making inventory into revenue

19
Q

Inventory turnover ratio equation

A

Cost of goods sold/ average inventory help

20
Q

What is recieveable days

A

Time taken for business to collect debts

21
Q

Receiveable days ratio

A

Receiveable/revenues x 365

22
Q

Is a shorter receivable days ratio better or worse? How does it affect cash flow

A

Shorter is better because can meet cash outflows

23
Q

What is payable days ratio

A

How long it takes for business to pay its creditors

24
Q

Payble days equation

A

Payables/Cost of sales x 365

Business Unit 7 (Analysing strategic position) (7 decks)

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