financial ratio

Question 1

how can the financial performance of a business be measured

Answer 1

balance sheet
income sheet

Question 2

balance sheet

Answer 2

• document , summaries net worth of business at any time

Question 3

income statement

Answer 3

• document , summaries a businesses trading activities and expenses , shows whether a business made a profit or loss overtime

Question 4

what are assets

Answer 4

items business owned by a business

non current assets ,= likely to be kept by business for more than a year , e.g vehicles

current assets = turnt into cash within a year

Question 5

what are liabilities

Answer 5

• money owed by a business

non current laiblities = has more than 1 year to pay , e.g mortgages

current = less than 1 year to pay e.g bank overdraft

Question 6

ratio analysis

Answer 6

gives more analysis of published accounts

Question 7

return on capital employed

Answer 7

• measures how well a business is using their capital employed to generate profits

Question 8

what is capital employed

Answer 8

total amount of funds that are being used to run a business to generate profit

Question 9

roce formula

Answer 9

operating profit/ total equity + non current liabilities X 100

Question 10

liquidity

Answer 10

ability for a business to survive short term

ie=
ability for business to meet short term and day to day debts and expenses

Question 11

how is liquidity calculated

Answer 11

by current ratios

current assets/ current liability

Question 12

how should a business improve liquidity

Answer 12

• increase current assets/ decreases current liabilities
• sell assets that aren’t being used anymore
• switch to long term sources of finance

Question 13

gearing

Answer 13

• measures what proportions of a businesses capital is funded through long term loans

Question 14

gearing formula

Answer 14

non current liabilities / total equity + non current laiblities x 100

Question 15

payable days

Answer 15

• measures how long it takes for a business to Pau for supplies its purchased on credit
• short payable days = discount from suppliers
• business wants longer payable days to ease cash flow

Question 16

payable days formula

Answer 16

payable days / cost of sales x 365

Question 17

receivable days

Answer 17

• measure of how long it takes for customers to pay the bsuiness for goods its bought on credit
• business wants shorter receivable days to ease cash flow

Question 18

receivable days formula

Answer 18

receivable days / sales revenue x 365

Question 19

inventory turnover

Answer 19

• measures how frequently a business turns over inventory in year

Question 20

inventory turnover formula

Answer 20

cost of sales / average inventory held

Question 21

adv and disadv of financial ratio

Answer 21

adv -
tool to interpret accounts

disadv-
quantitivatve info only