Numerical Flashcards
(24 cards)
Purpose of market share
To show the value or volume of sales a business has in a comparison to competitors
Purpose of market growth
To show the percentage change in market size by value or volume
Market share equation
Total salves revenue of the company/ total sales revenue of the market X100
Market growth equation
Difference in total salves revenue of the market / original sales revenue for the market X100
Problems of growth
Over trading and internal communication
Gearing
Purpose = to calculate the proportion of capital within a business that has been financed through debt or borrowing
Above 50% is high and below 50% is preferable
Gearing equation
Non current liabilities / capital employed
Capital employed = share capital + retained profit + NCL
High gearing lines of analysis
High amount of capital financed through debt
Increased cash outflows for loan capital repayments
And interest repayments
Reducing cash reserves
Reduced current assets
Lower current ratio
Poor liquidity
Difficulty meeting current liabilities
Lower gearing ratio lines of analysis
Lower amount of capital financed through debt
Reduced cash outflows for loan capital repayments And interest
Ensuring no additional strain of cash reserves
Increased current assets
High current ratio
Good liquidity
Able to meet current liabilities
No risk of having to sell non current assets
Return of capital employed (ROCE) equation
Operating profit / capital employed X100
Capital employed = NCL + share capital + retained profit
How do you calculate moving averages
Sum of the values over a specified period and divide by the number of values in that period
How to calculate payback period
Adding up the cash flow values until u reach the initial investment value
No of week = amount left to pay / net cash flow for the next year X52
How to calculate average rate of return (ARR)
Add up of the cash flow values
Initial investment - value of all cash flows added together
Divide by number of years
That value / initial investment X 100
How to calculate net present value ( NPV)
net cash flow x discounts
Add the values
Take away the initial investment by
Quick payback lines of analysis
Investment pays off initial cost relatively quickly
If a loan was used for the initial investment
The loan period willl be shorter
Reducing interest payments
Lower cash outflows
Improved liquidity
Able to reinvest cash reserves into other projects such as ….
Long payback lines of analysis
Investment pays off initial cost slowly
Business will need to wait for a longer time to recover their investment
Reduced cash reserves as cash is tied up in investment
Reducing current assets
Poor liquidity
May be unable to pay day to day bills
Risk of failure
High NPV or ARR
Increased profitability
Increasing the businesses retained profit
Increased in total equity
Able to reinvest in further expansions of the business
Increased capacity
May be able to gain EOS
Low NPV or ARR
Low return on the investment
Lower operating profit
Lower ROCE
unable to pay high dividends to shareholders
Less attractive to investors
Share price may fall
Difficult to raise capital in the future
Drawback to a,l investment appraisal
Future cash flows are based on prediction s
Vulnerable to external factors
Such as..
Could lead to predicted net cash flows to be lower than usual
Investment appraisal may be inaccurate
Meaning they can’t be relied on
Float time
Latest finish time - duration - earliest finish time
Earliest finish time
Top right
Latest finish time
Bottom right
Positive critical path lines of analysis
Not useful critical path lines of analysis
