Unit 7 - Strategy

Question 1

Equity

Answer 1

capital employed - NCL

Question 2

Assets

Answer 2

Items owned by the business (cash in bank, capital)

Question 3

liabilities

Answer 3

money owed by the business to individuals, suppliers, banks, shareholders

Question 4

current assets

Answer 4

assets sold within 12 months (stock)

Question 5

Non current assets

Answer 5

Assets not sold within 12 months (capital, machinery)

Question 6

current liabilities

Answer 6

liabilities paid within 12 months (suppliers)

Question 7

non current liabilities

Answer 7

liabilities not paid within 12 months (LT loans, mortgage)

Question 8

net current assets

Answer 8

current assets - current liabilities

Question 9

net assets

Answer 9

non current assets + current assets - current liabilites - non current liabilites

Question 10

gearing + calculation

Answer 10

% of a business that is financed by LT loans (non current liabilities)

non current liabilities/capital employed x100

Question 11

capital employed calculation

Answer 11

total assets - current liabilities

• Total assets = non current assets + current assets.

Question 12

capital

Answer 12

money invested into the business into machinery, inventory

Question 13

inventory

Answer 13

raw materials + other items needed for production to take place (includes part finished goods)

Question 14

receivables

Answer 14

money that the business is owed (buyer has received goods from business but hasnt paid yet)

• cash inflow

Question 15

payables

Answer 15

money that the business owes (received supplies but havent paid yet)

• cash outflow

Question 16

debtors

Answer 16

people that owe the business money (will receive receivables from them)

Question 17

creditor

Answer 17

people that the business owes money to (will pay them payables)

Question 18

working capital definition + ratio

Answer 18

AMOUNT of cash the business is able to pay day to day expenses (suppliers)

• cash inflows for day to day expenses

ratio of working capital = current assets/current liabilities

Question 19

gross profit

Answer 19

sales rev - cost of sales

Question 20

operating profit

Answer 20

GP - operating expenses (rent, marketing, salaries, fixed costs)

Question 21

gross profit margin

Answer 21

GP/sales rev x100

GP = sales rev - costs of sales

Question 22

operating profit margin

Answer 22

OP/sales rev x100

Question 23

net profit margin (%)

Answer 23

PBIT / Sales Revenue x 100

Question 24

Return on capital employed (ROCE) + definition

Answer 24

a measure of how efficiently a business is using capital employed to generate profit

OP/ capital employed (total equity+non current liabilities) x 100

Question 25

liquidity + calculation

Answer 25

a measure of a business’ ability to survive in the SR (pay day to day expenses) current assets/current liabilities

Question 26

liquidity of an asset

Answer 26

how easily an asset can be turned into cash

Question 27

efficiency ratio

Answer 27

asses the internal management of a business. - looks at management of cash + inventory (receivables/payables + inventory turnover)

Question 28

receivables days + calculation

Answer 28

compares amount owed to business by debtors to the total sales rev per year - a measure of how long on average for customers to pay business receivables/sales rev x365

Question 29

payables days + calculation

Answer 29

compares amount a business owes to creditors to total costs - measure of average time a business takes to pay suppliers payables/costs of sales x365

Question 30

Contribution per unit

Answer 30

Selling price - variable cost per unit. - The amount to cover fixed costs and then to profit.

Question 31

Break even in units

Answer 31

Fixed costs/contribution per unit

Question 32

margin of safety

Answer 32

difference between break even point and the actual/budgeted sales. - expressed in units or %

Question 33

total contribution

Answer 33

total sales - total variable costs