unit.5 Flashcards
(57 cards)
current liabilities
debts the business owes that need to be paid within a year
non-current liabilities
debts the business owes that can be paid in more than a year
current assets
items owned by the business for less than a year
non-current assets
items owned by the business for more than a year
profitability
the measurement of profit made relative to: the values of sales achieved, the capital invested in the business
importance of profitability
- investors deciding wether to invest
- directors and managers to assess wether the business is becoming more or less successful
importance of profit
- reward for risk
- source of finance
- indicator of success
profit
the money made after all costs have been paid, used for dividends and retained profit
cash
the money used and needed for day to day expenses. if the business has not enough cash it will not survive
income statement
shows business owner and managers wether the business has made a profit or a loss
key features of an income statement
revenue, costs of sales, gross profit, expenses, net profit, retained profit
revenue
money made from sales (price x quantity)
costs of sales
costs to make the product (made from variable costs) adding all the variable costs, (opening inventory+purchases-closin inventory)xcost per unit
gross profit
revenue-costs of sales
expenses
all the expenses of the business
net profit
gross profit-expenses
total shareholder equity
total assets-total liabilities=always shareholders funds/equity
is the total sum of money invested into the business by the owner of the company: invested in 2 ways, share capital and retained profit.
gross profit margins
gross profit/revenue x 100
net profit margins
net profit/revenue x 100
return on capital employed
net profit/capital employed x 100
liquidity
the ability of a business to pay back its short term debts
current ratio
current assets/current liabilities
a safe current ratio: 1.5-2
if current ratio is less than one then the business would have cashflow problem
if current ratio is above 2 it is too high : cash could be better spent elsewhere
acid test ratio
current assets-inventories/ current liabilities
more realistic than the current ratio as it doesn’t count inventories as a current asset
1+
stakeholders interest in the accounts of the business
- managers
- shareholders
- creditors (suppliers)
- banks
- government
- employees
