What is a statement of financial position and what does it show?
A snapshot of what assets and liabilities a business had
How do you calculate net assets?
Non-current assets + current assets - current liabilities - non-current liabilities
How do you calculate capital and reserves?
Share capital + revenues
What do receivables mean?
consumers who owe the business
What is a financial statement of comprehensive income and what does is show?
A measure of a businesses performance over a given period of time, usually one year. It shows profits and loss
How do you calculate gross profit?
Revenue - cost of sales
How do you calculate operating profit?
Administrative expensive - gross profit = operating profit
What is a gearing ratio?
Explores the capital structure of a business by comparing proportions of capital raised by debt and equity
How do you calculate gearing ratio?
Non - current liabilities
——————————— x100
capital employed
How do you know if a business is high geared or low geared?
50 % = high gear (high risk)
25% = low gear (low risk)
What is return on capital employed? (ROCE)
Profit of a business as a % of total amount of money used to generate it.
How do you calculate ROCE?
operating profit (current liabilities - total assets)
———————————————————————- x100
capital employed
How can a business improve ROCE?
higher the % the better, so they can increase operating profit without increasing capital employed or lower capital employed but maintain operating profit.
(sell off unprofitable assets, pay off debt, improve inventory management)
What are the limitations of ratio analysis?
- basis of comparison (over time nah, inter firm nah, other companies nah)
- quality of final accounts (monetary values change bc inflation)
- limitations of balance sheet (not representative of whole year)
- qualitative info is ignored
- window dressing (legal manipulation of accounts by a business to present a financial picture that is to its benefit) (eg: low tax by increasing level of revenue received, or write off unprofitable activities)
How do you calculate labour turnover?
No. of employees leaving
- ————————————————– x100
av. no. of employees during period
What are the disadvantages of high labour turnover?
- recruitment costs
- reflects poor morale of workforce
- training costs
- loss of productivity while new worker settles in
What are the advantages of high labour turnover?
- chance for new people
- specialists can be employed rather than training
How can a business improve retention?
- Financial incentives
- non financial incentives
- research
- improve recruitment process
How do you calculate labour productivity?
number of employees at work
Why should a business measure its productivity?
- Labour costs are a significant part of total costs
- remain competitive by keeping unit cost low
- business efficiency and profitability closely linked
What influences productivity?
- external factors (reliability of suppliers)
- methods of production and organisation
- skills, ability and motivation
- extend and quality of fixed assets
How can a business increase productivity?
- measure productivity and set targets
- invest in training
- streamline product process
- invest in capital (automation)
How can a business measure absenteeism?
Number of staff absent
———————————————- x100
total number of staff employed
Why might a workforce be absent?
- low motivation
- over supervision
- culture
- low pay
- bullying
- lack of commitment
