What is a budget?
A financial plan for the future covering income, expenditure, and profit.
Budgets help in forecasting financial performance.
What is budget variance?
The difference between the actual outcome and the predicted outcome.
It indicates how well the budget was adhered to.
What is variance analysis?
Checking actual outcomes against predicted outcomes.
It helps in understanding the reasons for deviations.
What is a balance sheet?
A statement of the firm’s assets, liabilities, and shareholder’s or owner’s funds.
It shows the net worth of a business at a specific point in time.
Define non-current (fixed) assets.
Assets expected to be retained in the business for more than a year.
Examples include machinery, vehicles, and computers.
What are current assets?
Assets that are cash or can be turned into cash within a year.
Examples include stock and trade receivables.
What are current liabilities?
Money owed by the business that will be paid within a year.
Examples include trade payables and overdrafts.
What are non-current (long term) liabilities?
Money owed which is repaid over more than a year.
Examples include bank loans and mortgages.
What are net assets?
The value of a company’s assets once the value of its liabilities has been deducted.
Formula: non-current assets + current assets - current liabilities - non-current liabilities.
What are shareholder’s funds?
Money invested into the business by the owners through the sale of shares, including retained profit and reserves.
Also called equity.
What is working capital?
The money needed in the business to pay for day-to-day expenses.
Formula: current assets - current liabilities.
What is capital employed?
Capital employed is the amount of money that is used to finance a business in the long term. This finance has been either invested by shareholders or borrowed long term.
Formula: Shareholder’s funds + non-current liabilities.
What does ROCE stand for?
ROCE stands for Return on Capital Employed, showing how much profit has been made compared to the capital invested in it.
Formula: Net profit/capital employed x 100.
What is window dressing?
Window dressing is the manipulation of financial accounts by a business to improve the appearance of its performance.
E.g. insufficiently depreciating a fixed asset so that its value is overstated in the balance sheet.
