where can a company source information (6)
- reported financial data can be sued to make comparisons with other companies
- annual reports = used to draw conclusions on performance & see if aims were achieved
- government statistics = accurate source shows info on inflation and economic growth
- market data can be used to compare with competitors
- customer surveys can be used to measure customer satisfaction levels
- environmental and safety standards can be used to value an organisations achievement in its objectives
what can financial information be used for (3)
- identify trends
- compare performance over a number of years
- compare performance with that of competitors
what can be found in the income statement (5)
- sales revenue e.g. money received from sales
- less cost of sales e.g. cost of making and buying goods sold
- gross profit e.g. profit made from buying and selling goods
- less expenses (operating costs e.g. annul running costs)
- profit for the year (operating profit) the final profit made after a deduction of expense
why sales/expenses/profits change (4)
- rising sales = increase in customers e.g. extending the market or improving customer loyalty. or increase in prices charged
- rising expenses indicates poor efficiency/overspend. company should aim to increase sales
- reduction in expenses indicates improved efficiency and improved cash flow
- rising profits indicates that the business has reduced expenses whilst increasing revenue
what does statement of financial position show?
assets - liabilities = equity
what are non current assets
significant long term purchases e.g. property, machinery, equiptment
what are current assets
assets that change in value regularly e.g. inventory, trade receivables (customers that owe business money e.g. credit), cash in the bank
what are current liabilities
money owed that will be repaid within one year e.g. bank overdraft
what are non-current liabilities
money owed that willi take longer than a year to be paid back e.g. mortgage, loans and debentures (loans repaid on a specific date with interest)
what is equity
how the company is financed by the owners e.g. share equity, retained profits
what is capital expenditure (3)
- payments made that willi benefit the business over a year
- purchase, installations or upgrades of non current assets
- does not impact on profit calculation in the income statement
what is revenue expenditure (3)
- payments made that will benefit the business over a short period of time
- annual operating costs e.g. higher expense = lower profits
- this would include repair and maintenances of non-current assets
profitability ratio analysis (5)
- profit for the year shows the amount of profit made as a % of sales revenue
- return on equity invested ratio shows the profit made as a % of the equity invested
- the higher the percentage the better the performance
- managers can identify reasons for poor performance and take corrective action
- used to compare performance better than just comparing profit level
liquidity (cash flow) meaning (4)
- liquidity is the ability to have access to cash or near cash assets to meet needs of a running business
- vital for short term success of a business - cash inflows should be greater than cash outflows
- many business go into liquidation and close down because of lack of liquidity no because of lack of profitability
- business must keep records of its cash flow and use it to monitor and control movement of cash
Liquidity ratio (4)
- ratio measure ability of a business to access cash in order to meet short term debts
- difference between current assets and current liabilities
- the desired current ratio is 2:1
- high ratio indicates poor inventory management
share price / market value (4)
- indicates the market value of a share e.g. what new investors would have to pay to purchase one share in the company
- rising share price indicates the company is performing well
- potential share holders may choose to invest to benefit from future increases in profitability
- existing shareholders may sell shares to make good profit
dividends per share (2)
- represents the return to shareholders from their investment in the company
- rising dividends may attract new shareholders and encourage shareholders to keep shares which generates more equity
debt/borrowing (2)
- high debts/borrowing will give the business more to invest in operations
- however borrowing willi increase interest payments which may be a burden on cash flow
non financial indictors (5)
- market share - business performance against competitors
- customer satisfaction level - indicates satisfaction of customers
- employee satisfaction level - indicates levels of morale
- achievement of awards or quality standards - indicates product service/product
- staff turnover - indicates issue with staff retention e.g. morale
links between environmental responsibility and financial performance (8)
- attract customers who share the same values can increase sales revenue
- lower costs from using renewable energy can increase profit before tax
- investment in assets e.g. solar panels can impact negatively on cash flow
- increased debts if assets are bought through borrowing
- higher sales revenue if companies increase selling price of ECO products as customers are willing to pay more
- higher R&D costs associated with finding new operational processes
- higher costs of sales from sourcing materials from ECO suppliers
- reducing in taxes/costs associated with carbon emissions = higher profitability
