Business > unit 7 > Flashcards

unit 7 Flashcards

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1
Q

what is a statement of comprehensive income

A

it’s a record of revenue and costs of a business over a period, like a year

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2
Q

what is shown on a statement of comprehensive income

A

it shows how much profit the business made and what has happened to the profit

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3
Q

what is sales turnover

A

the value of sales you make (revenue)

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4
Q

what is a cost of sale

A

it’s the cost of production (materials and working)

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5
Q

what is gross profit

A

profit made before overheads are taken out

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6
Q

what are expenses

A

a cost that is not drireclty linked to producing the service eg marketing, rent
INDIRECT

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7
Q

what is the equation of profit for the period

A

profit before tax- income

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8
Q

what is the purpose of the statement of comprehensive income
3

A

-to satisfy legal requirements
-to show potential investors that the firm is successful
-helps managers review progress

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9
Q

what is the difference between high quality and low quality profit

A

-low quality profit is for example selling assets it’s not sustainable
-high quality profit is sustainable such as sales

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10
Q

why is SWOT analysis helpful for a business

A

it helps a business assess its competitive strength and the nature of its external environment

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11
Q

what are the 4 parts of SWOT

A

strength, weakness, opportunities, threats

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12
Q

why is it good to assess strengths and weaknesses with SWOT

A

-role for benchmarking (comparing to other firms)

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13
Q

what is the calculation for profitability

A

GP/revenue X 100

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14
Q

what is market capitalisation

A

the value of the business

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15
Q

why is assessing opportunity and threats good (SWOT)
3

A

-how to take advantage of opportunities
-how to protect against threats
-role of risk management and planning

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16
Q

what is the calculation for cost of sale

A

sales price - contribution PU

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17
Q

why is SWOT overall useful

A

-as it can be used to shape the future strategy for the firm to achieve its aims and objectives
-focuses on strategic issues

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18
Q

what is an external audit (SWOT)

A

an investigation of the economic environment and the condition of the marking and competition

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19
Q

what is internal audit (SWOT)

A

this lists the firms main strength and weaknesses and compare it to the competitors

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20
Q

who does the firms audits (SWOT)

A

mangers or a management consultant

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21
Q

strengths and weaknesses for (SWOT) are usually…
4 (internal)

A

profitability, liquidity, gearing, HR (employer employee relations)

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22
Q

opportunities and threats for a business (SWOT) are usually ….
(external)
4

A

tech change, economic environment (interest rates,) degree of competition, trends

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23
Q

whay are the negatives of SWOT
3

A

-bias
-quickly become out of date
-lacks focus

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24
Q

what is the difference between profit and profitability

A

profit- the difference between income and costs
profitability- the ability of a business to generate profit or its efficiency

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25
what are non current assets
are assets which a business has and intends to keep for more than a year
26
what are examples of non current assets 4
-tech -machinery -vehicles -premises
27
what are current assets
are assets the business expects to keep for less than a year (can wucikly turn into cash if needed)
28
what are examples of current assets
-cash -stock -debtors/receivables
29
what are liabilities
the debts of the business
30
what is current liability
a debt businesses have to repay within 12 months
31
what is an example of current liabilities 4
-trade credit -tax -overdraft -dividends
32
what are non current liabilities
money owed for more than 12 months
33
what are examples of non current liabilities 2
-loan -mortgage
34
what is working capital
money used to finance the day to day running of the business
35
what is capital
the funds invested in the company
36
what are the 2 types of capital and what are they
-share capital-fund provided by shareholders -reserves and retained earnings-these are profits that have been retained by the business
37
benefits of high gearing
-if need to quickly take over a competitor there will not be time to issue shares (raise capital) or to consult->especially if it’s a dynamic market
38
benefits of low gearing
-less risk of defaulting on debt ( not paying it back) -shareholders rather than debt providers (banks) “calling the shots” -business has the capacity to add debt if required
39
what is the calc for capital employed
total equity+non current liabilities
40
what does gearing measure
how much of a business’s finance comes from long-term debt
41
what is the gearing calc
non current liabilities/ total equity + non current liabilities X100
42
what is high gearing
when over 50% of its long term finance comes from debt
43
what is low gearing
A business is low geared when less than 50% of its long-term finance is debt.
44
what is capital employed (my definition)
how much has been invested into business
45
why is the ratio return on capital employed useful 3
-evaluate the overall performance of the business -provide a target return for individual projects -benchmark performance with competitors
46
what is the return on capital employed calculation
operating profit/ total equity+non current liabilities X100
47
key points in ROCE 3
-varies in industries -based on a snapshot of a businesses balance sheet - comparisons over time and with key competitors
48
what is the calculation for break even
fixed cost/contribution per unit
49
why is gearing ratio useful
-measures the financial health of a business -high gearing can mean high risk
50
what are the two ways of measuring gearing
-debt/equity ratio -gearing ratio
51
what does the capital of a business represent?
the finance provided to it to enable it to operate over the long term
52
what are the 2 parts to the capital structure and what are they
equity-the money invested by the owners of the business debt- capital provided to the business by external parties
53
what do liquidity ratios assess
they assess whether a business has enough cash or equivalent current assets to be able to pay back its debts
54
how long do you have current assets for
less that a year
55
what are examples of current assets 3
inventory, cash receivables
56
what are the 2 liquidity ratios
current ratio and the acid test
57
what is the current ratio equation (alphabet)
current assets/current liabilities
58
what does the current ratio need to be between
1.5-2
59
what does it mean if the current ratio for a business is below 1.5
they run the risk of not be able to pay short term debts
60
what does it mean if the current ratio for a business is above 2
they have too much cash which shows under investment or too much inventory
61
what is the equation for acid test ratio
(current assets-inventory)//// current liabilities
62
what is current assets - inventory the same as in the acid test
cash and receivables
63
what should the acid test be and why
above 1 because they can pay overdraft with their current assets
64
what is a statement of financial position
it’s a statement of the value of their assets and liabilities of a business at a particular point in time
65
what does a balance sheet show
the total value of assets and the value of liabilities and capital
66
what is share capital
funds provided by the shareholders through the purchase of shares
67
what are uses of the balance sheet 4
-provides better management of funds -provide a valuation -prevent fraud -legal reasons
68
what is creative destruction
when a new product destroys the exiting marking eg-> a phone that never dies
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