Flashcards
Unit 3 - Key Terms - Interpreting Published Accounts
Cards in this deck (9)
- 1Ratio AnalysisA method of assessing a firms financial situation by comparing two sets of linked data
- 2SolvencyA measure of a firms ability to pay its debt on time. A firm can meet its financial commitments is described as 'solvent'; a firm that cannot meet its financial commitments is described as 'insolvent'
- 3Profitability RatiosThese compare profits with the size of the firm. As profit is often the primary aim of a company, these ratios are often described as performance ratio.
Return Of Capital Employed.
(Total Equity + Non-current liabilities x 100) - 4Liquidity RatiosThese show whether a firm is likely to be able to meet its short term liabilities. Although profit shows long term success, it is vital that firms hold sufficient liquidity to avoid difficulties in paying debts.
Current Ratio (Ideal Figure = 1.5-2:1)
Acid Tests (Ideal Figure = 0.7-1 : 1)
CR= Current Assets/Current Liabilities : 1
AT= Liquid Assets/Current Liabilities : 1 - 5GearingGearing focuses on long term liquidity and shows whether a firm's capital structure is likely to be able to continue to meet interest payments on, and to repay, long term borrowing.
Over 50% = Highly Geared
Under 50% = Lowly Geared
Non-Current Liabilities/Total Equity + Non Current Liabilities x 100 - 6Financial Efficiency RatiosThese generally concentrate on the firm's management of its working capital. They are used to assess the efficiency of the firm in its management of its assets and short term liabilities.
- 7Financial Efficiency Ratios (Asset Turnover)Measures how efficiently the assets of the business are being utilised to generate revenue
The higher the figure the more efficiently they are using their assets
Revenue/Net Assets - 8Financial Efficiency Ratios (Stock Turnover)Measures how frequently a business turns over its stock in a year
Finding the average stock held can be calculated by finding the average of stock at the start and end of the year
or
Cost of Sales/Average Stock Held - 9Financial Efficiency Ratios (Payables Days, Receivables Days)A measure of how long it takes on average for a business (PD) or customers (RD) to pay the suppliers (PD) or business (RD) it has purchased on credit.
PD = Payables x 365/costs of goods
RD = Receivables x 365/revenue
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- A Levels A2 Business Flashcards on Unit 3 - Key Terms - Interpreting Published Accounts, created by danny-hudson97 on 05/01/2015.
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