Finance unit 3.4

business (stakeholders and accounting info)

* measure the performance of the business to compare against targets, previous time periods and competitors
* providing information for making decisions such as new investments, closing branches and launching new products
* control and monitor the operation of each department and division of a business
* set targets or budgets for the future and review these against actual performance

banks (stakeholders and accounting info)

* decide whether to lend to the business
* assess whether to allow an increase in a line of credit (overdraft)
* decide whether to continue a loan or line of credit

creditors such as suppliers (stakeholders and accounting info)

* assess whether the business is secure and liquid enough to pay its debts
* asses whether the company is a good credit risk
* decide whether it should collect its outstanding debt early

government and tax authorities (stakeholders and accounting info)

* calculate how much tax is due
* determine whether the business is likely to expand and create more jobs
* asses whether the business is in danger of closing down
* confirm that the business is adhering to laws and accounting regulations

investors and potential investors (stakeholders and accounting info)

* assess the value of their business and their investment in it
* establish whether the business is becoming more or less profitable
* determine what share of the profits the investors are receiving
* decide whether the business has the potential for growth
* as potential investors compare details to other businesses before making an investment decision
* as actual investors, decide whether to consider selling all or parts of their holding

workforce (stakeholders and accounting info)

* asses whether the business is secure enough to pay wages and salaries
* determine whether the business is likely to expand or be reduced in size
* determine whether jobs are secure
* find out whether if profits are rising a wage increase can be afforded
* find out how the average wage compares with the salaries paid to company executives

local community (stakeholders and accounting info)

* see if the business is profitable and likely to expand which could be good for local economy
* determine whether the business is making losses and whether this could lead to closure

limitations of accounting information

1. one set of accounts is of limited use
2. accounts do not measure items which cannot be expressed in monetary terms
3. the accounts of one business do not allow for comparisons
4. business accounts will only publish the minimum information required by law
5. accounts are historic
6. window dressing

financial statements

* profit and loss account
* balance sheet

sales

revenues generated by the business (aka sales turnover)

cost of sales (or cost of goods sold)

direct costs requires to produce the product to sell

cost of sales = opening stock + purchases - closing stock

gross profit

sales revenue less the cost of sales

gross profit = revenue - cost of goods sold

overheads or expenses

expenses not directly related to producing the item sold

assets

things the company owns

non-current assets

tangible items that will be retained and used by a business for at least 1 year. land, buildings machinery

current assets

items that are seen as liquid (easily converted to cash) such as inventory

liabilities

money the company owes

current liabilities

debts of the business that will usually have to be paid within one year. e.g. loans, short term debts

long-term liabilities

items that will take longer than one year to pay such as mortgages

working capital =

current assets - current liabilities

equity

money paid into company by shareholders and retained profits

different types of intangible assets

* goodwill
* copyright
* patents
* trademarks

profit before interest and tax =

gross profit - expenses (aka net profit)

profit before tax =

profit before interest and tax - interest

equity =

share capital + retained earnings

net assets =

total assets - total liabilities

total assets =

non-current assets + current assets

total liabilities =

current liabilities - long-term liabilities

net assets =

total assets - total liabilities