1/57
Looks like no tags are added yet.
Name | Mastery | Learn | Test | Matching | Spaced |
---|
No study sessions yet.
What is the formula for Return on Capital Employed (ROCE)?
(Profit from operations x 100) / Capital employed.
How is Gross Profit Margin calculated?
(Gross profit / Revenue) x 100.
What does a Gross Profit Margin of 20% indicate?
For every $1 of revenue, gross profit is 20 cents.
What is included in the calculation of Capital Employed?
Capital employed = Equity + Non-current liabilities.
What does a Gross Profit Margin of 20.93 cents per dollar of capital employed indicate?
The business returns 20.93 cents as profit for every $1 of capital employed.
What is the formula for Current Ratio?
Current Assets / Current Liabilities.
What does a Current Ratio of 2:1 mean?
For every $1 of current liabilities, the business has $2 of current assets.
What are some ways to improve Gross Profit Margin?
Increase markup, reduce cost of sales, or sell higher-margin products.
What can cause a decrease in Gross Profit Margin?
Lower selling price, increased trade discounts, or higher supplier costs not passed on.
What problems can arise from a high Current Ratio?
High trade receivables, too much inventory, or excess cash not invested.
What does the Mark-up Percentage formula represent?
(Gross profit / Cost of sales) x 100.
What does a Mark-up Percentage of 30% indicate?
For every $1 of cost, the business adds 30 cents to the selling price.
What is the Operating Expense Ratio?
(Operating expenses x 100) / Revenue.
What does a lower Operating Expense Ratio indicate?
Costs are effectively controlled and money is spent wisely.
What are potential issues with a low Current Ratio?
Trouble meeting due payments, missing cash discounts, or losing business opportunities.
How is Profit Margin calculated?
(Profit for the year x 100) / Revenue.
What does a Profit Margin of 15.38% indicate?
For every $1 of sales, profit is 15.38 cents.
What is the liquid ratio?
(Current Assets - Inventory) / Current Liabilities
What does a liquid ratio of 1:1 to 1.5:1 indicate?
It indicates an optimum level of liquidity for a business.
What is the significance of the liquid ratio?
It is the best indicator of a business's liquidity.
What are some causes of a decrease in the liquid ratio?
Fall in gross profit margin and increase in expenses.
What does the cost of sales ratio indicate?
It shows how long, on average, the business takes to sell its inventory.
Why is holding too much slow-moving inventory harmful?
It can harm cash flow and deprive the business of holding faster-moving inventory.
What is the collection period for trade receivables?
Trade receivables x 365 / Net Revenue.
How can a business improve its liquid ratio?
By collecting receivables faster, converting short-term liabilities to long-term, and investing more capital.
What is the acceptable collection period for trade receivables?
30-35 days.
What does the non-current asset turnover ratio measure?
It measures how well a business uses its long-term assets to generate revenue.
What is the payment period of trade payables?
Trade Payables x 365 / Total book value of non-current assets.
What does a high rate of inventory turnover indicate?
It indicates that a business is efficiently managing its inventory by frequently replacing sold products.
What are the consequences of a long payment period for trade payables?
Missing out on cash discounts and being denied further purchases on credit.
What is the average inventory formula?
(Opening Inventory + Closing Inventory) / 2.
What strategies can improve the collection period for receivables?
Offering cash discounts, sending reminders, charging interest on overdue accounts, and effective credit screening.
What is the impact of obsolete inventory on cash flow?
It can negatively affect cash flow and profitability.
What does the rate of inventory turnover tell a business?
It indicates how many times a business sells and replaces its inventory in a year.
What is the formula for calculating the rate of inventory turnover?
Cost of Sales / Average Inventory.
What can a business do to turn obsolete inventory into cash?
Conduct clearance sales, although it may reduce profit.
What is trend analysis in financial performance?
Comparing performance over several years to identify improvements or declines.
What is benchmarking in a business context?
Comparing performance with other businesses in the same industry.
How does decision support assist managers?
It helps managers make pricing, investment, and operational decisions.
How is inventory turnover calculated?
Average inventory x 365.
What is the purpose of identifying problems in financial analysis?
To pinpoint areas needing improvement for future performance.
What are some limitations of using financial ratios?
Management judgment, business model differences, year-end distortions, and potential window dressing.
What is the significance of trend analysis?
It looks at financial ratios over several years to determine if a business is improving, stable, or declining.
What are inter-firm comparisons in financial analysis?
Comparing financial ratios and performance metrics between different companies.
What are some challenges with inter-firm comparisons?
Timeliness of data, accuracy of disclosure, and differences in accounting policies.
What is window dressing in financial reporting?
Deliberate manipulation of financial statements to make results appear better than they are.
What are internal stakeholders in a business?
Individuals or groups within the company, such as owners, shareholders, managers, and employees.
What is income smoothing?
Deliberate manipulation to reduce fluctuations in reported profit over time for perceived stability.
Who are external stakeholders in a business?
Individuals or groups outside the company, including lenders, investors, suppliers, customers, and government bodies.
What are some limitations of using financial statements for external stakeholders?
Delay in availability, incomplete disclosure, and different classifications or policies affecting comparability.
What is the role of trade unions in a business context?
To protect employees and negotiate pay and working conditions.
What is the purpose of financial ratios?
To assess a company's financial performance and compare it with industry standards.
What can cause year-end distortions in financial ratios?
Choosing a year-end during a slow season may understate inventory and receivables.
What does liquidity refer to in financial analysis?
The ability of a company to meet its short-term obligations.
What is profitability in the context of financial performance?
A measure of a company's ability to generate income relative to its revenue, assets, or equity.
What is efficiency in financial terms?
The ability of a company to use its resources effectively to generate profits.
What is the impact of inflation on financial analysis?
In high inflation environments, historic-cost figures can be misleading.
What is the significance of trade associations in financial benchmarking?
They collect and publish industry averages for comparison purposes.