3.2 - financial accounts and structure, depreciation

formula total costs

variable + fixed

formula sales revenue

price x quantity

final accounts

Financial statements prepared at the end of an accounting period

• balance sheet

• profit or loss statement.

internal shareholder interest in final accounts

• shareholders

  • to see where their money was spent

  • to see how well their investments have performed

• employees

  • to asses the likelihood of pay increase and job security

• managers

  • to judge operations efficiency

  • to set targets and plan

external shareholder interest in final accounts

• competitors

  • to compare financial performance

• government

  • to examine for tax purposes

• financiers

  • to assess credibility of debt repayment

• suppliers

  • to decide whether trade credit should be approved

types of intangible assets

• brands

• patents

• copyrights

• reputation

• trademarks

statement of profit or loss

A financial statement that summarizes revenues, costs, and expenses during a specific period, showing the company's profitability.

improving gross profit

• increasing sales revenue

  • increasing selling price

  • selling greater quantities

• reducing cost od sales

  • cheaper suppliers

  • buying in bulk

improving profit before interest and tax

• reduce expenses

  • move to cheaper location

  • install energy efficient equipment

  • find cost-effective suppliers

improving gross surplus

• increase funding

  • sponsors and fundraising

• increase sales revenue

  • increase selling price

  • sell greater quantities

• reduce cost of sales

  • cheaper suppliers

  • buy in bulk

improving surplus before interest and tax

• reduce expenses

  • seek volunteers to reduce staffing costs

  • move to cheaper location

  • install energy efficient equipment

  • find cost-effective suppliers

balance sheet/ statement of financial position

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a snapshot of its financial condition.

depreciation

The reduction in the value of a non-current asset over time, usually due to wear and tear.

straight line method for calculating depreciation

annual depreciation = (purchase cost- resale value) / lifespan in years

+simple to calculate and understand

-not realistic as some assets loose a much larger % of their value at the beginning of life span

units of production depreciation method

depreciation/unit/time = ((cost of asset - resale value) / total estimated units of production) x actual units produced

+gives better insight into true running costs of non-current assets

-harder to calculate

cash flow

cash/liquid assets available for the daily running of a business with the day-to-day expenditures

cash flow forecast

financial document which shows the expected movement of cash in and out of the business over a period of time to help manage liquidity and plan for future cash needs.

working capital cycle

the period of time it takes for a business to convert its current assets and liabilities into cash. This cycle reflects how efficiently a company manages its working capital.