Service Firms Theory
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These flashcards cover key concepts from the Service Firms Theory and Accounting lecture, including the purposes of preparing accounts, financial ratios, and arguments related to loan applications.
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5 Terms
Why do firms prepare accounts?
To calculate profit, assess effectiveness, attract investment, and calculate tax liability.
What is gearing in the context of lending?
Gearing refers to the firm's level of long-term loans; lower gearing indicates a more favorable condition for lenders.
What does the acid test ratio of >1:1 indicate?
It indicates that the firm is liquid and can easily meet future interest charges.
What is the proposed purpose of the loan discussed?
To update the IT system to enhance company efficiency.
What security is offered to cover loans?
Fixed assets and investments