Last minute need to knows...

Production formula

Sales - Opening Inv + Closing Inv

Contribution per unit

Sales revenue - Variable costs

Break even (units)

Fixed costs / Contribution per unit

Business entity

Personal and business transactions should be kept separate

Money measurement

Only transactions that have a monetary value can be recorded in the accounts

Cost

Assets recorded at cost not what they are worth

Realisation

Only including transactions that have taken place not ‘promised to’…

Consistency

Once method is applied to calculating transaction, should be used consistently in the future

Materiality

Some NCA so low in value can be written off as expenses and not recorded in the NCA

Accruals

Record and include transactions to when they occur and not when paid

Prudence

Means to be cautious, too not overestimate assets or profits.

Going-Concern

The expectation that the business will continue into the foreseeable future

Duality

Every transaction has a dual effect. Dr then Cr.

Net Realisable Value

New selling costs (-) any costs required to sell

Any Expense

DR

Last Yr PP (Bal Bd)

Bank (amt. paid)

CR

Last Yr ACC

Transfer to I.S.

Any Income

DR

Last Yr ACC

Transfer to I.S.

CR

Last Yr PP

Bank

Gross Profit margin

Gross profit/ Revenue x 100

Gross Profit Mark-Up

Gross profit/ COS x 100

Profit in relation to revenue

Profit for the year/ Revenue x 100

Return on capital employed (Sole-trader)

Profit for the year/ Capital employed x 100

Return on capital employed (Limited Companies)

Profit from operations/ Capital employed x 100

Current ratio

Current assets + Inventory/ Current liabilities

Liquid capital ratio

Current assets - Inventory/ Current Liabilities

Earnings per share

Profit after tax/ Number of issued ordinary shares

Earnings per share shows…

• Profit earned per share (usually in pence)

• Higher EPS - better for share holders

• Compare with previous years for trend

Price/ earnings ratio

Current market price/ Earnings per share

Price/ earnings ratio shows…

• Investor confidence in future performance

• Higher PE - expected future growth

Dividend Yield

Dividend per share/ Market price per share x 100

Dividend per share shows…

• Annual % return from dividends

• Compare with other investments (e.g. bank interest)

• Higher Yield - better return

Dividend Cover

Profit after tax + interest/ Ordinary share dividends paid

Dividend cover shows…

• How many times profit covers dividends

• High cover - Re-investment, Low cover - Generous dividends

Interest cover

Profit before tax + interest/ Interest payable

Interest cover shows…

• Ability to pay interest

• Higher - safer for shareholders and lenders

• Linked to gearing ratio

Dividend per share

Annual ordinary dividend/ Number of issued ordinary shares

Dividend per share shows…

• Actual dividends per share

• Compare with market price for real return

Rate of inventory turnover

Cost of sales/ Average inventory

Rate of inventory turnover shows…

High Inventory turnover

• Selling quickly

• Strong sales demand

• Efficient inventory management

• Less money tied up in stock

Low Inventory Turnover

• Slow-moving stock

• Weak sales

• Overstocking

• Cash tied up in Inventory

Incremental budgeting

Benefits of incremental budgeting