Finance 3.4 Final accounts

Target price

the retail price for which a producer hopes to sell a product that is currently being developed

Target profit

the amount of net operating income or profit that management desires to achieve at the end of a business period

Shareholders

Final accounts for these people are used to assess the safety of their investment; want to make worthwhile returns on their investments

Managers

Final accounts give them information to set target and judge/compare performance within a particular financial year or number of years

Employees

Final accounts matter to them because it indicates information about their jobs

Customers

final accounts matter to them because it helps them negotiate better cash or credit terms with firms; they can either extend the trade credit period or demand immediate cash payments

Competitors

final accounts matter to them because it will allow them to assess how they are performing financially

Financiers

(banks, lenders); final accounts matter to them because it will check on the creditworthiness of the business to establish how much money they can lend it

The local community

final accounts matter to them because they will want to know the business's profitability and expansion potential

Profit and loss statement

shows the record of income and expenditure flows of a business over a given period of time

Cost of Goods Sold (COGS)

the direct cost of producing or purchasing the goods that were sold during that period

Gross profit

found by deducting cost of goods sold from sales revenue

Net profit before interest and tax

the difference between gross profit and expenses

dividends

a sum of money paid to shareholders decided by the board of directors of a company

Income statement

AKA profit and loss statement/account; shows the records of income and expenditure flows of a business over a given time period; establishes whether a business has made a profit or loss and how it was distributed at the end of the period

Retained profit

the amount of earnings left after dividends and other deductions have been made

Non-current assets

long-term assets that last in a business for more than 12 months; can include: buildings, equipment, vehicles, and machinery

Current assets

short-term assets that last in a business for up to 12 months; include cash, debtors, and stock

Net assets

Total assets minus total liabilities of an individual or company; also called shareholders' equity or net worth

Non-current liabilities

long-term debts or borrowings payable after 12 months by the business

Current liabilities

short-term debts that are payable by the business within 12 months;

Equity

includes share capital and retained profits

Share capital

money raised from the sale of shares of a limited company

Working capital

the capital of a business that is used in its day-to-day trading operations, calculated as the current assets minus the current liabilities

Profitability ratio

ratios that asses the performance of a firm in terms of profit-generating ability

Gross profit margin

calculated by dividing the gross profit by the sales revenue, expressed as a percentage

Net profit margin

calculated by dividing the net profit before interest and tax by the sales revenue, expressed as a percentage