Buisness

Capital expenditure

Spending money on a fixed asset

Fixed Asset

An item or property that has value, is owned by a person or business, and which the business plans on holding or using for longer than one year.

Non-Fixed

Assets which are used for less than a year.

Revenue Expenditure

Spending on a companies day to day spending

Business angel

A wealthy business person who invests their money into new businesses.

Venture capital

pools resources from a group of investors to fund new businesses.

fixed costs

Costs that say the same no matter the sales.

Variable costs

Costs per sales

Intangible assets

Assets with non-phyisical properties and a life span longer than a year.

Gross Profit Margin formula

Gross profit/Sales revenue *100

What is Gross profit margin?

The ratio of profit from sales after the costs.

How to improve GPM?

Diversifican, price change and economies of scale.

Profit Margin formula

Profit before sales tax and intrest/sales revenue * 100

Profit Margin meaning

Profatibility ratio that shows profit before interest and tax as a percentage of sales revenue. Gives more detail than GPM

Return on Capital employed formula

Profit before tax and intrest. Capital employed * 100

Capital employed formula?

non-current liabilites + equity

ROCE meaning?

Buisness profit before tax and interest before relative to the capital employed or used

Capital Emplyed meaning

Total amount of capital a firm uses to generate revenue

Current ratio formula

Current assets/ Current liabilities

Current ratio meaning

Calculates companies short term assets relative to long liabilities.

Eg: CR=3.5, for every 1$ in current liability, a buisness has 3.5 in current assets to cover those liabilities.

How to increase CR

Increase sales,reduce debtor figures, sell unused assets.

Acid Test meaning

the ability of a buisness to pay off its short term debts.

Eg: AT=2.5, buisness has 2.5$ worth of liquid assets per $ to pay off debt.

Working capital cycle

Funds available to the buisness to meet the needs for the day.

Gearing ratio

How much of a company is financed by long term debts. 25% - low, 50% - medium, 50+ - high

Debtor days

Avg. no of days it takes buisnesses to collect its debts.

Creditor days.

Avg. no of days it takes buisnesses to pay off debts.