2.3 Managing Finance
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12 Terms
gross profit
profit made after subtracting cost of sales from sales revenue
operating profit
profit made after deducting operating expenses from gross profit
net profit
final profit after all expenses
difference between profit and cash
profit - revenue minus costs
cash - money available in the bank
liquidity
availability of a business to meet short term debts
current ratio measures?
whether a business has enough current assets to cover current liabilities
acid test ratio
measuring ability to pay short term debts without relying on assets
why are inventories removed
stock may take time to sell and not generate cash quickly
current ratio below 1 suggests?
current liabilties are greater than current assets so liquidity problems may exists
ways to improve liquidity
encourage cash sales
reduce short term debts
working capital
money available for the day to day runnings of the business
how could poor cash flow cause failure
businesses cannot pay suppliers/workers causing disrupcy