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20 Cards in this Set
- Front
- Back
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Four questions to ask about business's financial statements. |
Is it profitable? Is it earning a good return for owners? Is it solvent? Is it liquid? |
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2 questions to see if business is sustainable. |
Does it exercise good internal control? Does it exercise responsible citizenship? |
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Why differences occur between intended and actual markup (4) |
Too liberal with discounts Poorly controlled seasonal sales Mistakes in marking prices on stock Mistakes in books or on source documents |
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% Return on owner's equity calculation and type of indicator |
( Net profit / average OE ) x 100 Return indicator |
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What to consider before closing down business |
Future prospects of growth Safety/risk of other investments Rates of return on investments in money market General conditions of economy |
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Amount earned by partner and type of indicator |
Primary distribution + share of remaining profit or - share of remaining loss Return indicator |
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% return earned by each partner and type of indicator |
( amount earned by partner / partner's average OE ) x 100 Return indicator |
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Solvency indicators (2) |
Net assets Solvency ratio |
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Net assets and type of indicator |
Assets - liabilities = OE
Solvency indicator |
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Solvency ratio and type of indicator |
Total assets : total liabilities Solvency indicator |
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What must be done to have good control over working capital? (4) |
-Must be enough cash to settle current debts -Stock sold in reasonable time period -Cash collected from debtors in reasonable time period -Any surplus liquid funds not immediately required are invested |
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Net working capital calculation and type of indicator |
Current assets - current liabilities = net current assets/working capital
Liquidity indicator |
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Current ratio and type of indicator |
Current Assets : Current Liabilities Liquidity indicator |
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Why high current ratio could be bad for business. |
Excess funds tied up in current assets (eg. Stock and debtors), not earning return for business like investments do. |
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Acid-test ratio and type of indicator |
(Current Assets - Inventories) : Current Liabilities Liquidity indicator |
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Stock turnover rate and type of indicator |
Cost of sales ÷ average stock (note: average stock = (OS + CS) ÷2) Liquidity indicator |
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Stock holding period and type of indicator |
(Average Trading Stock ÷ COS) x 365 Liquidity indicator |
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Debtors collection period and type of indicator |
(Average debtors ÷ credit sales) x365 Liquidity indicator |
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Creditors payment period |
(Average creditors ÷ credit purchases) x 365 (note: if not given credit purch, use COS)
Liquidity indicator |
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Gearing ratio and type of indicator |
Non-current liabilities : owner's equity Gearing / Risk indicator |
