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13 Cards in this Set
- Front
- Back
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Name three possible cash flow objectives. |
Possible cash flow objectives could be... - reducing borrowings to target level. - minimise interest costs. - reduce average debtor days to target. - reduce seasonal swings in cash flow. - net cash flow as a % of net profit. |
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Give an example of an internal influence on financial objectives.
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Internal influences on financial objectives can include business ownership, size and status of the business and other functional objectives.
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Give an example of an external influence on financial objectives.
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External influences on financial objectives can include economic conditions, competitors and social and political changes.
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What us the difference between a balance sheet and a profit-loss account?
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The difference between a profit-loss account and a balance sheet, is that a profit-loss account is to do with the long-term, and balance sheets are short-term (often daily).
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What is the formula for the acid test ratio?
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Acid test ratio [formula]: (Current assets - stock) / Current liabilities.
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How do you calculate gearing ratio?
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Gearing ratio (%): (Loan capital / Capital employed) x 100.
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Name one advantage and one disadvantage of gearing.
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Advantages of gearing: - enables possibility of rapid expansion. - magnification of profits. Disadvantages of gearing: - higher fixed costs. - higher interest rates. |
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What is an ideal (/targeted) gearing level?
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A targeted gearing level could be in the region of 20%.
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What do liquidity ratios assess?
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Liquidity ratios assess whether a business has sufficient cash or equivalent current assets to be able to pay its debts as they fall due.
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What is the formula for current ratio?
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Current ratio: Current assets / Current liabilities.
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What ratio, based on the current ratio, would suggest that the management of the business' working capital is efficient?
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A ratio of 1.5-2 would suggest efficient management on working capital.
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What is the formula for gearing (%)?
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Gearing (%): (Long-term liabilities / Capital employed) x 100.
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Name one way in which you can reduce gearing and increase gearing.
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Reduce gearing: - focus on profit improvement (e.g. cost minimisation). - repay long-term loans. - retain profits rather than pay dividends. - issue more shares. - convert loans into equity. Increase gearing... |
