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40 Cards in this Set
- Front
- Back
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Assets= |
Assets = liabilities + equity |
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ROCE (Return on capital employed)= |
ROCE = operating profit / (equity funds + non current liabilities) |
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ROCE = operating profit margin * net asset turnover |
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Working capital= |
Working capital = current assets - current liabilities |
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Net Asset Turnover= |
Net Asset Turnover = turnover / (equity + non-current liabilities) |
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Operating profit margin= |
(aka return on sales) Operating profit margin = operating profit / turnover |
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Current ratio= |
Current ratio = Current assets / current liabilities (quote as -> Ans:1) |
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Interest cover= |
Interest cover = operating profit/interest payable |
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Gearing= |
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Absorption costing/product costing |
Absorption costing is the way a business will be able to obtain the production cost for its output, that is the direct costs plus indirect production overheads |
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Product costs |
costs that are attached to the products and therefore included in the inventory (stock) valuation |
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Direct costs |
Direct costs of a cost object are those that are related to a given cost object (product, department, etc.) and that can be traced to it in an economically feasible way |
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Prime cost |
the accumulation of all the direct costs |
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Indirect costs |
related to the particular cost object but cannot be traced to it in an economically feasible way |
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ROCE ? |
The ROCE indicates how successfully the managementare using the funds provided to them fromshareholders and debentures holders. |
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Net asset turnover ? |
The net asset turnover figure can be compared over time and against companies in the same industry to assess if management are utilising the resources at there disposal to generate revenue.But a large component of assets are non-current assets which are subject to depreciation and therefore a company with old assets will have a low figure for assets. But when those assets are initially replaced or in an expansion the asset figure will be high.Investment in assets may not translate to increased revenue immediately turnover. There may be a time lag between an investment and an improved net asset turnover ratio. |
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Gross profit margin ? |
Indicates how profitable the core business is.The only expense category in gross profit is cost of sales. |
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Inventory days= |
(Closing Inventory x 365 days) / Cost of sales |
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Trade receivable days= |
(Closing Trade receivables x 365 days) / Revenue |
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Trade payable days= |
(Closing Trade payables x 365days) /Cost of sales |
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Quick ratio= |
(Current Assets – Inventory) / Current Liabilities |
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Dividend cover |
Profit for the year / Dividend
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Period costs |
non-manufacturing costs such as training, advertising and invoice (debt) collection. Period costs are not attached to the products and are not included in the inventory (stock) valuation.All period costs will be recorded as an expense in the current accounting period. |
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Product vs Period costs |
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Demand |
The amount of a good or service that a consumer is willing and able to buy at a set price at a given point in time. For most goods if the price of a good goes up there will be less demand |
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Supply |
The amount of a good or service that producers are willing and able to sell at a set point in time. For most suppliers if the price goes up more will be supplied |
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market equilibrium |
The market price will be the point where the demand and supply curve intersect. |
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Market pricing is relevant... |
for those goods and services where there are a large number of buyers and sellers, with lots of similar products. |
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Target Cost= |
Target Cost = Market Price − Desired Profit |
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Variable costs |
vary in direct proportion with activity |
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Fixed costs |
remain constant over wide ranges of activity (i.e., do not change in total for a given time period despite wide changes in the related level of total activity or volume). |
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Contribution |
Contribution is sales price – variable costs. The amount that remains after deducting variable cost from sales revenue Contribution = sales price – variable costs |
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Assets |
Assets are resources that are controlled by an entity as a result of a past transaction that are expected to bring economic benefits, (generate profits). Assets can be split into two categories: Non-current assets – are to be owned for longer than 12 months. Land &building Current assets – owned at the reporting date but are to be used by the business to make profits in the next 12 months. Eg Inventory |
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Liabilities |
A liability is an obligation of an entity arising from a past event the settlement of which involves the transfer of resources, (an amount owing by the business). Liabilities can be split into categories: Non- Current – the payment of liability is due after 12 months Bank loan Current – the payment of the liability is due within the next 12 months. Trade payable |
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Net present value |
aggregate of a set of cash inflows and outflows forecast to take place at future dates, discounted to present value. Present value is the discounted value at the present time of cash flow expected to arise in the future |
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Payback period |
The payback period is the length of time it takesfor an initial investment to be repaid out of the netcash inflows from a project. (estimating the length of time it will take for cash flows to cover the initial investment outflow) |
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Accounting rate of return (ARR) |
ARR = Average expected return (accounting profit) / Average capital employed/investment *100% |
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break-even point |
break-even point is where total costs = total revenue BEP (units) = Fixed costs/contribution |
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Margin of safety |
Margin of safety is the excess number of units sold over break-even point. |
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Break-even analysis |
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