Theme 2
Quiz yourself by thinking what should be in
each of the black spaces below before clicking
on it to display the answer.
Help!
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| show | Poor planning e.g. Inaccurate cash-flow forecasts/Inadequate resources
Badly organised e.g. Poor stock control/Inefficient labour/Bad customer service
Cash-flow/liquidity problems
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| What are the external causes of Business Failure? | show 🗑
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| What are profits? | show 🗑
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| What is the formula for profit? | show 🗑
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| What is a statement of comprehensive income? | show 🗑
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| show | Costs directly linked to the production of the goods or services sold e.g. raw materials
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| What is the formula for Gross Profit? | show 🗑
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| What is the formula for Operating profit? | show 🗑
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| show | Any unusually large or infrequent transaction
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| show | Operating profit - interest and taxation
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| show | Gross profit margin (GPM) is a measure of a firm’s profitability by looking at the relationship between gross profit and sales revenue
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| show | Gross profit x 100/ Sales revenue
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| What is Operating Profit Margin? | show 🗑
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| show | Operating profit x 100/Sales revenue
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| What is Profit for the End of Year? | show 🗑
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| What is the formula for Profit for the Year Margin? | show 🗑
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| show | That a firm is not managing its cost of sales effectively e.g. are the cost of raw materials increasing?
Sales are in decline
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| show | That a firm is not managing its expenses effectively e.g. wages are increasing or overheads are going up
Sales are in decline
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| show | Gross profit or operating profit are in decline
Interest rates have changed
Taxation rates have changed
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| show | Sell the same quantity but at a higher price
Sell more at the current price
Sell the same at the same price but reduce costs
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| show | Will you lose customers?
What price do competitors charge?
How loyal are your customers?
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| show | Will you gain new customers at a higher selling price?
Can you attract new customers from your competitors?
Is there a new market you can enter?
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| show | Will quality be affected?
Will image be tarnished?
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| Why might cash and profit be different? | show 🗑
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| show | A formal financial document that summarises the net worth of a business at a given point in time
It balances net assets with total equity
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| show | Likely to be kept by the business for more than one year e.g. Vehicles/Premises/Machinery
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| What are current assets? | show 🗑
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| show | Assets are items of value owned by a business
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| What are liabilities? | show 🗑
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| What are Non – current liabilities? | show 🗑
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| show | Debts that the business may have to repay within one year
Overdrafts
Accounts Payable (Creditors)
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| What is the formula for Net Assets/Net Worth? | show 🗑
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| What is the formula for Total Equity? | show 🗑
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| show | A measure of a firms short term survival i.e. its ability to meet short term debts and day to day expenses
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| What is the formula for the Current Ratio? | show 🗑
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| What is the formula for Acid Test Ratio? | show 🗑
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| Why is stock removed from the Acid Test Ratio? | show 🗑
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| show | For every £1 of Current Liabilities the firm owes it owns £0.716 in Current Assets
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| show | Sell assets that are no longer being used i.e. turn them from a non-current assets to a current asset (cash)
Switch to long term sources of finance
Monitor debtors to avoid bad debts
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| What is Working Capital? | show 🗑
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| show | Current assets – Current liabilities
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| show | Working capital answers the basic question if the firm had to pay off all its short term debts could it do so out of its short term cash resources i.e. inventories, payables and cash.
If not then it will have to sell non-current assets to pay its debts.
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| How does having a fast stock turnover affect the Acid Test Ratio? | show 🗑
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| show | In recent years the current ratio has begun to fall as many firms move towards Just In Time production techniques. They have less stock.
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| show | Large firms may be able to survive with low liquidity because they may be able to pressurise suppliers and delay payments
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Created by:
durquhart1
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