Chapter 3 - Using Financial Data

HideShow resource information
View mindmap
  • Chapter 3- Using Financial Data
    • Main types of accounts
      • Financial accounts
        • Report the transactions of a business
      • Management accounts
        • Analyse and present financial data
        • Help decision making
        • Monitor performance
    • Key users of accounts
      • Investors
      • Creditors
      • Customers
      • Lenders
      • Competitors
    • Balance Sheets
      • Every financial transaction results in an equal change in assets or liabilities
      • Assets and Liabilities
        • Assets
          • Non-Current Assets
            • Owned longer than a year
            • Allow a business to operate continuously
              • Machinery
              • Buildings
              • Equiptment
              • Land
            • Intanglable non-current assets
              • Still have a value
              • E.g. Good will
            • Depreciation
              • Value on the balance sheet is an actual value of how much they're now worth
              • Annual depreciation appears as an expense
              • Untitled
          • Current Assets
            • Inventories
              • Least liquid
              • Valued at the cost they were bought
              • Stock obsolescence
                • Value should reflect what could be covered
            • Trade Receivables
              • Normally known as trade debtors
              • Amounts owed by customers
              • Late payment is common
              • Provision should be made for companies not expected to pay
            • Cash and Cash Equivalents
              • Most liquid
              • Balance sheets shows cash held at period end
              • Untitled
        • Liabilities
          • Current Liabilities
            • Money that is owed short term and paid back within the next twelve months
            • Trade and Other Payables
              • Amounts owed to suppliers
              • Take all the supplier credit available
              • Worth comparing level of trade payables
            • Short Term Borrowings
              • Balance on overdraft
              • Proportion that have to be repaid in next year
            • Current Tax Liabilities
              • Amount owed in tax to HMRC
              • Corporation tax
              • Income tax and VAT
            • Provisions
              • Allowences for future costs and liabilities
              • Based on 'prudence'
              • Examples
                • Potential costs of legal disputes
                • Costs of reorganisation
          • Non-Current Liabilities
            • Amounts that are owed, but not due to be paid in the next year
            • Equity
              • Share Capital
                • Cash raised by sale of new shares
                • Doesn't reflect change in share price value
              • Retained Earnings
                • Untitled
      • Working Capital (Net Current Assets)
        • = Current assets - Current liabilities
        • Provides an indication to whether it can pay short term debts
        • The day-to-day finance used in a business, consisting of current assets minus current liabilities
        • How much working capital?
          • Should be positive
          • E.g.
            • Dividends
            • Payables
            • Overdraft
        • Causes of Working Capital Problems
          • Failure to control inverntory
          • Poor control of:
            • Receivables
            • Payables
          • Poor control of
      • Calculations
        • Total Current Assets = Inventories + Receivables + Cash
        • Net Current Assets = Total Current Assets - Current Liabilities
        • Net Assets = Non Current Assets + Net Current Assets - Non current Liabilities
        • Total Equity = Share Capital + Reserves
    • Income Statement
      • Calculations
        • Gross Profit = Revenue - Cost of Sales
        • Operating Profit = Gross Profit - expenses+- Exceptional Items
        • Profit Before Tax = Operating Profit + Finance Income - Finance Cost
        • Profit For Year = Profit Before Tax - Taxation
      • A formal financial document that summarises a business' trading activities and expenses to show whether the business has made a profit or a loss
      • Analysis
        • Profit Utilisation
          • Depend on long/short term financial objectives
          • How profit after tax is used
            • % in Dividends
            • % in Retained profit
        • Profit Quality
          • Sustainability of profit figure
            • % from normal trading activity
            • % from non standard trading
    • Using Financial Data for Comparisons
      • Inter-Firm
        • Between different firms
        • Set ROCE targets
        • E.g. Tesco and ASDA
      • Intra-Firm
        • Within same firm
          • By Product
          • By Branch
      • Year on Year
        • Identify trends
      • Decision Making
        • Act as a constraint
        • Inform
    • Strengths and Weaknesses of Financial Data
      • Strengths
        • Plc accounts are audited so should be accurate
        • Detailed quantitative data
        • Ease of comparisons
        • Facilitates ratio analysis
      • Weaknesses
        • Potential for manipulation
        • Need to be considered in corporate/ functional objectives
        • Historical info
        • It's just a financial measure

Comments

No comments have yet been made

Similar Business Studies resources:

See all Business Studies resources »See all Financial Planning resources »