AQA Unit 3 finance and accounts formulas and calculations a level

these are the formulas and how to interpret the answers for:

  • liquidity ratios
  • efficiency ratios
  • profitability ratios
  • shareholders ratios
  • investment appraisal

however it is not ALL of the finance and accounts part so make sure you don't just revise off this :) 

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AQA A LEVEL BUSINESS STUDIES UNIT 3
FINANCE AND ACCOUNTS CALCULATIONS + RATIOS
THOSE WITH * * ARE NOT ON THE FORMULAE SHEET AT THE
BEGINNING OF THE QUESTION PAPER THEREFORE NEED
LEARNING IN ADVANCE

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LIQUIDITY RATIOS - CURRENT RATIO
Measures the ability of a business to meet it's liabilities or debts over the next year or so.
Current assets
Current liabilities
Eg. If the answer is 0.83:1, the company would only be able to pay off 83p per £1 of debt.
1.5:1 is ideal
5:1 is not ideal as the cash could be doing something else
1:1 would mean that they have the exact amount on money to pay their debt
Firms with high current ratio values (eg.…read more

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LIQUIDITY RATIOS - ACID TEST
Measures the short term liquidity of a business/the ability of a firm to pay it's bills over a
period of two or three months without requiring the sale of stock. It provides a more
accurate indicator of liquidity than the current ratio as stock can take time to sell.
Current assets - stock
Current liabilities
Eg. If the answer is 0.…read more

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LIQUIDITY RATIOS - GEARING
Gearing measures how much of the capital employed is borrowed.
non-current liabilities x 100%
total equity + non-current liabilities
Over 50% is considered high
This measure of a business's performance is important because by raising too high a
proportion of capital through fixed interest capital firms become vulnerable to interest
rates.…read more

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EFFICIENCY RATIOS ­ ASSET TURNOVER RATIO
Measures a business's sales in relation to the assets used to generate these sales.
sales (revenue/turnover)
net assets
It is difficult to give a standard figure for this ratio as it varies significantly according to the
type of business. A business with high sales and relatively few assets (eg. supermarket) might
have a high asset turnover and earn low profits on each sale.…read more

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Income statement
EFFICIENCY RATIOS ­ STOCK TURNOVER RATIO
Measures a company's success in coverting stock into sales by comparing the value of
stock with sales achieved valued at cost. This ratio is only relevant to manufacturing
businesses, as firms providing services do not hold significant quantities of stock. The stock
turnover can be reorganised to express the number of days taken on average to sell the
business's stock.…read more

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Balance sheet
Income statement
EFFICIENCY RATIOS ­ DEBTORS COLLECTION PERIOD
Also referred as debtor days, calculates the time typically taken by a business to collect the
money that is owed. The answer is in days.
debtors x 365
turnover
This is an important ratio because granting customers lengthy periods of credit may result in
a business experiencing liquidity problems. There is no standard figure for this ratio, in
general a shorter figure is preferred as the business in question receives cash more quickly.…read more

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What is needed:
Balance sheet
Income statement
*PROFITABILITY RATIOS ­ GROSS PROFIT MARGIN*
Compares the gross profit achieved by a business with its sales turnover. Gross profit is
earned before direct costs such as administration expenses are deducted. The ratio
calculates the percentage of the selling price of a product that constitutes gross profit. The
answer is expressed as a %.
gross profit x 100
turnover
The gross profit varies depending upon the type of industry.…read more

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Alternatively,
reducing direct costs will also improve the figure.
What is needed:
Income statement
*PROFITABILITY RATIOS ­ NET PROFIT MARGIN*
Calculates the percentage of a product's selling price that is net profit (ie. After all the
costs have been deducted). Because this ratio includes all of a business's operatin
expenses, it may be regarded as a better indication of performance than gross profit
margin. To answer is expressed as a %.…read more

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Improvements in the net profit margin may be achieved
through higher selling prices or tighter control of costs, particularly indirect costs.
What is needed:
Income statement
PROFITABILITY RATIOS ­ RETURN ON CAPITAL EMPLOYED
A vital ratio comparing the operating profit earned with the amount of capital employed
by the business. The result of this ratio, which is expressed as a %, allows an assessment to
be made of the overall financial performance of the business.…read more

Comments

Bilaal Ali

is there any chance you could upload this as a pdf. please?


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