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Leah Powell 11R

Finance revision notes

Key words:
Cash ­All money in your business
Profit ­All money you have after you have paid your bills
Loss ­The difference between total revenue and total cost, where revenues are higher
than costs.
Insolvent ­When a business can no longer pay its debts…

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Leah Powell 11R

Long term liabilities Those liabilities which are borrowed for a longer time e.g. bank
Working capital The term given to the money which is available for the daytoday
running of a business. It is used to pay bills such as creditors and wages and expenses

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Leah Powell 11R

...Employees would not continue to work there if they were not getting paid their
...It saves the business from borrowing money all the time.

Purpose of cash flow
To enable the owner/manager to plan the firm's expenditure.
It shows when loans should be repaid.
It sets…

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Leah Powell 11R

4.3 Interpretation of accounts using ratios
Who would be interested in this information?
Owners and managers to study the accounts
The firm's bank
Tax authorities and employees of the business all have their own reasons for
watching its progress.

By reading the final accounts and balance sheet…

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Leah Powell 11R

On the other hand, if the business deals in goods which are low value e.g.
vegetables ­ it will make a large number of sales but each would be a small sum.
Stock of perishable goods would be replaced every working day.

Return on capital employed (ROCE)…

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Leah Powell 11R

Acid test ratio
This ratio measures if a business is able to pay its current debts without having to
sell some of its stock.

4.4 Breakeven
From a breakeven point you can tell whether a business is making a profit or a
If the business can…

Page 7

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Leah Powell 11R

2. Fixed cost is assumed to never change. This is not always the case. Some
circumstances such as greatly increased production might mean taking on a new
premises which could increase the rates.
3. Sales are not always at a constant level. Businesses sometimes have to offer…


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