Analysing financial performance

Income statement
Revenue-Expenses =profit/loss
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Revenue
Qty sold x price
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Cost of sales
Costs of factors of production
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Gross profit margin
Gross profit/revenue x 100
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Operating Profit
Gross profit - selling expenses + admin expenses
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Profit for year
Operating Profit-Finance Costs
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Net Profit Margin
Gross profit/Revenue
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Capital
Assets- Liabilities
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Current Ratio's
Current Assets/Current Liabilities
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Acid Test Ratio
Current Assets- Inventory / Current Liabilities
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Working Capital
Current Assets- Current Liabilities
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Net Assets
Fixed Assets + Working Capital
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ROCE
operating profit/ Capital employed x 100
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Gearing Ratio
Non-Current Liabilities/ non-current liabilities +equity b
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Assets definition
Owned by or owed to a business
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Current Assets definition
Short term/ less than one year and fluctuate regularly
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Liabilities Definition
Owed by a business. Essentially debt
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Current Liabilities definition
Short term / less than a year
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Non-Current Liabilities Definition
Long term / More than a Year.
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Equity Definition
Owners investment in a business
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Trade Receivables Definition
Owed by a Customer because they're buying products on a credit basis.
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Average Rate of Return Formula
Average Annual Return/ Initial Outlay x 100
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Average Annual Return Formula
Total Net Cash Flow/ The number of years.
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Capital Employed Formula
Non-Current Liabilities + Capital or Equity
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net present value formula
Net Cash flow x discount factor for that year.
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Define Payback Period.
The payback period is the time it takes for the project to pay back the initial outlay.
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Payback formula
Take the total or cumulative cash flow figure and take it away from the initial cost of the investment. Find the monthly cash flow for the final year - divide cash flow for the year by 12.
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Average Rate of Return Definition
The average rate of return method measures the average net return every year with the cost of the investment. The ARR is expressed as a percentage allowing for a straight forward comparison between different investment options.
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Discounted Cash Flow Definition
The discounted cash flow method of investment appraisal takes into account the time value of money (i.e. the realisation that the value of money changes over time).
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Identify some qualitative Factors influencing Investment Appraisal?
• Does the investment match the strategy and objectives of the business?Action of competitors. Are they investing/ improving their products• Availability of new technology. New technology is one of the main factors that encourage further investment
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Define Investment Appraisal?
The process of analysing the financial merits of a possible future investment.
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Other cards in this set

Card 2

Front

Qty sold x price

Back

Revenue

Card 3

Front

Costs of factors of production

Back

Preview of the back of card 3

Card 4

Front

Gross profit/revenue x 100

Back

Preview of the back of card 4

Card 5

Front

Gross profit - selling expenses + admin expenses

Back

Preview of the back of card 5
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