Business Accounting Ratios

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Gross profit
Gross profit
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Income Statement
records the profit/loss, revenue and expenses of the business during a period of time
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Cash flow Statement
record the cash recieved by the business over a period of time and the cash outflows from the business
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Balance Sheet
An accounting statement that records the value of a business's assets, liabilities and shareholders' equity at one point in time
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an item of mometary value that is owned by the business
Assets
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Liabilities
A fianancial obligation that business must pay in the future
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Gross profit margin
gross/sales turnover, this compares gross profit with sales turnover
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Acid-test ratio
a stricter test of busienss's liquidity, ignores the most illiquid current assets, inventories, the users of accounts are given a clearer picture of a firm's profitability to pay short term debts
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How can we improve profit margin
1. by reducing costs 2. by increasing price 3. by reducing overheads
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How can we improve liquidity
1. Sell of fixed asssets 2. Sell of inventories 3. Increase loan to inject to working capital
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How do we reduce cost of saels (costs of goods sold)?
1. using cheaper materials 2. Reduce worker's wage 3. Cutting labour costs by relocation 4. Cutting labour by increasing productivity
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How do we increas price?
1. raising price of the product with no significant increase in variable costs 2. increase price in advance
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How to cut overheads
1. Reduce promotion 2. Delayering the organisation 3. Moving to cheaper rental site
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Why sell of fixed assets quickly can be bad?
1. they might not raise true value when sold urgently 2. leasing charges might be add to overheads
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Why sell of inventories for cash might be bad?
reduce gross profit margin if sold at a discount, may doubt the image of the brand if they are sold off cheaply 3. might be needed to meet changing customer demand levels
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Evaluate increase loan way
Increase interest cost but increase the gearing ratio
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Other cards in this set

Card 2

Front

Income Statement

Back

records the profit/loss, revenue and expenses of the business during a period of time

Card 3

Front

Cash flow Statement

Back

Preview of the front of card 3

Card 4

Front

Balance Sheet

Back

Preview of the front of card 4

Card 5

Front

an item of mometary value that is owned by the business

Back

Preview of the front of card 5
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