Financial Strategies and Accounts

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Financial Strategies and Accounts: Acid Test Ratio
A liquidity ratio that looks at whether a business can pay for current liabilities out of cash and near-cash assets (it ignores the value of stocks)
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Asset Turnover
A ratio that calculates the relationship between revenues and the total assets employed in a business
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Amounts owned by, or owed to a business
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Average Rate of Return
A measure of the total accounting return from an investment project
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Balance Sheet
The financial statement that provides a snapshot of the assets and liabilities of a business at a particular date
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Capital Expenditure
Expenditure on assets which are intended to be kept in the business (e.g. IT systems, machinery) rather than sold or turned into products
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Cash Flow Targets
Specific objectives set by a business for cash-flow generated by a business
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Cooperation Tax
The tax levied on the profits of companies. The percentage varies depending on the size of the profits earned; typically 20-30%
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Cost Minimisation
A strategy of achieving the most cost-effective way of delivering goods and services to the required level of quality
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Creditor Days
A ratio that estimates the average period (in days) taken to settle amounts owed by a business to suppliers
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Current Ratio
A simple and popular measure of liquidity that assess the ability of current assets (e.g. cash, stocks) to finance current liabilities (e.g. trade creditors)
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A long-term source of finance – a debenture is a form of bond or long-term loan issued by a company
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Debtor Days
A ratio that focuses on the average time it takes for trade debtors to settle their accounts. Usually measured in days
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An accounting estimate of the fall in value of a fixed asset over time
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Discount Factor
The multiplication factor that converts a projected cost or benefit in a future year into its present value
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Amounts paid to shareholders out of the profits earned by a company.
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Dividend Yield
A measure of shareholder return – calculated by comparing the dividend per share by the share price
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Fixed Assets
Assets such as property, equipment and vehicles that are intended to be retained and used in a business for more than one year
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A ratio that focuses on the long-term financial stability and capital structure of a business. The gearing ratio measures the proportion of assets in a business that are financed by borrowing
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Going Concern
A business that is viable and able to continue in business for the foreseeable future
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An intangible asset that can be included in a balance sheet = the difference between the net assets of a business acquired and the price paid for the business
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Income Statement
A financial statement that summarises the trading results of a business over a specific period – usually one year
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Investment Appraisal
Analytical techniques to help management evaluate the returns from potential investments, and to help choose between competing investments
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Amounts owed by a business to others
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The ability of a business to finance required payments to creditors
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Net Present Value
The present value of a series of future net cash flows that will result from an investment, minus the amount of the original investment
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Operating Profit
The profit earned by a business from its entire trading operations – stated before financing (e.g. interest) and tax
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Where a business suffers financial difficulties from expanding too quickly – usually suffering set-up losses and increased working capital
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Payback Period
The time it takes for a project to repay its initial investment
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Profit Centres
A separately-identifiable part of a business for which it is possible to identify revenues and costs and calculate a relevant profit
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Profit Quality
The sustainability of profit from one period to the next. Higher quality profit is profit that is likely to be repeated rather than affected by one-off items
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The amount of profit earned in a period (absolutely measure) or rate of profit earned compared with revenue (relatively measure)
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Amounts set aside to cover future costs or liabilities (e.g. redundancies, business closures, legal disputes)
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Ratio Analysis
Interpretation of financial performance by calculating and interpreting ratios
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Retained Earnings
Profits earned by a business that are kept in the business rather than distributed as dividends
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Revenue Expenditure
Spending on day-to-day operation of the business – e.g. paying for materials, staff costs, management salaries, advertising
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Rights Issue
The issue of new shares to existing shareholders in order to raise new finance. The new shares are usually offered at a significant discount to the existing share price to encourage take-up
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A measure of the percentage return that a business earns from the capital employed in the business. Often referred to as the “primary ratio”
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Share Capital
The amount invested into a company by shareholders
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Shareholder returns
The rewards earned by shareholders = dividends paid to them + any increase in the value of their shares
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Stock Turnover
A liquidity ratio that looks at how often a business rotates its stock during a year
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Trade Creditors
Amounts that a business owes to its suppliers
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Trade Debtors
Amounts that are owed to a business from its customers
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Working Capital
The net amount invested by a business to finance day-to-day trading: usually calculated as current assets less current liabilities
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Card 2


A ratio that calculates the relationship between revenues and the total assets employed in a business


Asset Turnover

Card 3


Amounts owned by, or owed to a business


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Card 4


A measure of the total accounting return from an investment project


Preview of the back of card 4

Card 5


The financial statement that provides a snapshot of the assets and liabilities of a business at a particular date


Preview of the back of card 5
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