3.5
The ability of a firm to pay its short-term debts.
What is liquidity?
Reveals degree to which a business is financed by loan capital.
What is Gearing Ratio?
When a business cannot meet its short term debts.
What is insolvent?
Evaluating the profitability or desirability of an investment object.
What is investment appraisal?
A detailed financial plan for the future.
What is a budget?
Liquid assets divided by current liabilities.
What is the acid test ratio?
Measures average number of days a business takes to repay its creditors.
What are creditor days?
Unpaid customers’ bills that are now very unlikely ever to be paid.
What is bad debt?
Forecasted cash inflow minus forecasted cash outflows.
What is annual forecasted net cash flow?
Exists when the difference between the budgeted and actual figure leads to a higher than expected profit.
What is favorable variance?
The most commonly used means of assessing the profitability, often referred to as the primary efficiency ratio.
What is Return On Capital Employed (ROCE).
Measures how many times stock needs to be replaced in a given time period or how many days it takes to sell its stock
What is inventory/stock turn over?
Expanding a business rapidly without obtaining all of the necessary finance so that a cash flow shortage develops.
What is overtrading?
Today’s value of the estimated cash flows resulting from an investment.
What is net present value (NPV)?
Exists when the difference between the budgeted and actual figures leads to a lower than expected profit.
What is adverse variance?
Profitability, liquidity ratios, liquidity ratios, and financial efficiency ratios (HL only).
What are the accounting ratios?
Measures the number of days it takes on average for a firm to collect its debts from customers it has sold goods to on credit.
What are debtor days?
Reducing cash outflows, improving cash inflows, and sourcing additional finance.
What are strategies for dealing with cash flow problems?
Measures the annual profitability of an investment as a percentage of the initial investment.
What is the Average Rate of Return (ARR)?
The process of investigating any differences between budgeted figures and actual figures.
What is variance analysis?
Increase gross and net profit margin by reducing direct costs, increasing price, and reducing overhead costs.
What are strategies to improve profit margin ratios?
Used to measure how well an organisation uses its resources and available capital to generate income.
What are efficiency ratios?
Lack of planning, poor credit control, and allowing customers too much credit.
What are cash flow problems?
Annual profit (net cash flow) divided by initial capital multiplied by 100.
What is Average Rate of Return (ARR%)?
Incremental budgeting and zero budgeting.
What are budgeting levels?