Finance
Terms
Terms
What does Liquidity mean in business
The ability of a business to pay back its short-term loans
Name two components of an income statement
Revenue and expenses
What is the formula for Current Ratio
Current assets / Current liability
Is retained profit an internal or external source of finance
Internal
What is the break even point
The level of sales at which total revenue equals total costs
What does GPM stand for
Gross Profit Margin
What is the formula for gross profit
Revenue - COGS
If a business has 8k in current assets and 4k in current liabilities what is current ratio?
2:1
What is the advantage of using retained profit
No interest needs to be paid
what is contribution per unit
Selling price-variable cost per unit
Define Working capital
The ability of your capital to work for you. Current Assets-Current Liabilities
If sales are 10k and GOGS is 6k what is gross profit?
4k
Why is inventroy excluded in the acid test
It is not guaranteed to be sold within the year
Give one short term source of finance
Bank Overdraft
WHat do businesses calculate break-even
To help decide how much to sell to cover cost
What is the calculation for net profit
Gross Profit-expenses
Why would a business want a high net profit margin
I shows that a business keeps more profit from it's revenue
What is a good current ratio range for most businesses
1.5-2
Why might a business use trade credit
To manage cash flow
What does ARR stand for
Average Rate of Return
What does ROCE measure
Return on Capital Employed- the profitability of capital invested
Give one reason a business might have a high revenue but low net profit
High operating expenses, rent or wages
What does a current ratio below 1:1 suggest
The business may be struggling to pay back its current liabilities
What is a potential risk of relying on overdrafts
High interest rates or being called in by the bank
How might financial information help make decisions
It helps to evaluate profitability, liquidity, and risk