Vocabulary
what are ratios?
Ratios are ways and methods to compare data. They can be portrayed can be percentage (%) or a ratio
Mention a strategies to improve the gross profit margin
- Selling in different markets
- Reduce the cost of sales
- Increase sales revenue
mention a strategy to improve either acid-test or current ratios
- Sell assets / raise long-term loans
- Delay capital payments
- Pay off current liabilities
- Negotiate better credit terms with suppliers/customer
What is window dressing?
Window Dressing: is a technique to manipulate financial statements and reports to show more favorable results for a period.
What does ROCE stand for, and why is it important?
Return on Capital Employed
It measures how efficiently a business uses its capital to generate profit.
Why is the acid-test ratio often considered more reliable than the current ratio?
Because it excludes stocks, which take time to sell
Define liquid assets and give an example
items owned by a business that can be converted into cash.
- shares
- goverment bonds
difference between gross profit and gross profit margin?
Gross profit is the actual money a business makes after subtracting the cost of sales, while gross profit margin shows that profit as a percentage of sales revenue.
What does an acid-test ratio of 0.7:1 mean, and why have business successfully operated under it?
The firm has only $0.70 of liquid assets per $1 of short-term debt, but efficient operations and a strong cash flow make it manageable.