Income Statement
records the revenue, costs and profit (or loss) of a business over a given period of time
Gross Profit
Sales revenue - cost of sales
Revenue
total value of sales made by a business in a given time period = selling price × quantity sold
cost of sales
direct cost of goods that were sold during the financial year
Operating profit
Gross Profit minus overhead expenses
Profit for the year (profit after tax)
Operating profit - interest costs and corporation tax
Dividends
the share of the profits paid to shareholders as a return for investing in the company
retained earnings (profit)
The profit left after all deductions, including dividends, have been made. This is 'ploughed back' into the company as a source of finance
Low quality profit
One-off profit that cannot easily be repeated or sustained
High quality profit
Profit that can be repeated and sustained
Non-current assets
assets to be kept and used by the business for more than one year. Used to be referred to as 'fixed assets'
Intangible assets
items of value that do not have a physical presence, such as patents and trademarks
current assets
Assets likely to be changed into cash within a year before next balance sheet date
Inventories
stocks held by the business in the form of materials, work in progress and finished goods
Trade receivables (debtors)
the value of payments to be received from customers who have bought goods on credit
Current Liabilities
debts of the business that must be paid within the next accounting period within one year
Accounts payable (creditors)
Value of debts for goods bought on credit payable to suppliers. Also known as trade payables
Non Current Liabilities
value of debts of the business that will be payable after more than one year
Statement of financial position (balance sheet)
An accounting statement that records the values of a business's assets, liabilities and shareholders' equity at one point in time
Shareholders' Equity
total value of assets - total value of liabilities
assets
an item of monetary value thatvis owned by business
liability
Financial obligations a business that it is required to pay in the future
Share capital
The total value of capital raised from shareholders by the issue of shares
intellectual capital or property
the amount by which the market value of a firm exceeds its tangible assets less liabilities - an intangible asset
Goodwill
Arises when a business is valued at or sold for more than the balance sheet value of its assets
Cash Flow Statement
record of the cash received by a business over a period of time and the cash outflows from the business
Gross Profit margin
This ratio compares gross profit (profit before deduction of overheads) with revenue. Gross Profit margin %= (gross profit ÷revenue)×100
Operating Profit Margin
This ratio compares operating profit (formerly this ratio was referred to as the net profit margin) revenue operating profit margin %=( operating profit÷ revenue) ×100
liquidity
ability of firm to pay its short term debts
current ratio
current assets/current liabilities (liquidity)
Acid Test Ratio
liquid assets/current liabilities
liquid assets
current assets - inventories (stock)
window dressing
presenting the company accounts in a favorable light - to flatter the business performance
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