Unit 6 Recap Keeping Financial Records

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Unit 6 Re-capKeeping Financial Records

• Managing costs
• Importance of profit
• Break-even
• Cash flow
• Sources of finance
• Profit Loss Account
• Balance Sheet
• Using Financial Records
• Test

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Balance Sheet

• A financial document which shows a businesses
  assets and liabilities
• Shows wealth or value of the company at a
  particular time

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Working Capital current assets current
liabilities

• Working Capital Cycle Diagram on page 165
• Need for working capital
• To pay day to day bills
• Need materials/stock
• If business cant pay bills they may not get
  credit
• Lose orders not enough staff to produce goods

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Performance
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Key indicators
Net profit margins Gross profit margins ROCE
(Return on Capital Employed)

• Scores goals
• Fit keep on running
• Mark opponent

Current ratio Acid test ratio
Making comparisons E.g. Competition
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Current ratio Acid test ratio

• Current ratio Current Assets
• Current Liabilities
• Write down examples of current assets
• Write down examples of current liabilities
• Would a business want to have more current assets
  than current liabilities? Why?
• Examples
• Current liability bank overdraft 10,000
• Current assets stock 15,000, cash 500

7

• Current ratio page 166
• What should the typical current ratio be?
• Give an example of an exception and explain why.
• What is the Current Ratio Equation?

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Acid test ratio

• Same as the current ratio stock
• Gives a better measure of working capital
• Because stock could take a long time to sell
• Acid Test Ratio Current assets stock
• Current liabilities
• Higher the ratio the safer the business

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Working Capital Ratios (Liquidity Ratios)

• Current Ratio
• Acid Test Ratio
• Page 166 Jarvis Porter / Coral Products

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Profit and Loss Account
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Judging a businesses performance!!!!

• Read about Gross Profit Margins Net Profit on
  page 168 169
• Write down the definition of Gross Profit Margin
  (GPM) Net Profit Margin (NPM)
• Write down how you would workout the GPM NPM
• Answer the checklist on page 169
• Answer the checklist on page 171

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Profit Margins

• Gross Profit Gross Profit X 100
• Sales
• Net Profit Net Profit X 100
• Sales
• (Net profit also known as Net Profit Margin)

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BALANCE SHEET
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Return on Capital Employed (ROCE)

• Looks at profit in relation to capital (or amount
  that has been invested)
• ROCE () Net Profit X 100
• Capital Employed
• Page 171 Checklist Qstns 12

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HOMEWORK

• TEST NEXT WEDNESDAY
• REVISE FINANCE UNIT WRITE DOWN IN PLANNER
• Managing costs
• Importance of profit
• Break-even
• Cash flow
• Sources of finance
• Profit Loss Account
• Balance Sheet
• Using Financial Records