balance sheets 9

• Assets 


  something containing economic or monetary value
• current assets

  assets a business owns
• Non current assets (fixed) 


  the accounting value of assets business has purchased or expects to keep for more than a year
• current assets e.g 


  cash, inventories, trade
• non current assets e.g

  property, machinery, equipment
• liabilities 


  debts that a business has and need to repay
• current liabilities

  amounts owed by business and be paid in nest 12 months

  e.g band overdraft, creditors
• Non current liabilities 


  repayments not due for more than a year

  e.g bank loans
• capital 


  money introduced by the owners
• Net current assets

  current assets - current liabilities
• net assets employed 


  iced assets + net current assets
• capital employed 


  long term liabilities + share capital + reserves
• reserves 


  profit accumulated that has been retained by business
• book keeping 


  activity o keeping records of the financial agars of a business
• double entry book keeping

  relies on two sided accounting entry to maintain financial information
• working capital 


  cash needed for day to day trading
• Working capital calculation

  current assets - current liabilities
• liquidity 


  ease which assets can be converted into cash without affecting the market price
• current ration

  weather the business can pay debts due within one year. shown as ration
• current ratio calc

  current assets / current liabilities
• why current ration matters

  sufficient.current assets to pay current liabilities

  shortage working capital, keep reason business fails
• Acid test ratio


  liquidity ratio, measures ability pay current liabilities when they come without quick assets
• acid test ratio calc 


  (current assets - stock ) / current liabilities
• acid test ration why matter

  good test.of solvency and should be 1:1 so can immediately pay for current liabilities

  excludes inventory as not immediately available to pay
• Gearing 


  extent in which a business relies on external debt financing

  expressed as a %
• Gearing calc

  Non-current liabilities / capital employed
• return on capital employed

  shows return on profit an amount invested

  benchmark, measures rate of return

  considers money used to generate a return

  measures profitability after factoring capital used