Statement of Financial position

• 1. STATEMENT OF FINANCIAL POSITION A snapshot of a business’s net worth at a particular moment in time, normally the end of a financial year, highlighting a businesses ASSETS & LIABILITIES.
• 2. NON-CURRENT ASSETS Those items of value that are owned by the business & likely to stay within the business for more than one year. These can be TANGIBLE i.e. they can be touched e.g. machines & buildings or INTANGIBLE i.e. they cannot be touched e.g. trademark or brand identity.
• 3. CURRENT ASSETS Items owned by the business that change in value on a regular basis, such as stock
• CURRENT LIABILITIES Something owned by the business that should be paid back in under 1 year.
• 5. NET CURRENT ASSETS/ LIABILITIES Represents the business’s ability to meet short-term debts. A business with insufficient current assets does not have enough current assets to meet its current liabilities.
• 6. NON CURRENT LIABILITIES This means that the business will pay it back in more than one year. E.g. bank loans & mortgages.
• 7. NET ASSETS The figures that represents the total value of all the assets minus the value of the liabilities. Calculated by: Non-current assets + current assets – (current liabilities + long term liabilities)
• 8. CAPITAL EMPLOYED The total amount of capital tied up in a business at a point in time. It is calculated as owners’ or shareholders’ capital + retained profit – drawings
• 9. OPENING CAPITAL Money invested in the business from the owners.
• RETAINED PROFIT Profits kept from the previous years plus the net profit from the current year. Transferred from the statement of financial position
• 11. DRAWINGS Withdrawals made by owners from the business
• 1. DEPRECIATION Each year depreciation is deducted from the Net Book Value of an asset to show the value of the asset at the end of the year.
• 2. PREPAYMENTS When an expense is made in advance of the periods to which it relates – It is therefore taken out of expenses in the statement of comprehensive income & shown as a current asset recorded in the statement
• 3. ACCRUALS When an expense is paid after the periods to which it relates. E.g. electricity paid quarterly which would show the value already consumed by the business
• . INTERFIRM Between different firms, e.g, comparing the performance of two different house builders.
• INTRAFIRM Within the firm, e.g. comparing this year’s results with last year’s, or the performance of different branches of a retail store.
• STAKEHOLDER Anyone with an interest in the activities of a business, whether directly or indirectly involved
• 4. BUSINESS 2 BUSINESS B2B – refers to when one business sells to another business. e.g. Wholesaler to retailer
• 5. BUSINESS 2 CONSUMER B2C – refers to when one business
• GROSS PROFIT MARGIN % The percentage of Sales Revenue that is profit. A good indicator of how effectively the business has ‘added value’ to the cost of sales. Gross profit/Revenue X100
• MARK-UP Looks at profit as a % of sales turnover. (Gross profit/ Cost of sales) X 100
• INTERPRETATION Can be compared with gross profit. If gross profit rises and net profit margin declined showing that profits are rising but the overhead expenses are increasing at a faster rate.
• 3. ROCE % Primary ratio. Operating profit/Capital employed X 100 Capital employed – total value of all LT finance invested
• LIMITATIONS OF RATIOS

  1. One result not helpful – comparison across time periods or business

  2. Industry comparison is most useful but using the same month/year

  3. Need to consider external factors

  4. Take caution with assets being used and depreciated using different methods
• 4. CURRENT RATIO Current ratio is a liquidity ratio that measure a company’s ability to pay short-term and long term liabilities. Current assets/current liabilities
• INTERPRETATION Example - current ratio of 2 would mean that the business has 2 times more current assets than current liabilities. Recommended result 1.5-2.0 butdepends on industry. Low not unusual in food retailers (regular cash inflow) Over 2 suggests too much tied up in inventory.
• ACID TEST Examines the business’s current liquidity position by comparing current assets and liabilities without stock as it is hard to sell without a loss in value. (current assets - inventory) /current liabilities
• 6. INVENTORY TURNOVER Measures the number of times per year a business sells and replaces it’s INVENTORY (stock). (Cost of goods sold/stock) X 365
• 7. TRADE RECEIVABLES DAYS Measures how long it takes the business to recover payment from customers who have bought good on credit (trade receivables ) (Trade receivables/credit sales) X 365
• 8. TRADE PAYABLES DAYS How long it takes a firm to pay for goods & services bought on credit, expressed as a number of days. (Trade payables / credit purchases) X 365
• Statement of Financial Position


  A snapshot of a business's net worth at a particular moment in time, normally the end of a financial year, highlighting a businesses ASSETS & LIABILITIES
• Non-Current Assets


  • Items of value that are owned by the business & likely to stay within the business for more than one year
  • Can be TANGIBLE (can be touched e.g. machines & buildings) or INTANGIBLE (cannot be touched e.g. trademark or brand identity)
• Current Assets


  • Items owned by the business that change in value on a regular basis, such as stock
• Current Liabilities


  • Something owned by the business that should be paid back in under 1 year
• Net Current Assets/ Liabilities


  • Represents the business's ability to meet short-term debts
  • A business with insufficient current assets does not have enough current assets to meet its current liabilities
• Non-Current Liabilities


  • The business will pay it back in more than one year e.g. bank loans & mortgages
• Net Assets


  • The figures that represents the total value of all the assets minus the value of the liabilities
  • Calculated by: Non-current assets + current assets – (current liabilities + long term liabilities)
• Capital Employed


  • The total amount of capital tied up in a business at a point in time
  • Calculated as owners' or shareholders' capital + retained profit – drawings
• Opening Capital


  Money invested in the business from the owners
• Retained Profit


  • Profits kept from the previous years plus the net profit from the current year
  • Transferred from the statement of financial position