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Assessing Comp 3.5

Theme 3

QuestionAnswer
What is Sales Revenue? Money coming in from sales Quantity sold x selling price
What is Cost of Sales? Costs directly linked to the production of the goods or services sold e.g. raw materials
What are operating costs? All other costs associated with the trading of the business e.g. salaries and marketing expenditure
What is an exceptional item? Any unusually large or infrequent transaction
What is profit for the year (net profit)? Operating profit - interest and taxation and taking account of exceptional item
What is the net current assets (working capital) formula? Total current assets minus Current liabilities
What is the net assets formula? All assets - All liabilities
What is the formula for total equity (capital employed)? Retained profit + Shareholders funds - Drawings
What is Human Resource Data? Quantifiable information that can be used to measure workforce performance
How does Human Resource Data help a Business? This will help inform decision making e.g. is corrective action needed, should bonuses be paid, are staff motivated?
What is Labour Productivity? A measure of workforce performance that looks at output per worker
What is the Labour Productivity formula? Total output/Number of workers Labour productivity is normally shown over a period of 1 year
What is Labour Turnover? Labour turnover is the rate of change in a firm’s labour force
What is the formula for Labour Turnover? Number of staff leaving x 100 / Average number of staff
What are Retention Rates? A measure of a firm’s ability to keep its workforce within the business normally for more than one year
How are Retention Rates calculated? number of employees serving for more than 1 year x 100/average number of staff
Why are low retention rates bad for a Business? 1.High recruitment, selection and training costs 2.Risk of loss of important information (secrets) 3.Loss of talent
What is absenteeism? The number of staff who miss work as a proportion of the total number of staff
How is absenteeism calculated? Number of staff absent per time period x 100 /Total number of staff days worked per time period
What Human Resource strategies can a Business use to improve productivity/retention and reduce turnover and absenteeism? Financial rewards are the variety of methods that have a money value and are used to reward the workforce and influence their behaviours at work e.g. Performance Related Pay, Piece Rate, Commission and Profit Share.
What is Employee Share Ownership? Giving employees shares or the option to buy shares in the company
How do employees benefit from Employee Share Ownership? 1.Dividends received 2. Increased share value
How can Consultation Strategies improve productivity/retention and reduce turnover and absenteeism? 1.Seeking the thoughts and opinions of employees/Involves employees in decision making 2.Easier to implement change/staff feel involved 3.Employees have valuable input as they understand key issues e.g. production problems of customer service
What does Gearing measure? Measures what proportion of a business’ capital is funded through long term loans
What is the Gearing Ratio formula? Non-current liabilities x 100/Total equity + non-current liabilities
What does Return on Capital Employed measure? A measure of how efficiently a business is using capital employed to generate profits
What is the formula for Return on Capital Employed? Operating profit x 100/Total equity + non-current liabilities
What is Capital Employed made up of? Share capital Reserves Long term loans Drawings
How can Gearing be used to make business decisions? 1. How to finance future strategies 2. See the risk of rising interest rates 3. Negotiating credit terms with suppliers
How can Return on Capital Employed be used to make business decisions? 1. Managers’ financial rewards 2. Efficiency targets - identify training needs 3. Future investments 4. Disposal or purchase of non-current assets
What are the benefits of Ratio Analysis? 1.Provides a tool for the interpretation of accounts 2.Structure from which comparisons can be made with other businesses 3. Aids decision making both Internally and externally by investors
What are the limitations of Ratio Analysis? 1. Possibility that accounts have been window dressed 2. Quantitative information only
What is the formula for the Current Ratio? Current Assets/Current Liabilities
What is the formula for the Acid Test/Liquid/Quick Ratio? Current Assets – Stock/Current Liabilities
What is the formula for Gross Profit Ratio? Gross Profit X 100/Sales
State the formula for the Net Profit Ratio? Net Profit X 100/Sales
What is the formula for the Retained Profit Ratio? Retained Profit x 100/Sales
What is the formula for the Return on Capital Employed Ratio? Net Profit x 100/Capital Employed
What is the formula for the Creditor Days Ratio (Trade Payables)? Creditors X 365/Purchases (or costs of sales if purchases is not available)
What is the formula for the Debtor Days (Trade receivables)? Debtors X 365/Credit Sales
What is the formula for the Stock Turnover (Inventory Turnover)? Cost of Sales/Average Stock (Opening Stock + Closing Stock/2)
Created by: durquhart1
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