A snapshot showing the position of a company at a given point in time. It shows what the company owns and what it owes
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What is the reason why shareholders care about a statement of comprehensive account?
They can assess profitability
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What is the reason why government agencies care about a statement of comprehensive account?
They can calculate the liability of a business to corporation tax
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What is the reason why suppliers care about a statement of comprehensive account?
They need to know the financial position of the companies they trade with
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What is the reason why potential shareholders and bankers care about a statement of comprehensive account?
They want to assess the companies financial position before they invest
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What is the reason why staff care about a statement of comprehensive account?
If the company is doing well they will hope to receive a bonus
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What are profitability ratios?
They measure the relationship between gross/net profit and revenue, assets and capital employed (performance ratios)
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What are liquidity ratios?
Investigate the short-term financial stability of a firm (If they can pay their short-term debts)
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What is gearing for?
Examines the extent to which the business is dependent upon borrowed money
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How do you calculate a gearing ratio?
non-current liabilities / capital employed x100
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If a company is highly geared what does it mean?
A company relies heavily on loans
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How can you raise gearing?
Buy back ordinary shares, issue more preference shares, obtain more loans
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How can you lower gearing?
Issue more ordinary shares, retain more profit, repay loans
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How do you calculate return on capital employed (ROCE)?
Operating profit / capital employed x100
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What does a high value of ROCE mean?
Resources are being used efficiently
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What are the 3 main ways of financing a decision?
Use working capital, borrow the capital, sale of assets
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What are the limitations of ratio analysis?
Figures are more like averages, receivables may not arrive on time, value of stock can change, doesn't include the quality of the profit (short-term?)
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How do you calculate labour productivity?
output per period / number of employees per period
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What does an increase in the productivity figure suggest?
An improvement in efficiency
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How do you calculate labour turnover?
Number of staff leaving the firm per year / average number of staff x100
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What are the internal causes of an increasing rate of labour turnover?
A poor recruitment process, ineffective motivation or leadership, low wages
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What are the external causes of an increasing rate of labour turnover could be?
More local vacancies arising, better transport links
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What are the negative effects of high labour turnover?
Cost of recruiting replacements, cost of training replacements, time taken for new recruits to settle in, loss of productivity while new workers learn the ways of working
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What are the positive effects of high labour turnover?
New workers can bring new ideas and enthusiasm, workers can be employed with skills that don't need to be trained, new ways of solving problems can be seen by workers with a different perspective
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What is the formula for labour retention?
Staff not leaving in the past year / average number of staff employed in the year x100
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What is the formula for absenteeism?
Total absence (hours or days) in the period / possible total x100
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What are the 4 human resource strategies to improve employee performance?
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