3.5 Business Revision

What does the statement of financial position (balance sheet) show? What does the statement of comprehensive income (profit + loss) show?

Statement of financial postion shows the assets, liabilities and capital of the business. The statement of comprehenisve income shows revenue, cost of sales, gross profit, operating profit, selling expenses.

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What is the difference between finance cost and finance income?

Finance cost is interest paid by a business on any borrowed money. Finance income is interest received by a business on any money held in deposit accounts.

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Give 2 formulas to calculate capital employed?

Total assets - Current liabilities or Non-current liabilities + Total equity

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What is a gearing ratio? How do you calculate gearing ratios?

Exploration of the capital structure of the business by comparing the proportions of capital raised by debt and equity. They show the long term financial position of the business. Gearing ratio= Non Current liabilities/ Capital employed x 100

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What is return on capital employed (ROCE)? how do you calculate ROCE?

ROCE is a profit of a business as a percentage of the total money used to generate it. It compares the profit made to the amount of finance invested. ROCE= Operating profit/capital employed x 100

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What are the limitations to ratio analysis?

-The basis for comparison (comparisons over time, inter-firm comparisons, other differences) - The quality of final accounts -Limitations of the balance sheet -Qualitative information is ignored -Window dressing

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What is labour productivity? How do you calculate labour productivity?

Output per worker in agiven time period. Labour productivity= Total output(per period of time)/Average number of employees (per period of time).

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Why may businesses become less competitive despite increasing their labour productivity?

1. Rival businesses may increase their productivity at an even faster rate. 2. New rival businesses may set up which pay considerably lower wages. 3. Rival businesses may bring out a far better new product.

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What is labour turnover? How is labour turnover calculated?

The rate at which staff leave a business. Labour turnover= Number of staff leaving over time period/ Average number of staff in post during the period x 100

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What factors lead to high labour turnover?

Low pay/ Few training + promotion opportunities/ Poor working conditions ( bullying + harassment)/ In a boom when there might be labour shortages, there are far more vacancies and so labour turnover rises.

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What are the problems with high labour turnover?

1. Recruting new staff can be costly. 2. It takes time for new staff to become familiar with their roles and the way in which the business operates. 3. Larger companies may put on induction programmes which further adds to costs. 4. Training required

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What are the benefits for businesses of labour turnover?

1. New staff bring in fresh ideas + experience from other businesses. 2. Some workers may be ineffective and need to be encouraged to leave. 3. If a business is shrinking in size and need to reduce their workforce.

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What is labour retention? How do you calculate labour retention?

The number of employees that remain in a business over a period of time. Labour retention= Number of staff staying (over a time period)/Average number of staff in post (in the time period) x 100

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What are the benefits to a business of a high retention rate?

Lower recruitment + selection costs/ More continuity/ stable workforce

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What is the rate of absenteeism? How do you calculate rate of absenteeism?

The number of staff who are absent as a percentage of the total workforce. = Number of staff absent/ Total number of staff employed.

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3.5 Business Revision

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