Business Studies 3 revision
1 )Financial and Non-financial Performance
Financial
Profit and loss account- a financial statement that sets out a business’s revenues, expenses and hence ‘profit’ or ‘losses over a given period of time
Balance sheet- a picture of what a business "owns, owes, and is owed" at a specific point in time.
Profit- the amount of money left over after costs have been covered = TOTAL REVENUE - TOTAL COSTS
Operating Profit- the profit the business has made from its normal business activities
Capital Employed= share capital + reserves + long term liabilities
Profit Quality Evaluation
A rising level of profits is not always an indicator of a successful business
Is the profit the result of a sudden increase in prices that might damange long term market share? is the profit a result of short cuts being taken with health and safety or environmental issues? (ethical considerations)
Is it the result of lower quality materials being uised that may lead to customer complaints and disaatisfaction?
Low Profit Quality- gaining money from an event which is unlikely to happen again (from extraordinary or expceptional items such as the sale of land)
High Profit Quality- gaining money from normal trading activities which should continue to occur in the future
Calculations
Total Assets - Total Liabilities= Net Assets
Share capital + Reserves = Total Shareholder Funds
Total Capital Employed
Why Prepare Accounts?
• Legal requirements – this applies to all limited companies. The form and timing of presentation of accounts, is laid down by statute and by the accounting bodies.
• Tax requirements – if a firm’s turnover is more than £15,000 then a full set of accounts can be requested by the Inland Revenue.
• To accurately calculate profit, liabilities and assets.
• Accounts can be used in business planning
• Accounts will be required if the business is seeking investors or loans.
• Accounts are useful if credit is required.
Exam Question Guidance
In
Financial
Profit and loss account- a financial statement that sets out a business’s revenues, expenses and hence ‘profit’ or ‘losses over a given period of time
Balance sheet- a picture of what a business "owns, owes, and is owed" at a specific point in time.
Profit- the amount of money left over after costs have been covered = TOTAL REVENUE - TOTAL COSTS
Operating Profit- the profit the business has made from its normal business activities
Capital Employed= share capital + reserves + long term liabilities
Profit Quality Evaluation
A rising level of profits is not always an indicator of a successful business
Is the profit the result of a sudden increase in prices that might damange long term market share? is the profit a result of short cuts being taken with health and safety or environmental issues? (ethical considerations)
Is it the result of lower quality materials being uised that may lead to customer complaints and disaatisfaction?
Low Profit Quality- gaining money from an event which is unlikely to happen again (from extraordinary or expceptional items such as the sale of land)
High Profit Quality- gaining money from normal trading activities which should continue to occur in the future
Calculations
Total Assets - Total Liabilities= Net Assets
Share capital + Reserves = Total Shareholder Funds
Total Capital Employed
Why Prepare Accounts?
• Legal requirements – this applies to all limited companies. The form and timing of presentation of accounts, is laid down by statute and by the accounting bodies.
• Tax requirements – if a firm’s turnover is more than £15,000 then a full set of accounts can be requested by the Inland Revenue.
• To accurately calculate profit, liabilities and assets.
• Accounts can be used in business planning
• Accounts will be required if the business is seeking investors or loans.
• Accounts are useful if credit is required.
Exam Question Guidance
In