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FINANCIAL PERFORMANCE - Coggle Diagram
FINANCIAL PERFORMANCE
HOW A BUSINESS IS FUNDED (CAPITAL EMPLOYED)
shares
loans
long term loan capital
non - current liabilities
retained profits
profit after tax - dividends
share capital, retained profits and long term non current liabilities
TOTAL CAPITAL EMPLOYED
share capital and retained profit
EQUITY
gearing ratio
non current liabilities (long term loans) / capital employed x 100
e.g. 2,000,000 / 10,000,000 x 100 = 20%
20% of the capital employed is from long term loans
the higher the gearing ratio the more at risk the business is because every month you have to pay back a portion of that money
20%-50% low gearing ratio so pretty low risk
60% -70%+ high gearing ratio so high risk to a business
you may not be able to pay it back
it is less risky to borrow when interest rates are low
paying over a longer period is also less risky as you have to pay less money each month
REDUCES MONTHLY CURRENT LIABILITIES
often linked with current ratio
PROFIT/ PROFITABILITY
income statement for the year
total sales
-- cost of sales
= gross profit
-- expenses
= operating profit
++ other incomes
-- other costs
= profit for the year
-- TAX
= profit after TAX
-- dividends
1 more item...
profit over a certain number of years reinvested into the business = retained profits
Sports Direct business example
gross profit increased by 29.2%
8
profitability
gross profit margin and operating profit margin
G.P/ total sales x 100
O.P/ total sales x 100
profitability ratios
Return On Capital Employed
operating profit / total capital employed x 100
the higher the return on capital the better
CASH FLOW
short term finance - less than 1 year
current assets
inventory
receivables
cash
current liabilities
payables within 1 year
suppliers
bank
rent
current ratio
current asset/ current liabilities : 1
e.g. 60,000/30/000 = 2 = 2:1
1.5:1
fine
1:1
worrying for the cash flow
always want more assets than liabilities
FINANCIAL EFFICIENCY RATIOS
receivable days
receivables / total revenue x 365
comes from the balance sheet
current asset
payable days
payables / cost of sales
income statement
current liability
inventory turnover
cost of sales / inventory
raw materials --> work in progress --> finished goods
365 / inventory turnover