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CH 18 Monitoring The Business - Coggle Diagram
CH 18 Monitoring The Business
Information in Financial Accounts
Sales (Turnover/Revenue/Income)
Cost of Sales: the cost of making/purchasing goods or supplying of services
Gross Profit
Expenses
Net Profit
Gross Profit
If Gross Profit is low/falling:
the business isn't charging enough
paying too much for raw materials
If falling, the business will have to increase selling price or shop around for a cheaper supplier
Net Profit
If Net Profit is low/falling:
the business is spending too much money on day-to-day expenses
making less efficient use of its resources e.g. too many delivery vans in use given sales figures
The business will have to reduce its running costs or Shop around for cheaper alternatives
Balance Sheet
The current value of the business
Whether the business has enough money to pay it's short-term debts (liquidity)
The level of debt and equity in the business (gearing)
Profitability Ratios
Gross Profit margin
Net Profit Margin
Return on Investment (ROI)/Return on Capital Employed (ROCE)
Liquidity Ratios
Current Ratio (Working Capital Ratio)
Acid Test Ratio (Quick Ratio)
Ways to Overcome a Liquidity problem
Credit Control
Stock Control
Raise Finance
Financial Planning
Gearing ratios
Debt/Equity Ratio
Debt Capital
= bank loans+debentures+preference shares
Equity Capital
= ordinary share capital+retained earnings
Problems facing a highly-geared business
Dividends
Extra debt finance
Extra equity finance
Management stress
Users of Financial Information
Investors (Bankers)
Management
Investors (Shareholders)
Suppliers (Creditors)
Employees
Competitors
Government (Revenue Commissioners)
Liquidation**
Receivership