Topic 8 - Financial Report

What caused the net profit margin to drop, even though the net profit figures are the same (25,000) and net sales actually increased (from 80k to 100k)? (More than 1 possible answer)

What is profitability

• The dollar figure determined when taking R-E over a reporting period

• the comparison of a profit figure with a base figure, such as sales or investment

• The total asset minus the total liability owned by a business at a given time

• The ability of a business to generate income relatively to it expenses

What is return on owner's investment? (ROI)

• How long it takes for the owner to get back the initial capital he/she puts in

• how much net profit the business made for each dollar of capital that was invested in the business

• Net cashflow from operating activity that's available immediately for reinvestment in the business

• Total assets owned divided by total liabilities

According to Canvas, in order to increase profit, business can do what? (I hope you read Canvas after multiple reminders)

• Increase advertising

• Offer credit terms

• Lower price

• increase sales

Name 3 ways we can decrease expense, according to Canvas

According to Canvas, what can we do to increase sales? (more than 1 possible answer)

• Decrease expenses

• Increase advertising

• Increase number of employees

• Decrease price

• Find cheaper supplier

A worsening Cash Flow Cover ration implies what?

• Net Cash inflow are decreasing

• Current Asset are decreasing

• Current Liability are increasing

• Net cashflow from operating activity is increasing

What do liquidity ratios tell us?

• The proportion of debt a business has

• How much cash a business has in relation to its equity

• the ability of the business to pay off all of its debt using its bank balance

• the ability of the business to convert its current asset into cash to meet its short-term financial commitments

Why is it hard to assessing liquidity ratios?

Answer explanation

Your answer should include the following points: this is a balancing act between having too much assets or not enough. The same thing will apply with CL. If you have too much asset you risk the fact that you may have too much credit sales (leading too much AR)/ or too much inventory/or too much cash lying around. If you have too little you might risk not having enough CA to cover for your CL.

What is the definition of Efficiency in accounting?

• how well a business is managing key items such as Cash Sales, Credit Sales and Expenses

• The ability of a business to maximize outputs while minimizing inputs

• how well a business is managing key items such as Accounts Receivable, Accounts Payable and Inventory

• how well a business can generate profit from the owner’s investment