Using Financial Records

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Cash flow and Final Accounts

Every business needs to record…

- Cash Flow

- Profit

- Net Worth

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Note:-cash going in -cash going out -and the cash left

for a given period, such as a month or a year

Cash Flow Records…

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Cash in…

… (otherwise known as Receipts) can be anything from sales, to interest earned on savings, the return on an investment or cash from selling an asset, such as a car

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Cash out…

… Can be anything from accounting and consultancy costs, to general bills, sales tax (GST) and drawings – the owner’s own wage

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Final Accounts

Record…

-Profit

-Net Worth (the business’s value)

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Final Accounts are made up of:

• A Trading, Profit and Loss Account

• A Balance Sheet

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Trading, Profit and Loss Accounts

Show…

-Gross Profits (funds before sales costs)

-Net Profits (funds after sales costs)

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Balance Sheets

Are split into two sections:

Net Worth – showing the value of assets after debts

Financed By – showing how the assets are paid for

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Ratio Analysis…

…Is a method of analysing acompany’s performance andhealth

…Gives business owners easilyunderstandable results inpercentages or ratios

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…Are used as Key Performance Indicators (KPIs) to compare business health with previous years or other competitors

The Results…

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Ratio Analysis primarily focuses on…

- Profitability

- Liquidity

- Efficiency

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Profit Ratios…

...Provide percentage margins - the higher the percentage, the more profit/return on investment is being made

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Liquidity Ratios…

…Provide real ratios calculated to analyse changes in the ability to pay debts

Two main liquidity ratios are the Current ratio and the Acid Test Ratio

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Efficiency Ratios…

…Analyse how well a business uses its assets - the higher the ratio, the more efficient a company is

Find Out More

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