Finance — Formula Reminders Profit Gross profit = Turnover - Cost of sales

Net profit = Gross Profit - Fixed costs

Profitability Profit margin = Profit X 100

Turnover

ROCE = Net Profit X 100

Capital employed

Total Assets = Current Assets + Fixed Assets

Liquidity

Current Ratio = Current Assets Acid Test Ratio = Current Assets –Stock

Current Liabilities Current Liabilities

Working Capital = Current Assets — Current Liabilities

Finance — Formula Reminders Profit Gross profit = Turnover - Cost of sales

Net profit = Gross Profit - Fixed costs

Profitability Profit margin = Profit X 100

Turnover

ROCE = Net Profit X 100

Capital employed

Total Assets = Current Assets + Fixed Assets

Liquidity

Current Ratio = Current Assets Acid Test Ratio = Current Assets –Stock

Current Liabilities Current Liabilities

Working Capital = Current Assets — Current Liabilities

Finance — Key Terms

• Turnover – The Total value of money received from sales within a trading period. Also known as sales reve-

nue

• Cost of Sales – How much it costs the business to produce the goods they sell. Also known as costs of

goods sold.

• Costs – The amounts that a business has to pay in order to keep trading. Fixed & Variable Costs.

• Current Assets – Something owned by a business that it does not expect to keep for more than 12 months

and can be turned in to cash quickly. E.g stock, cash in the bank

• Fixed Assets – Possessions which are owned by a business which are difficult to turn into cash. E.g build-

ings

• Total Assets — The total current and fixed assets. Everything a business owns or is owed.

• Current Liabilities – A debt that a business has not yet paid, but expect to pay within the next 12 months

• Capital Employed – A measure of a business’ assets which it can use to help it raise revenues. = Total As-

sets – Current Liabilities

• Working Capital – This is the day-to-day finance required for running a business. = Current Assets – Cur-

rent Liabilities.

• Gross Profit – What is left after the cost of sales has been subtracted from turnover. Overheads, inter-

est and tax have not been taken into account.

• Net profit – The profit made by a business AFTER all the trading expenses have been paid.

• Operating Profit – The profit made by a business in it’s ordinary trading activities. All the administrative

and selling expenses are subtracted from the Gross Profit.

• Current Ratio — This demonstrates how many assets there is to pay off liabilities. 1:1 is safe.

• Return on Capital Employed — (ROCE) Measures if money invested into a business has been used effec-

tively. A high % ROCE means that the money invested is being used effectively and profitably.

Finance — Key Terms

• Turnover – The Total value of money received from sales within a trading period. Also known as sales reve-

nue

• Cost of Sales – How much it costs the business to produce the goods they sell. Also known as costs of

goods sold.

• Costs – The amounts that a business has to pay in order to keep trading. Fixed & Variable Costs.

• Current Assets – Something owned by a business that it does not expect to keep for more than 12 months

and can be turned in to cash quickly. E.g stock, cash in the bank

• Fixed Assets – Possessions which are owned by a business which are difficult to turn into cash. E.g build-

ings

• Total Assets — The total current and fixed assets. Everything a business owns or is owed.

• Current Liabilities – A debt that a business has not yet paid, but expect to pay within the next 12 months

• Capital Employed – A measure of a business’ assets which it can use to help it raise revenues. = Total As-

sets – Current Liabilities

• Working Capital – This is the day-to-day finance required for running a business. = Current Assets – Cur-

rent Liabilities.

• Gross Profit – What is left after the cost of sales has been subtracted from turnover. Overheads, inter-

est and tax have not been taken into account.

• Net profit – The profit made by a business AFTER all the trading expenses have been paid.

• Operating Profit – The profit made by a business in it’s ordinary trading activities. All the administrative

and selling expenses are subtracted from the Gross Profit.

• Current Ratio — This demonstrates how many assets there is to pay off liabilities. 1:1 is safe.

• Return on Capital Employed — (ROCE) Measures if money invested into a business has been used effec-

tively. A high % ROCE means that the money invested is being used effectively and profitably.