Mind map covering a first-year module of accounting and finance. Includes information on current ratio, return on capital employed, gross profit margins and more. A great addition to revising for an exam.
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high chance of default could suggest is
company making
Below 1 firm not
Ied
→ means
of capital
'
resource
poor use
below 1.5
Anything is less risk of defaulting Business Remember this is all relative
'
generating enough revenue has
-
.
. ,
( If
add debt
9 Capacity to a company
alert as
suggests firm in simple terms measures number and also depends on the
company
→ if required
"
Benefits has
(
a
high gearing
cannot
pay Interest Tof times interest can be paid shareholders
or
Industry
q
4
ratio it means there
g
how
"
instead
Gearing considered
"
with given earnings is
call the shots is a high proportion
Formal
tn%%gbgI¥%fpn
of debt providers
f
2.5-3 Inmost below High bearing
-_
20%4
cases is considered
TICR indicates a better ( above 50% →
is reliant on outside
financial
heal4thy
Ratio
←
this ratio
may increase due to
Gearing borrowing
also known
type of bearing expanding and increasing claims Measures the proportion of a
company 's borrowed funds to its
equity .
/ less capital
/ Yi"dIthIeb¥ed
"
as debt ratio ratio The ratio indicates the financial risk to which a business is
•
However ,
a
high ICR Interest Cover Ratio subjected ,
since excessive debt can lead to financial difficulties Advantages of high bearing
ratio may suggest a Ratio measures how easily a
company can
↳ Debt
/ ↳ Easy to
|
← can be
efficiency of
"
and interest if
"
company is too safe pay their interest expenses on debt due capital pay
relatively cheap
.
|
structure
is
neglecting opportunities to
go margin compared to dividends
profit and cash
/ A
liquidity ratio flow is
//
magnify earnings through leverage zo , margin strong
I
"⑤Ioo¥te¥¥fe
high lgood )
→iiverage THE 9
.net#*eshqqi*-
" not
meaning 91%11%1%1
-
" "
current ratio
Indicates how much profit Shows the relationship between
a company current
quick ratio
makes after paying for variable costs e.g raw materials
↳T€ liabilities and assets .
Expressed as a
percentage of sales then shows the
y
↳
y
jnahrig.hn?rossnsowPsroIfnpany)yhigher
effi cry of controlling costs and expenses Measures Companys ability to short term loans
'
a. company pay
as iated with business operations .
percentage is better However ,
watch out for low
Gross Profit
[
can make reasonable profit on quality profit which boosts
µ
Margins -
sales whilst also Return on Capital Employed ROCE
Indicator of Companys financial
the ratio measures now profitable
health
.\an aging overhead costs .
Measures the Companys profitability
(ROLE ) - ROCE
and efficiency with which its
can
Cutting
↳
be improved by
back investment
this may however
lower Gross capital is used
not be
a company sells its inventory or a
in company's long-term
.
merchandise .
( Also known as
percentage profit margin could ↳ leased interest
markup on merchandise from its cost .
) suggest under -
pricing equipment will not be included
( profit left of sales after deducting cost sales ) in capital employed .
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