Business Studies Unit 8 Finance Part 2

Gross and Net Profit Margins
1. Gross Profit margin
  1. Percentage of sales revenue that is gross profit
  2. = Gross profit / Sales Revenue x 100 %
2. Net Profit Margin
  1. = Net Profit / Sales Revenue x 100 %
  2. Percentage of sales revenue that is net profit
Current & Acid Test Ratios
1. Current Ratio
  1. Always x:1, as it shows how much money is in the business for every £1 of debt
  2. = Current Assets / Current Liabilities
2. Acid Test Ratio
  1. Always x:1, as it shows how much money is in the business for every £1 of debt, in worse case scenario if stock can't be sold
  2. = (current assets - stock) / Current Liabilities
Why are business accounts drawn up?
1. So that managers know...
  1. Whether a profit or loss is being made
  2. How much cash is flowing in and out of a business
  3. When suppliers must be paid for goods and when tax must be paid to the government
2. Include details of...
  1. Products sold, the value and customers that haven't paid
  2. Goods and services bought by the business, the value and which suppliers have not been paid
  3. Equipment and other assets purchased
  4. Wage and other labour costs
3. Because...
  1. It will help shareholders or owners decide whether to invest into the business
  2. It will help banks know whether to lend them more or demand early repayment
  3. The government will know how much tax the business should pay
  4. Workers will know whether their jobs are secure
Key Words
1. Overheads
2. Sales Revenue
3. Cost of sales
4. Gross Profit
5. Net profit
6. Retained profit
7. Sales and leaseback
8. Liquidity
9. Assets
10. Liabilities
11. Solvency

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Business Studies Unit 8 Finance Part 2

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