3 5 assessing competitiveness

The statement of comprehensive income shows the income and expenditure of a business over a period of time, usually a year, and calculates the amount of profit made.

The statement of financial position shows the financial structure of a business at a specific point in time, identifies the business's assets and liabilities, and specifies the capital used to fund the business.

Liquidity is the ability of a business to meet its short-term commitments, such as payments to creditors, with its available assets.

True. Net profit, calculated in the statement of comprehensive income, can be used to determine how much tax is payable.

Operating profit is revenue minus the cost of sales and expenses. Profit for the year also deducts interest and exceptional costs.

Trade payables are amounts owed to suppliers for goods or services received but not yet paid for.

Non-current assets are long-term assets of a business, such as property, plant, and equipment.

Capital employed is the total amount of capital invested in a business. It is calculated by subtracting the current liabilities from the total assets.

Trade receivables are amounts owed by customers for goods or services provided but not yet paid for.

True. Creditors use the statement of financial decision to judge the solvency of a business to determine the risk when offering firms trade credit.

Ratio analysis involves extracting information from financial accounts to assess business performance.

The gearing ratio measures the proportion of a company's capital that is funded by debt (non current liabilities such as loans).

Formula.

Return on capital employed is a measure of how effectively a business uses capital invested to generate profit.

Formula.

True. A highly-geared business has more than 50% of its capital employed from long-term loans.

Gearing can be reduced by:

Capital employed is the total amount of capital invested in a business, calculated by subtracting current liabilities from total assets.

False. Low-geared businesses may be missing out on the opportunity to access finance without the need to dilute existing shareholders' control.

The return on capital employed (ROCE) can be increased by:

Window dressing is the manipulation of financial data to present a particular performance picture. Examples of window dressing may include writing off bad debts or the revaluation of property.

True. Journalists use ratio analysis to report business performance in the media in easy-to-digest terms.

Labour productivity is a measure of output per employee.

Formula.

Labour turnover is the proportion of employees leaving a business during a specific time period, expressed as a percentage.

Labour retention is the proportion of employees remaining with a business during a specific time period, expressed as a percentage.

Formula.

The absenteeism rate is the proportion of staff who were absent from work during a specific period of time, expressed as a percentage.

Formula.

True. A buoyant local economy can increase labour turnover as workers have lots of choice.

True. Empowerment involves providing employees with autonomy and responsibility to make their own decisions and work independently.

Consultation involves managers informing workers of decisions and obtaining the views of employees when making those decisions.