‭Needs and Sources‬

‭ .‬
1 ‭ efine finance‬
D
‭2.‬ ‭What does start up capital mean?‬
‭3.‬ ‭What is working capital?‬
‭4.‬ ‭What is the difference between capital and revenue expenditure?‬
‭5.‬ ‭Create a table for the following tasks‬
‭a.‬ ‭List the internal sources of finance.‬
‭b.‬ ‭What are the advantages and disadvantages of each one?‬
‭6.‬ ‭Create a table for the following tasks‬
‭a.‬ ‭List the external sources of finance.‬
‭b.‬ ‭What are the advantages and disadvantages of each one?‬
‭7.‬ ‭Define micro-finance‬
‭8.‬ ‭What is crowd-funding?‬
‭9.‬ ‭Create a table for the following tasks‬
‭a.‬ ‭List the short term sources of finance‬
‭b.‬ ‭What are the advantages and disadvantages‬
‭10.‬‭Create a table for the following tasks‬
‭a.‬ ‭List the long term sources of finance‬
‭b.‬ ‭What are the advantages and disadvantages‬
‭11.‬‭What affects the decision for a source of finance?‬
‭12.‬‭What make banks lend money for businesses?‬
‭13.‬‭What make shareholders invest?‬

‭Answers - 13/5/2024‬
‭1.‬ T ‭ he money required in the business. Inorder for the business to expand and increase‬
‭working capital.‬
‭2.‬ ‭Initial capital used by the business to pay fixed and current assets before trading.‬
‭3.‬ ‭Finance used to pay day-to-day expenses.‬
‭4.‬ ‭Revenue expenditure is the money spent on day-to-day expenses while capital‬
‭expenditure focuses on fixed assets.‬
‭5.‬
‭Source of finance‬ ‭Advantage‬ ‭Disadvantage‬

‭Retained profit‬ ‭-‬ ‭ oes not have to be‬

D ‭-‬ ‭ tart up businesses won’t‬
S
‭repaid‬ ‭have retained profit‬
‭-‬ ‭No interest‬ ‭-‬ ‭Keeping more profit for‬
‭the business means the‬
‭owners earn less‬
‭-‬ ‭Low profit will mean low‬
‭retained profits‬

‭Sale of existing assets‬ ‭-‬ ‭ akes better use of‬

M ‭-‬ ‭ ay need the assets in‬
M
‭capital tied up in the‬ ‭the future‬
 ‭ usiness‬
b ‭-‬ ‭ ew businesses don’t‬
N
‭-‬ ‭Not in debt‬ ‭have surplus assets‬
‭-‬ ‭Finance gained might not‬
‭be the expected amount‬

‭Sales of inventory‬ ‭-‬ ‭Reduced inventory costs‬ ‭-‬ ‭ on’t be able to meet a‬
W
‭sudden increase in‬
‭demand‬

‭Owner’s savings‬ -‭ ‬ I‭nstant money‬ ‭-‬ ‭ wners increase risk‬

O
‭-‬ ‭No interest is needed to‬ ‭taken‬
‭pay‬ ‭-‬ ‭Savings may be low‬
‭6.‬
‭Source of finance‬ ‭Advantage‬ ‭Disadvantage‬

‭Bank loans‬ -‭ ‬ ‭ uick source of finance‬

Q ‭-‬ I‭nterest needs to be paid‬
‭-‬ ‭Can be varying lengths of‬ ‭periodically‬
‭time‬ ‭-‬ ‭Will have to leave‬
‭-‬ ‭Large companies have a‬ ‭collateral‬
‭smaller interest rate‬

‭Debentures‬ ‭-‬ ‭Last for many years‬ ‭-‬ ‭Interests vary‬

‭Sale of shares‬ ‭-‬ ‭ ermanent source of‬

P ‭-‬ ‭ ay loose ownership if‬
M
‭capital‬ ‭too many shares are sold‬
‭-‬ ‭Does not need to be‬ ‭-‬ ‭Dividends are expected‬
‭repaid‬
‭-‬ ‭No interest has to be paid‬

‭Grants‬ -‭ ‬ ‭ ree‬
F ‭-‬ ‭ ill need to meet specific‬
W
‭-‬ ‭No interest has to be paid‬ ‭requirements‬
‭ .‬ B
7 ‭ anks that locate in specific undeveloped areas to hand out loans.‬
‭8.‬ ‭Asking a pool of people to contribute to a small fund.‬
‭9.‬
‭Source of finance‬ ‭Advantage‬ ‭Disadvantage‬

‭Overdraft‬ ‭-‬ ‭ nly need to pay interest‬

O ‭-‬ ‭ anks may require the‬
B
‭for the overdraft amount‬ ‭business to pay in short‬
‭-‬ ‭Cheaper than loans in the‬ ‭notice‬
‭long term‬ ‭-‬ ‭Has to be paid with‬
‭-‬ ‭More flexible form of‬ ‭interest and interest rates‬
‭borrowing‬ ‭vary periodically‬

‭Delaying payments‬ ‭-‬ ‭ llows the business to‬

A ‭-‬ ‭ uppliers may stop giving‬
S
‭save up some cash‬ ‭discounts‬

‭Debt factoring‬ ‭-‬ ‭ ast‬‭- immediate cash‬

F ‭ on’t receive 100% of the‬
W
‭available‬ ‭debt payment‬
‭-‬ ‭Risk of collecting the debt‬
‭is on the agency‬
‭10.‬
‭Source of finance‬ ‭Advantage‬ ‭Disadvantage‬

‭Hire purchase‬ ‭-‬ ‭ an use the product‬

C -‭ ‬ ‭ cash deposit is needed‬
A
‭without paying the full‬ ‭-‬ ‭Interest rate can be large‬
‭price‬

‭Leasing‬ ‭-‬ ‭ aintenance is the‬

M ‭-‬ ‭ mount at the end may‬
A
‭leasing company's‬ ‭be more expensive than‬
‭responsibility‬ ‭when buying it‬
‭-‬ ‭Interest is needed‬
‭11.‬‭- Purpose‬
‭- Time‬
‭- Legal status of the business‬
‭-‬

‭12.‬‭- Business plan‬

‭- Financial statements‬
‭- Income statement‬
‭- Cash flow forecast‬

‭13.‬‭- Successful‬
‭- Profits are made‬
‭-‬

‭Answers‬
‭1.‬ ‭The money needed to expand and increasing working capital.‬

‭2.‬ ‭Initial capital used to pay current and fixed assets before a business can trade.‬

‭3.‬ ‭The finance used to pay day-to-day expenses.‬

‭4.‬ C
‭ apital expenditure refers to the money spent on fixed assets and revenue‬
‭expenditure refers to the money spent on day-to-day expenses but not long term‬
‭assets.‬

‭5.‬
‭Internal finance‬ ‭Advantage‬ ‭Disadvantage‬
‭ etained profit‬‭- The money that‬
R ‭●‬ D ‭ oes not need to be‬ ‭●‬ S ‭ tart ups won’t have‬
‭is left over after owners have‬ ‭repaid‬ ‭retained profit‬
‭taken their share of profit.‬ ‭●‬ ‭No interests needs to be‬ ‭●‬ ‭Keeping more profits may‬
‭paid‬ ‭mean less dividends for‬
‭shareholders‬
‭●‬ ‭If the business has low‬
‭profit it will be a low‬
‭source of finance‬

‭ ales of existing assets‬‭-‬

S ‭●‬ M ‭ akes better use of‬ ‭●‬ N ‭ ew business don’t have‬
‭assets that the business doesn’t‬ ‭capital tied up in the‬ ‭surplus assets‬
‭need anymore‬ ‭business‬ ‭●‬ ‭Takes time to sell‬
‭●‬ ‭Not a debt‬ ‭●‬ ‭Finance gained might not‬
‭be the expected amount‬

‭ ales of inventory‬‭- Selling‬

S ‭●‬ S ‭ aves up space for more‬ ‭●‬ A
‭ sudden increase in‬
‭finished goods or unwanted‬ ‭inventory‬ ‭demand might not be able‬
‭inventory‬ ‭●‬ ‭Reduces inventory‬ ‭to fufill with low levels of‬
‭holding cost‬ ‭inventory‬

‭Owners savings‬ ‭●‬ A ‭ lready available to the‬ ‭●‬ O ‭ nly works for sole‬
‭business‬ ‭traders and partnerships‬
‭●‬ ‭Quick‬ ‭●‬ ‭Savings may be low‬
‭●‬ ‭No interest is needed to‬ ‭●‬ ‭Owner’s increase risk‬
‭pay‬ ‭taken‬

‭6.‬
‭External finance‬ ‭Advantages‬ ‭Disadvantages‬

I‭ssue of shares‬‭- only for limited‬ ‭●‬ P ‭ ermanent source of‬ ‭●‬ I‭f too many shares are‬
‭companies from shareholders‬ ‭capital‬ ‭ownership may change‬
‭●‬ ‭Does not need to be‬ ‭●‬ ‭Shareholders expect‬
‭repaid‬ ‭dividends‬
‭●‬ ‭Not interest has to be‬
‭paid‬

‭ ank loans‬‭- Money borrowed‬

B ‭‬ Q
● ‭ uick to arrange‬ ‭●‬ W ‭ ill have to leave‬
‭from banks‬ ‭●‬ ‭Can be varying lengths of‬ ‭collateral‬
‭time‬ ‭●‬ ‭Has to be repaid after a‬
‭●‬ ‭Large companies get‬ ‭period of time‬
‭smaller interest rates‬ ‭●‬ ‭Needs to pay interest‬

‭ ebenture issues‬‭- Long term‬

D ‭●‬ C
‭ an be used to raise very‬ ‭●‬ H
‭ as to be repaid with‬
‭loan certificates issued by‬ ‭long term finance‬ ‭interest‬
‭companies. Like shares,‬
‭debentures will be issued to the‬
‭public and people can buy them‬

‭ rants‬‭- Governments can offer‬

G ‭●‬ W
‭ ill not have to be repaid,‬ ‭●‬ W
‭ ill need to meet specific‬
‭grants to companies‬ ‭free‬ ‭requirements‬
‭7.‬ M
‭ icro-fincance‬‭- Special institutes operate in low‬‭developed countries where‬
‭financially lacking people can ask to loan money.‬
 ‭8.‬ ‭Crowd-funding‬‭- Raising money through a pool of people, by asking for small funds‬

‭9.‬
‭Short term finance‬ ‭Advantages‬ ‭Disadvantages‬

‭ verdrafts‬‭- Banks allow the‬

O ‭‬ F
● ‭ lexible form of borrowing‬ ‭●‬ H ‭ as to be repaid with‬
‭business to take more money‬ ‭●‬ ‭Overdrawn amount has‬ ‭interest‬
‭than what is present in their‬ ‭interest but not the whole‬ ‭●‬ ‭May be ask to repay over‬
‭banks accounts‬ ‭amount‬ ‭a short period of time or‬
‭●‬ ‭Cheaper than loans in the‬ ‭at short notice‬
‭long term‬ ‭●‬ ‭Interest rates vary‬
‭periodically‬

‭ rade-credits‬‭- When‬
T ‭●‬ A ‭ llows the business to‬ ‭●‬ S
‭ upplier may stop offering‬
‭businesses delay the payments‬ ‭save up for the future‬ ‭discounts and may even‬
‭of their suppliers‬ ‭●‬ ‭No interest payment‬ ‭stop supplying if the delay‬
‭is too long‬

‭ ebt-factoring‬‭- When business‬

D ‭●‬ T ‭ he risk of collecting the‬ ‭●‬ B
‭ usiness won’t get 100%‬
‭ask special agencies to help‬ ‭debts is on the agency‬ ‭of the value‬
‭collect their debts‬ ‭●‬ ‭Immediate cash is‬
‭available‬

‭10.‬
‭Long term finance‬ ‭Advantages‬ ‭Disadvantages‬

‭Loans‬

‭Debentures‬

‭Issue of shares‬

‭ ire purchase‬‭- Allows business‬

H ‭●‬ B
‭ usiness doesn’t require‬ ‭‬ A
● ‭ cash deposit is required‬
‭to buy a fixed asset and pay it‬ ‭a large sum of money to‬ ‭●‬ ‭Can carry large interest‬
‭monthly with interest‬ ‭buy the asset‬ ‭rates‬

‭ easing‬‭- Allows a business to‬

L ‭●‬ T ‭ he firm doesn;t need a‬ ‭●‬ O
‭ verall payments will be‬
‭use the asset with monthly‬ ‭huge sum of money‬ ‭more expensive than just‬
‭payments but there is not‬ ‭●‬ ‭Maintanence is done by‬ ‭buying the product in the‬
‭ownership‬ ‭the leasing company‬ ‭first place‬

‭11.‬‭- Purpose‬
‭- Amount of time‬
‭- Amount required‬
‭- Legal form of the company and size‬
‭- Control loss‬
‭- Risks involved‬

‭12.‬‭- Income statements‬

‭- Cash flow forecasts‬
‭- Business plans‬
‭- Existing loans and source of finance‬
‭- Existing collateral‬
 ‭13.‬‭- High shares and profit, shows improvement‬
‭- High dividends‬
‭- Good reputation‬

‭Cash Flow‬
‭ .‬ ‭Define cash flow‬
1
‭2.‬ ‭Define liquidation‬
‭3.‬ ‭Define cashflow forecast‬
‭4.‬ ‭What is the equation for net cashflow?‬
‭5.‬ ‭What is stated first in a cash flow forecast?‬
‭6.‬ ‭How do you find the opening balance?‬
‭7.‬ ‭How does a cashflow forecast help managers?‬
‭8.‬ ‭What are the uses of a cash flow forecast? List 3‬
‭9.‬ ‭How to overcome cash flow problems? List the short and long term methods‬
‭10.‬‭Give 3 examples of working capital‬

‭Answers - 13/5/2024‬
‭ .‬
1 ‭ he cash inflows and outflows over a period of time.‬
T
‭2.‬ ‭When a business has to sell its assets because of bankruptcy.‬
‭3.‬ ‭A statement that shows the future cash inflows and outflows.‬
‭4.‬ ‭Net cash flow = Net cash inflows - Net cash outflows‬
‭5.‬ ‭Cash inflows‬
‭6.‬ ‭From the closing balance of the month before‬
‭7.‬ ‭- Tell how much cash is available to the business‬
‭- If the business needs to borrow money‬
‭- if the business needs to sell its assets‬
‭- Whether the business has to much cash and could use it on the business for‬
‭profitable‬‭reasons‬
‭8.‬ ‭- To show the bank the cash flows of the business‬
‭- Show how much cash is available to the business‬
‭- Predict future cash flow problems‬
‭- So businesses can prepare to find sources of finance‬
‭- Setting up a business‬
‭ .‬ ‭Short:‬
9
‭-‬ ‭Delaying payments to suppliers‬
‭-‬ ‭Collect debts from debtors‬
‭Long:‬
 -‭ ‬ ‭Attract new customers‬
‭-‬ ‭Attract new investors‬
‭10.‬‭Cash from selling assets‬
‭Cash from selling products‬

‭Answers‬
‭1.‬ ‭The cash inflows and outflows over a period of time.‬

‭2.‬ ‭When a business needs to sell it’s assets for cash.‬

‭3.‬ ‭Helps predict the future cash flows of the business.‬

‭4.‬ ‭Net cashflow = Net cash inflow - Net cash outflow‬

‭5.‬ ‭The cash inflows‬

‭6.‬ ‭The closing balance from the month before‬

‭7.‬ -‭ How much money the business needs to pay for rent, wages and other bills.‬
‭- How much money the business will need to ask the bank for a loan.‬
‭- Whether there is extra cash in the business, so it can be used for the business‬
‭profitably‬

‭8.‬ -‭ Able to tell managers if there is a negative closing balance, so the business can‬
‭prepare to find sources of finance.‬
‭- Statement of how much the business needs to lend‬
‭- Setting up a business, the cash flow forecast will tell the manger the fixed costs of‬
‭the business‬

‭9.‬
‭Short term:‬ ‭Long term:‬
‭-‬ ‭Increasing bank loans‬ ‭-‬ ‭Attract new investors‬
‭-‬ ‭Delay payments of suppliers‬ ‭-‬ ‭Cut costs and increase efficiency‬
‭-‬ ‭Ask debtors to pay quicker‬ ‭-‬ ‭Attract new consumers with new products‬
‭-‬ ‭Delay payments for capital‬
‭equipment‬

‭10.‬‭- Cash from expenses‬

‭- Cash due from debtors‬
‭- Cash from inventory‬
‭Income statements‬
‭ .‬
1 ‭ efine accounts‬
D
‭2.‬ ‭What is the formula for profit? How to increase profit?‬
‭3.‬ ‭Why is profit important to a business‬
‭4.‬ ‭Define income statement‬
‭5.‬ ‭Draw the coin diagram and show all calculations‬
‭6.‬ ‭What is the use of income statements?‬

‭Answers - 13/5/2024‬
‭ .‬ T
1 ‭ he financial records of a business’s transactions‬
‭2.‬ ‭Profit = Revenue - Costs‬
‭Profit can be increased by increasing revenue or reducing costs‬
‭3.‬ ‭- A reward for risk-taking‬
‭- Reward for enterprise‬
‭- Indicator of success‬
‭4.‬ ‭A profit or loss account. Shows the income generated by the business and the costs‬
‭over a period of time‬

‭5.‬

‭6.‬ -‭ Helps show the profitability of an individual product‬

‭- Shows a profit or loss‬
‭- Can compare with competitors or the past‬
‭- Determine which product to launch‬
‭Answers‬
‭1.‬ ‭The financial records of a business’s transactions‬

‭2.‬ ‭Profit = Sales revenue - Total costs‬

‭a.‬ ‭Cut costs or increase sales revenue‬

‭3.‬ -‭ Reward for enterprises‬

‭- Reward for risk taking‬
‭- Indicator of success‬
‭- Can be reinvested back into the business for growth and expansion‬

‭4.‬ A
‭ financial document that shows the income generated by business activities and the‬
‭cost made by the business over a period of time. This is also called a profit and loss‬
‭statement.‬

‭5.‬
‭a.‬ ‭Revenue = Quantity of goods sold x Price‬
 ‭b.‬ C ‭ ost of goods = Opening inventory + Purchase of operations - Closing‬
‭inventory‬
‭c.‬ ‭Gross profit = Sales revenue - COS‬
‭d.‬ ‭Net profit = Gross profit - Expenses or Sales revenue - (Expenses + COS)‬
‭e.‬ ‭Profit after tax = Net profit - tax‬
‭f.‬ ‭Retained profit = Profit after tax - Dividends‬

‭6.‬ -‭ Can compare with competitors profitability and past years‬

‭- Show the profitability of products‬
‭- Determine which product to launch‬
‭- Shows profit or loss‬

‭Statement of financial position‬

‭ .‬
1 ‭ efine balance sheet‬
D
‭2.‬ ‭Define assets and list examples‬
‭3.‬ ‭Define liability and list examples‬
‭4.‬ ‭Equation for working capital‬
‭5.‬ ‭Define shareholder’s equity. What is the equation for shareholder’s equity?‬
‭6.‬ ‭Equation for capital employed‬
‭7.‬ ‭Use of a balance sheet‬

‭Answers - 14/5/2024‬
‭1.‬ T ‭ he financial statement that shows the value of assets and the debts the business‬
‭owes over a specific period of time.‬
‭2.‬ ‭Assets - the stuff the business owns‬
‭Fixed assets - Rent, land and buildings‬
‭Current assets - Inventory‬
‭Non-current assets - Cash‬
‭3.‬ ‭Liabilities - The stuff the business owes‬
‭Non-current liabilities - Bank loans, debts‬
‭Current liabilities - Payments to suppliers‬
‭4.‬ ‭Working capital = Current assets - Current liabilities‬
‭5.‬ ‭The total amount that shareholders have invested in the business.‬
‭Shareholder’s equity = Total assets - Total liabilities‬
‭6.‬ ‭Capital employed = Shareholder’s equity +‬‭Non-current‬‭assets‬
‭7.‬ ‭- To see if any assets can be sold of‬
‭- If the business still has any debts left‬
 -‭ Check the value of their assets‬
‭- if the business can pay dividends‬
‭- WHether the business is liquid‬

‭Answers‬
‭1.‬ A
‭ financial document that lists the values of a business’s assets and liabilities at a‬
‭particular time.‬

‭2.‬ ‭Items of value owned by a business‬

‭a.‬ ‭Fixed assets - buildings, equipment‬
‭b.‬ ‭Current assets - Cash, inventory‬
‭c.‬ ‭Intangible assets - Copyright‬

‭3.‬ ‭Debts owned by the business‬

‭a.‬ ‭Current liabilities (Payments to suppliers) - Must be paid within a year‬
‭b.‬ ‭Non-current liabilities (Loan, debentures) - Do not have to be paid within a‬
‭year‬

‭4.‬ ‭Current assets - Current liabilities = Working capital‬

‭5.‬ ‭The total amount of money invested in the company by shareholders‬

‭a.‬ ‭Total assets - Total liabilities = Shareholder’s equity‬
‭6.‬ ‭Non-current assets + Shareholder’s equity = Capital employed‬

‭7.‬ -‭ Shows if the business can pay it’s debts‬

‭- Whether the business is liquid‬
‭- If investors will get their dividends‬
‭- Can see if there are assets that can be sold off and won’t damage the company or‬
‭ruin demand‬
‭Analysis of Accounts‬
‭ .‬
1 ‭ efine profitability‬
D
‭2.‬ ‭What are the three profitability ratios? What are the formulas? What do they show?‬
‭3.‬ ‭Define liquidity‬
‭4.‬ ‭What are the two liquidity ratios? What are the formulas? What do they show?‬
‭5.‬ ‭Whats uses and users of account?‬
‭6.‬ ‭Limitations of using accounts?‬

‭Answers - 14/5/2024‬
‭1.‬ T ‭ he ability of a business to earn profit and how efficient the business is.‬‭The ability of‬
‭a company to use its resources to generate revenue in excess of its expenses.‬
‭2.‬ ‭A. Return on capital employed‬
‭How much net profit is made over capital employed.‬
‭Net profit/ Capital employed x 100 = ROCE‬

‭ . Gross profit margin‬

B
‭How much profit is made over sales.‬
‭Gross profit/Sales revenue x 100 = GPM‬

‭ . Net profit margin‬

C
‭If enough profit is generated from its sales and whether costs are under control.‬
‭Net profit/ Sales revenue x 100 = NPM‬
‭3.‬ ‭The ability of a business to pay back its short term debts.‬
‭ .‬ ‭A. Current ratio‬
4
‭Shows if enough assets can be sold to pay liabilities‬
‭Current assets/ Current liabilities = Current ratio‬

‭ . Acid test ratio‬

B
‭Removes inventory from the equation because inventory takes time to sell, so it‬
‭checks if business’ can pay the debts instantly.‬
‭Current assets - Inventory/ Current liabilities = Acid test ratio‬
‭5.‬ ‭- Governments‬
‭Want to see if the business can pay tax and employees‬
-‭ ‬ ‭Employees‬
‭Want to know if their business is successful‬
‭-‬ ‭Managers‬
‭Used to manage the business‬
 ‭ ind ways to make business more profitable‬
F
‭-‬ ‭Shareholders‬
‭Used to compare with other businesses to see which to invest‬
‭See if they will receive dividends‬
‭-‬ ‭Banks‬
‭Want to know if they can pay short term debts‬
‭6.‬ ‭Accounts are recent, may have had an inflation recently‬
‭Public accounts don’t show everything‬
‭Some businesses may use different accounting methods‬

‭Answers‬
‭1.‬ T
‭ he ability of a company to use its resources to generate revenue in excess of its‬
‭expenses.‬

‭2.‬ ‭Return of capital employed‬

‭ 𝑒𝑡‬‭‬‭𝑝𝑟𝑜𝑓𝑖𝑡‬
𝑁
‭ 𝑎𝑝𝑖𝑡𝑎𝑙‬‭‬‭𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑‬
𝐶
‭‬ × ‭‭1
‬ 00‬
‭This shows the net profit made from the capital employed‬‭(shareholders equity + non‬
‭current assets) The higher the percentage the better the profitability.‬

‭a.‬ ‭Gross profit margin‬

‭ 𝑟𝑜𝑠𝑠‬‭‬‭𝑝𝑟𝑜𝑓𝑖𝑡‬
𝐺
‭𝑆𝑎𝑙𝑒𝑠‬‭‬‭𝑟𝑒𝑣𝑒𝑛𝑢𝑒‬
‭‬ × ‭‬‭100‬
‭This shows the gross profit made from sales. Gross profit includes expenses.‬

‭b.‬ ‭Net profit margin‬

‭ 𝑒𝑡‬‭‬‭𝑝𝑟𝑜𝑓𝑖𝑡‬
𝑁
‭ 𝑎𝑙𝑒𝑠‬‭‬‭𝑟𝑒𝑣𝑒𝑛𝑢𝑒‬
𝑆
‭‬ × ‭‬‭100‬
‭This shows the net profit made from sales. Net profit doesn’t include expenses.‬

‭3. The ability for a business to pay off their short term debts.‬

‭4. Current ratio‬

 ‭ 𝑢𝑟𝑟𝑒𝑛𝑡‬‭‬‭𝑎𝑠𝑠𝑒𝑡𝑠‬
𝐶
‭ 𝑢𝑟𝑟𝑒𝑛𝑡‬‭‬‭𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠‬
𝐶
‭ ow many current asset there are in proportion to current liabilities. A number higher than 1‬
H
‭shows that the business can pay off it’s current liabilities with the current assets.‬

‭5. Acid test ratio‬

‭𝐶𝑢𝑟𝑟𝑒𝑛𝑡‬‭‬‭𝑎𝑠𝑠𝑒𝑡𝑠‬‭‬−‭‭𝐼‬ 𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦‬
‭𝐶𝑢𝑟𝑟𝑒𝑛𝑡‬‭‬‭𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠‬
I‭t removes inventory from the equation. Because inventory take time to sell. Without relying‬
‭on inventory so it as readily cash available.‬

‭6. - Other business‬

‭●‬ ‭Comparing‬
‭●‬ ‭Or consider taking over‬
‭Workers‬
‭●‬ ‭Seeing if the business is secure for‬