Using Financial Records
Cash flow and Final Accounts
Every business needs to record…
Cash Flow
Net Worth
Cash Flow Records…
-cash going in
-cash going out
-and the cash left
for a given period, such as a
month or a year
Cash in…
… (otherwise known as
Receipts) can be anything
from sales, to interest
earned on savings, the
return on an investment or
cash from selling an asset,
such as a car
Cash out…
… Can be anything from
accounting and
consultancy costs, to
general bills, sales tax
(GST) and drawings –
the owner’s own wage
Final Accounts
-Net Worth (the business’s
Final Accounts are made up of:
• A Trading, Profit and Loss
• A Balance Sheet
Trading, Profit and Loss Accounts
-Gross Profits (funds before
sales costs)
-Net Profits (funds after sales
Balance Sheets
Are split into two sections:
Net Worth – showing the value
of assets after debts
Financed By – showing how the
assets are paid for
Ratio Analysis…
…Is a method of analysing a
company’s performance and
…Gives business owners easily
understandable results in
percentages or ratios
The Results…
…Are used as Key
Performance Indicators (KPIs)
to compare business health
with previous years or other
Ratio Analysis primarily focuses on…
- Profitability
- Liquidity
- Efficiency
Profit Ratios…
...Provide percentage
margins - the higher the
percentage, the more
profit/return on
investment is being
Liquidity Ratios…
…Provide real ratios calculated
to analyse changes in the
ability to pay debts
Two main liquidity ratios are
the Current ratio and the Acid
Test Ratio
Efficiency Ratios…
…Analyse how well a
business uses its assets - the
higher the ratio, the more
efficient a company is