Summary Chapter 5 - Assessing competitiveness: A level edexcel business studies revision summaries

Borja Jimenez Business A-level



ASSESSING COMPETITIVENESS (5)
UNIT 5



Contents
ASSESSING COMPETITIVENESS (5)...............................................................................................................1
INTERPRETATION OF FINANCIAL STATEMENTS (17)................................................................................1
STATEMENT OF COMPREHENSIVE INCOME.........................................................................................1
STATEMENT OF FINANCIAL POSITION (SOFP) / BALANCE SHEETS.......................................................2
RATIO ANALYSIS (18)...............................................................................................................................4
PROFITABILITY RATIOS.........................................................................................................................4
LIQUIDITY RATIOS................................................................................................................................4
GEARING RATIOS.................................................................................................................................5
RETURN ON CAPITAL EMPLOYED (ROCE).............................................................................................5
HUMAN RESOURCES (19).........................................................................................................................6
LABOR PRODUCTIVITY.........................................................................................................................6
LABOR TURNOVER...............................................................................................................................6
LABOR RETENTION...............................................................................................................................7
ABSENTEEISM......................................................................................................................................7
INTERPRETATION OF FINANCIAL STATEMENTS (17)
All companies are required by law to produce financial statements. The following are required:

 Statement of financial position (SOFP) / Balance sheets
 Statement of comprehensive income (SOCI)



STATEMENT OF COMPREHENSIVE INCOME
This is a financial document showing a firm’s income and expenditure in a particular time period; it is
mainly used to calculate profits. The financial information has to be presented in a standard way.



KEY INFORMATION
 Cost of sales: refer to the direct costs related to the production of a good or the supply of a
service.
 Gross profit: profit made before the deduction of general overheads.

GROSS PROFIT= REVENUE – COST OF SALES


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, Borja Jimenez Business A-level


 Administrative expenses: general expenses or indirect costs.
 Revenue: money that businesses receive from selling goods and services; must not include VAT.
 Other operating expenses: any expenses not included in administrative costs.
 Selling expenses: a range of expenses that are directly related to the selling of products.
 Operating profit: This is the profit generated from the firm’s core activities.

OPERATING PROFIT= GROSS PROFIT – EXPENSES


 Finance costs: costs related with borrowing capital; interest. A business may also receive
interest if it has money in deposit accounts - finance income.
 Profit of the year (net profit): Profit before taxation.

PROFIT OF THE YEAR= OPERATING PROFIT – COST OF FINANCE



 Profit of the year after taxation (net profit after tax): the amount of money that is left over all
expenses. Including taxation, has been deducted from revenue


STAKEHOLDER INTEREST
The SOCI can be used to help evaluate the performance of a business. It is also possible to assess the
growth and progress of an organization.

A range of stakeholders will show particular interest on such document: shareholders, managers,
employees, suppliers, the government…



STATEMENT OF FINANCIAL POSITION (SOFP) / BALANCE SHEETS
This is a financial statement which shows the assets, liabilities, and capital a business has on a particular
date.

- Assets: items owned by the business, or they are owned to the business
- Liabilities: amounts owed by the business (debts)
- Capital: money invested by the owner
In a statement of financial position, the value of the assets will equal the value of liabilities or capital.
This is because all resources purchased by a business have to be financed either by capital or by
liabilities.

ASSETS
 Non-current assets (fixed assets):
o long term resources that will be used repeatedly by the business over a long period of
time.
o Intangible assets1 are also included in this category
 Current assets:
o Items that are used and replaced regularly.

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non-physical assets such as customer lists and brand names

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