The document provides formulas for calculating key financial metrics like gross profit, net profit, profit margin, return on capital employed, current ratio, and acid test ratio. It also defines common financial terms like turnover, cost of sales, current assets, fixed assets, total assets, current liabilities, capital employed, working capital, and operating profit.

1. Finance —Formula Reminders
Profit
Gross profit = Turnover - Cost of sales
Net profit = Gross Profit - Fixed costs
Profitability
Profit margin = Profit X 100
Turnover
ROCE = Net Profit X 100
Capital employed
Total Assets = Current Assets + Fixed Assets
Liquidity
Current Ratio = Current Assets Acid Test Ratio = Current Assets –Stock
Current Liabilities Current Liabilities
Working Capital = Current Assets — Current Liabilities
Finance —Formula Reminders
Profit
Gross profit = Turnover - Cost of sales
Net profit = Gross Profit - Fixed costs
Profitability
Profit margin = Profit X 100
Turnover
ROCE = Net Profit X 100
Capital employed
Total Assets = Current Assets + Fixed Assets
Liquidity
Current Ratio = Current Assets Acid Test Ratio = Current Assets –Stock
Current Liabilities Current Liabilities
Working Capital = Current Assets — Current Liabilities

2. Finance —Key Terms
• Turnover – The Total value of money received from sales within a trading period. Also known as sales reve-
nue
• Cost of Sales – How much it costs the business to produce the goods they sell. Also known as costs of
goods sold.
• Costs – The amounts that a business has to pay in order to keep trading. Fixed & Variable Costs.
• Current Assets – Something owned by a business that it does not expect to keep for more than 12 months
and can be turned in to cash quickly. E.g stock, cash in the bank
• Fixed Assets – Possessions which are owned by a business which are difficult to turn into cash. E.g build-
ings
• Total Assets — The total current and fixed assets. Everything a business owns or is owed.
• Current Liabilities – A debt that a business has not yet paid, but expect to pay within the next 12 months
• Capital Employed – A measure of a business’ assets which it can use to help it raise revenues. = Total As-
sets – Current Liabilities
• Working Capital – This is the day-to-day finance required for running a business. = Current Assets – Cur-
rent Liabilities.
• Gross Profit – What is left after the cost of sales has been subtracted from turnover. Overheads, inter-
est and tax have not been taken into account.
• Net profit – The profit made by a business AFTER all the trading expenses have been paid.
• Operating Profit – The profit made by a business in it’s ordinary trading activities. All the administrative
and selling expenses are subtracted from the Gross Profit.
• Current Ratio — This demonstrates how many assets there is to pay off liabilities. 1:1 is safe.
• Return on Capital Employed — (ROCE) Measures if money invested into a business has been used effec-
tively. A high % ROCE means that the money invested is being used effectively and profitably.
Finance —Key Terms
• Turnover – The Total value of money received from sales within a trading period. Also known as sales reve-
nue
• Cost of Sales – How much it costs the business to produce the goods they sell. Also known as costs of
goods sold.
• Costs – The amounts that a business has to pay in order to keep trading. Fixed & Variable Costs.
• Current Assets – Something owned by a business that it does not expect to keep for more than 12 months
and can be turned in to cash quickly. E.g stock, cash in the bank
• Fixed Assets – Possessions which are owned by a business which are difficult to turn into cash. E.g build-
ings
• Total Assets — The total current and fixed assets. Everything a business owns or is owed.
• Current Liabilities – A debt that a business has not yet paid, but expect to pay within the next 12 months
• Capital Employed – A measure of a business’ assets which it can use to help it raise revenues. = Total As-
sets – Current Liabilities
• Working Capital – This is the day-to-day finance required for running a business. = Current Assets – Cur-
rent Liabilities.
• Gross Profit – What is left after the cost of sales has been subtracted from turnover. Overheads, inter-
est and tax have not been taken into account.
• Net profit – The profit made by a business AFTER all the trading expenses have been paid.
• Operating Profit – The profit made by a business in it’s ordinary trading activities. All the administrative
and selling expenses are subtracted from the Gross Profit.
• Current Ratio — This demonstrates how many assets there is to pay off liabilities. 1:1 is safe.
• Return on Capital Employed — (ROCE) Measures if money invested into a business has been used effec-
tively. A high % ROCE means that the money invested is being used effectively and profitably.