Accounting Terms

Terms and calculations used in Company Accounts and Credit Reports

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Profit and Loss 

Currency The currency referred to in the figures - GBP = Great British Pound, EUR = Euro.
Consolidated A/cs Are the accounts consolidated - Y = Yes, N = No.
Turnover Income earned from normal business activities, including the sale of goods and services net of VAT.
Export Direct exports from the country of incorporation.
Cost of Sales The direct cost of goods and services supplied.
Gross Profit The difference between Turnover and Cost of Sales.
Wages & Salaries Total employee costs including pensions and social security.
Directors Emoluments Total payment made to directors for services as directors.
Operating Profit The results of the company after deducting its Operating Costs from Gross Profit.
Depreciation The amount written off Tangible Fixed Assets during the year, including impairment charges.
Audit Fees The amount paid to the auditors for the statutory audit.
Interest Payments Interest paid by the business after any capitalised element, excluding exchange gains or losses.
Pre Tax Profit This equates to Operating Profit less Non-operating Items.
Taxation Tax charges paid against profits. This can be positive representing a Tax credit.
Profit After Tax The profit or loss of the company after the deduction of corporation tax.
Dividends Payable The total amount of profits distributed to shareholders.

 

Balance Sheet 

Tangible Assets Physical assets owned by the company which can be seen or touched such as land, machinery etc. plus Investments and debtors due after 1 year.
Intangible Assets This relates to 'assets' that have a value but have no physical existence such as Trade Marks, Patents, Goodwill, Research & Development etc.
Total Fixed Assets The total of Tangible and Intangible Assets.
Stock Goods on hand as yet to be sold and work in progress (goods not considered to be a final product).
Trade Debtors Amounts owing from customers to the company for goods and services supplied on credit.
Cash Cash includes cash in hand and cash at bank.
Other Debtors Amounts owing from group companies or any other debtors not included in trade debtors.
Miscellaneous Current Assets Any asset due within one year that isn't included in Debtors, Stocks and Cash such as short term investments.
Total Current Assets The total of Stocks, Debtors, Cash and other assets due within one year.
Trade Creditors The amount owing to suppliers for goods and services provided on credit.
Bank Loans & Overdrafts Total amount of Bank loans and overdrafts.
Other Short Term Finance Any finance to the company due within one year from any organisation other than banks.
Miscellaneous Current Liabilities Any liability due within one year that isn't included in Trade Creditors, Bank Loans and Overdrafts and Other Short Term Finance e.g. Accruals and deferred income
Total Current Liabilities The total of Trade Creditors, Bank Loans & Overdrafts, Other Short Term Finance and Miscellaneous Current Liabilities.
Bank Loans & Overdrafts and LTL The total of Total Long Term Liabilities and Bank Loans and Overdrafts.
Other Long Term Finance Any finance to the company due after one year from any organisation other than banks.
Total Long Term Liabilities The total of Other Long Term Finance, long term bank loans, Pension Liability, Provisions and any other non-current liabilities.

 

Capital & Reserves 

Called Up Share Capital This is the issued and paid share capital from shareholders.
P & L Account Reserve The accumulation of profits/losses from previous trading periods.
Revaluation Reserve Any unrealised gains on revaluations of Fixed assets.
Sundry Reserves The total of Capital reserves, Share premium account, any other related company reserves and capital grants.
Shareholder Funds The total of Called up Share Capital, P&L Account Reserve, Sundry Reserves and Revaluation Reserve.

 

Other Financial Items 

Net Worth Often referred to as the 'book value' of the business this equals Shareholders Funds less Intangible Assets.
Working Capital Total Current Assets less Total Current Liabilities. This represents the surplus/deficit of funds from normal trading activities.
Total Assets The total of Total Fixed Assets and Total Current Assets.
Total Liabilities The total of Total Long Term Liabilities and Total Current Liabilities
Net Assets Total Assets less Total Liabilities

 

Cash Flow 

Net Cashflow from Operations Net cash from buying/selling goods and services from commercial transactions.
Net Cashflow before Financing This is the total cash generated or used by the business before any funding activity and movements in the cash balances. If positive, the business has generated a cash surplus, which can be used as liquid funds or to repay debt.
Net Cashflow from Financing Cash derived from the issue of equity capital or the use of loan facilities matched against the cash utilised in repaying borrowings.
Increase in Cash The difference between the current and previous year's cash totals.

 

Miscellaneous 

Contingent Liability Whether or not the company has any potential liabilities. These include guarantees, indemnities and letters of credit.
Capital Employed The total of Shareholders Funds and Total Long Term Liabilities.
Number of Employees Total number of personnel employed by the company.

 

Ratios 

Pre-tax profit margin % Pre-tax profits / Turnover x 100. This shows the percentage of Profit in each pound of sales or the equivalent of retailers 'mark-up'.
Current ratio Total Current Assets / Total Current Liabilities. This is an indication of a company's ability to meet short-term debt obligations; the higher the ratio, the more liquid the company is.
Sales/Net Working Capital Turnover / (Total Current Assets - Total Current Liabilities). The higher the ratio the higher the volume of Sales made per the companies working capital.
Gearing % Bank Overdraft and Loans plus Total Long Term Liabilities/Shareholders funds x 100. This is the relationship between the size of the companies debt in proportion to Equity (Shareholders Funds).
Equity in % Shareholder Funds / (Total Current Assets + Tangible Fixed Assets) x 100. This ratio shows the worth of the company (shareholders funds) as a percentage of total current and tangible assets.
Creditor Days Trade Creditors / Turnover x 365 days. This is a calculation that predicts the average time taken for the company to settle its invoices for goods and services provided by it suppliers.
Debtor Days Trade Debtors / Turnover x 365 days. This is a calculation that predicts the average time taken for the company to collect its invoices for goods and services provided to its customers.
Liquidity/Acid Test Current assets - Stocks/Current Liabilities. This, like the current ratio, measures how quickly in the short term a company can meet its debts. However, this ratio excludes stock as there is no guarantee the value of Stocks can be realised quickly.
Return On Capital Employed % Pre-Tax Profit / Capital Employed x 100. This ratio measures the profits a business yields in return for the money (Capital) invested.
Return On Total Assets Employed % Pre-Tax Profits / Total Assets x 100. This shows the 'return' or 'profit' on each pound of Assets used as a percentage.
Current Debt Ratio Total Current Liabilities / Shareholders Funds. This measures the amount of short term debt in relation to the value of shareholders funds.
Total Debt Ratio Total Short Term & Long Term Debt / Shareholder Funds. This shows the relative indebtedness of a company in relation to the worth of the company.
Stock Turnover Ratio % Stocks / Turnover x 100. This shows the number of times the trading stock of a company is "turned over" in a trading period. If the ratio is low this indicates that relatively little money is tied up in Stocks.
Return on Net Assets Employed % Pre-Tax Profits / Net Assets x 100. This shows the return in percent on the net assets of the company. The higher the percentage the more profitable the company.
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