Assessing the BusinessAssessing the Business Chapter Review Key Terms Checklist
Using a pencil, place a in each box to indicate how well you know and understand each Key Term. q I know and understand this Key Term. q I am still a bit uncertain about what this Key Term means. q I don’t understand this Key Term yet. When you revise each chapter, tick the boxes again to indicate how much you have learned.
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Stakeholders are people who have a financial interest in how well a business is doing.
Capital employed is the total finance used by a firm in the current year.
Liquidity (also known as solvency) refers to the ease with which a business can pay its short-term bills.
Insolvency occurs when total liabilities (debts) exceed total assets. This means that the business is unable to pay all its debts.
Liquidation occurs when a business is closed down and its assets sold off.
The current ratio (working capital ratio) measures a firm’s ability to pay its current liabilities.
The acid test ratio measures a firm’s ability to raise cash quickly to meet its current liability debts.
Gearing (leverage) shows how much long-term debt has been borrowed compared to how much equity finance has been invested by the owners.
Equity capital is the total value of issued ordinary share capital plus retained earnings.
Low gearing refers to having a relatively small amount of long-term debt.
High gearing refers to having a relatively large amount of long-term debt.
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Return on investment measures the percentage return (profit) that a business is generating on its capital employed.
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Credit control means monitoring which customers are given credit and for how long, and ensuring they pay up on time. q q q
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Debt capital is the total value of the long-term loans owed by the business.
