Turnover
Total invoiced sales for the period, net of VAT. UK sales,
exports and overseas sales and inter-company sales will
be included.

Cost of sales
Cost components directly related to turnover.

Gross profit
This indicates the profit before deducting depreciation,
distribution, selling and administration costs. It is an
indicator of the underlying profitability of a business’s
core operations.

Operating Profit
Indicates the profit and loss arising from core business
activities. The figure is pre-tax profit plus Interest paid
minus non-trading income.

Non-trading income
Comprises investment income, such as income from
quoted and unquoted investments, rents received, share
of profit from associated companies; as well as reserves adjustments, such as transfers from capital grant reserve.
Interest relief grants. Write-offs of investments and
intangibles will also be included.

Interest Payable
Interest paid by the business. This will be the net charge
for interest after any capitalised element. It should be
noted that many private companies do not disclose this
figure in full, or aggregate short and long term and hire
purchase interest together.

Pre-tax profit
The net trading profit figure after deduction of all
operating expenses including depreciation & finance
charges, but before deduction of tax, dividends,
subventions or group relief, and other appropriations.
Where applicable it will include the share of profits and
losses of associated companies. Items described by
the company as exceptional are included. Extraordinary
items are excluded.

Taxation
Tax charges paid against profits. This can be negative, representing a tax credit.

Profit after tax
This figure represents the profit or loss after deduction
of corporation taxation but before the deduction of
dividends, minority interests and any extraordinary
items.

Dividends payable
This item includes both proposed and paid items and
provisions / appropriations determined by FRS4.

Retained profits
This figure is after the deduction of extraordinary
items, taxation, dividends and any other appropriations
(e.g. Minority Interests). Essentially, this is the amount
carried from the Profit and Loss Account to the
accumulated Profit and Loss Account balance on the
Balance Sheet.

Value added
Trading Profit plus salaries and wages. It should be
noted that for the value-added calculation, Staff Costs
are grossed up to reflect national insurance costs.
Value Added represents the difference between the
Sales Income received and Bought-in materials and
services expended in the period.


BALANCE SHEET TERMS

Tangible fixed assets
The sum of Fixed Assets and Intermediate Assets.

Intangible assets
Assets, which do not possess any material, value. Will
include goodwill, trademarks, patents and copyrights,
at their amortised book value. These are assets with
no “physical” existence, but are deemed to confer
benefits to the business in future periods.

Total fixed assets The total of tangible and intangible
fixed assets.

Stocks
Trading stocks, sundry stocks and work in progress net
of progress payments.

Trade debtors
Trade debtors, bills receivable and amounts recoverable
on contracts due within one year. For smaller companies,
when the figure is not disclosed, the figure shown
represents total debtors.

Cash
Cash includes the following : Cash in hand; Cash at
bank; Cash at bank and in hand; Cash balances.

Miscellaneous current assets
Short term assets other than stocks, trade debtors or
cash. Includes items such as:- Bank balances; Bank
account (where not negative); Bank deposit account;
Building society deposit. Short term deposits; Bank
current account; Sundry debtors; Amounts due from
group and related companies; Called up share capital
not paid; Prepayments and Accrued income; Current
asset investments (where these are not short term
deposits).

Total current assets
The sum of Stocks, Trade Debtors, Cash and
Miscellaneous Current Assets.

Total assets
The total of Current and Total Fixed Assets.

Creditors: Amounts falling due within one year
Also referred to as Total Current Liabilities, being the
sum of Trade Creditors, Bank Overdraft and
Miscellaneous Current Liabilities.

Total Assets less Current Liabilities
Total Assets minus Total Current Liabilities.

Total Long Term Liabilities
The sum of Long Term Bank Loans, Other Long Term
Finance and Other Long Term Liabilities.

Total Liabilities
The sum of Current and Long Term Liabilities.

Share capital and reserves
The sum of Called Up Share Capital and Sundry
Reserves.

P&L Account Reserve
The accumulation of profits/losses from previous
trading periods including the retained profit/loss from
the Profit and Loss Account.

Revaluation Reserve
Also known as investment revaluation reserve, property revaluation reserve, and unrealised capital gains on
valuation.

Shareholders’ Funds
The sum of Called Up Share Capital, Sundry Reserves,
P&L Account Reserve and Revaluation Reserve.

Capital Employed
The sum of Shareholders’ Funds and Total Long Term
Liabilities.

Net worth
Shareholders’ funds minus intangibles. Often referred
to as the book value of the business. The long-term
realisable value after all liabilities are cleared.

Working capital
Obtained by subtracting total current liabilities from
thetotal current assets. This represents the surplus /
deficiency of funds from normal trading activities.

Contingent Liabilities
These items are extracted from the notes to the accounts
and include all ‘potential’ liabilities such as guarantees, indemnities, cross guarantees, HM customs and excise,
letters of credit and VAT registration.


CASH FLOW STATEMENT TERMS

Net cash flow from operating activities
Cash receipts and payments from normal operations.

Net cash flow from return on investments and
servicing of finance
Cash derived from holding investments matched against
the cash utilised in paying the interest on finance capital
and the dividends on equity capital. This is a useful
indicator of the business’s performance. A negative figure
would indicate poor profitability or poor management of
working capital efficiency.

Net cash flow 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 cash flow 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 Net cash
A reconciliation of cash movements in terms of cash
and cash equivalent balances.


NOTES TO THE ACCOUNTS TERMS

Exports
This figure represents direct exports from the UK.

Employees’ remuneration
’Wages and salaries’ figure - excluding social security,
pension costs etc., where possible.

Director’s remuneration
All payments made to directors including pension fund contributions, benefits in kind and ex-gratia payments
to their families.

Audit fees
The auditor’s charge for the statutory audit, which
excludes accountancy charges and other non-audit
related fees.

Non audit fees
This refers to amounts charged by the auditors for
services other than the audit.

Depreciation
This indicates the amount written off tangible assets
(including leased assets) during the period.

Average number of employees
Average number of employees employed during the
period.

Fixed assets
This represents a number of items, including the
following: property, plant, fixtures, fittings, office
equipment and motor vehicles, all at written down
value. This will include leased and capitalised assets,
and, for some industries, assets held on a long-term
basis and constantly replaced for renting or hiring out.

Intermediate assets
This represents investments in subsidiary and associated companies, trade and other unquoted investments, long
term amounts due from other group and associated
companies and any other long term debtors.

Due from group non current
Part of intermediate assets, amounts due from other
group companies, associated companies that are
received over one year, and with no stated fixed
repayment terms.

Due from group, current
Amounts due from other group companies or
associated companies that appear to be receivable
within one year.

Trade creditors
This figure includes short-term, i.e. within one year,
portion of trade creditors and trade bills payable. For
smaller companies, where trade creditors have not
been separated out, the figure will represent total
current liabilities.

Bank Overdraft
This includes overdrawn bank account, negative cash
items and bank indebtedness.

Bank loans, current portion
Instalment of bank loan due for repayment within 12
months.

Other short term finance
This includes any undefined ‘Loans’ or ‘Loans’ from
non-banking sources. Typically hire purchase obligations,
leases, factoring advances, stocking loans, debentures, mortgages, capital creditors, amounts due to group and
directors within one year.

Due to group, current
Loans due to group companies due in one year.

Due to directors
Directors loans due in one year.

Other Current Liabilities
This includes all other sundry creditors, accrued expenses
and pre-paid income, including dividends, corporation tax,
social security or other sundry amounts payable within one year.

Short term loans
The sum of Bank Overdraft, Bank Loans (Current Portion)
and Other Short Term Finance.

Long Term Loans
The sum of Long Term Bank Loans and Other Long Term
Finance.

Long Term Bank Loans
Instalments of bank loans repayable in more than one
year.

Other Long Term Finance
This includes long-term portions of hire purchases and
leasing obligations; amounts due to other group, associated or affiliated companies; portions of trade
and sundry creditors payable in more than one year.

Due to Group, non-current
Loans due to group/related companies over more than
12 months.

Due to directors, non-current
Directors’ loans due in more than 12 months.

Other Long Term Liabilities
This includes deferred tax, future tax, minority interests,
pension fund liabilities, provisions for liabilities and
pre-paid income.

Called Up Share Capital The total value of shares issued. This represents the share capital currently invested in the business.

Sundry Reserves
This includes capital reserve, share premium, related
companies’ reserves, merger reserve, consolidation reserve, and capital based grants.


BUSINESS RATIOS TERMS

Profit/Sales (%)
This represents the percentage of sales left as profits or
losses before tax. In general, if profitability is the main
driving force, the higher the result the better. It should
not however, be taken in isolation. Also known as the
Profit Margin.

Profit/Capital Employed (%)
Often used as a primary measure of company performance. This ratio is taken as an indication of how much profit a business yields relative to the money invested. Also referredto as Return on Capital.

Profit/Total Assets (%)
Shows as a percentage the value of the pre-tax profits in proportion to the value of total assets.

Profit/Shareholders funds (%)
Expresses the proportion of pre-tax profit made in relation
to the value of the shareholders funds.

Sales/Total Assets (%)
Shows as a percentage the value of sales in proportion
to the value of total assets. Also referred to as Asset Utilisation.

Sales/Fixed Assets ®
Shows as a ratio the value of sales in proportion to the
value of fixed assets.

Sales/Total Fixed Assets (%)
Shows as a percentage the value of sales in proportion
to the value of fixed assets.

Working capital/Sales (%)
Surplus or deficiency of funds from normal trading activities in relation to its size, measured by sales.

Stock Turnover ®
Turnover divided by stocks held. Generally speaking, the
number of times stock is renewed each year.

Credit Period (days)
The number of days, on average, for the company to collect trade debt. Calculated by dividing Trade Debtors
by Sales and multiplying by 365 days.

Creditor days (days)
The number of days it takes the company to pay trade
creditors. This ratio provides an indication of the amount
of credit given to the business by its suppliers. The formulae is trade creditors, divided by sales, multiplied
by 365 days.

Current ratio ®
This represents the number of times the business’
short-term assets cover its current liabilities. It measures the ability to meet its day to day commitments.

Liquidity ratio ®
This represents the number of times a customer’s quick
assets can cover its current liabilities, quick assets being
defined as current assets less stock. This is taking into
account the fact that it takes a reasonable amount of time
for stock to be converted into cash.

Total Debt/Net Worth (%)
A way of measuring the “gearing” or “leverage” of a business, by comparing total loans (short and long term)
to net worth.

Bank Overdraft & Long term liabilities/Net Worth ®
This ratio represents the relationship between the bank
overdraft & long term borrowings and other amounts due
over 12 months, against the net worth.

Shareholders funds/Total Liabilities ®
This represents the business’s liabilities as a ratio of
shareholders’ funds. This ratio provides a measure of protection given by shareholders to other parties who contribute funds, e.g. banks, creditors etc. A falling ratio indicates increasing financial risk.

Long Term Debt/Net Worth (%)
This represents the debt outstanding beyond 12 months in
relation to net worth.

Long term liabilities/Net Worth ®
Ratio of liabilities due over a year in relation to the net worth.

Interest/Pre-Interest Profit (%)
Sometimes referred to as Income gearing, this measures
the proportion of pre-interest profit which is required to
service debt.

Total Debt/Working Capital ®
A gearing measurement which compares total borrowings
with the surplus or deficit of funds from normal trading
activities.

Bank Overdraft & Long term liabilities/Working
Capital ®
Ratio of bank overdraft and liabilities due over 12 month
period in relation to the working capital of the business.

Bank O/dft & Long term liabilities/Total assets
This indicates the relationship between debt and asset
value of the business.

Average employee remuneration (GBP)
Employee remuneration divided by the average number
of employees.

Wages/Sales (%)
Indicates the amount of sales revenue expended on
employees’ pay, showing the marginal cost of employment.

Profit /Employee (GBP)
Amount of profit before tax made per employee.

Sales/Employee (GBP)
This is often used as a measurement of productivity.
It indicates the amount of sales revenue generated by
each employee.

Capital Employed/Employee (GBP)
Capital employed per employee.

Fixed assets/Employee (GBP)
Fixed asset investment per employee.

Total assets/Employee (GBP)
Total assets in comparison to the number of employees.

Profit/Value added (%)
Pre-tax profit as a percentage of value added.

Value added/Sales (%)
Sales figure as a percentage of value added measurement.

Value added/Employee (GBP)
Employees in relation to the value added.

Value added/Employee Remuneration (GBP)
Employee’s remuneration in relation to the value added.

Creditors/Debtors ®
The ratio of trade creditors to trade debtors.

Debtors/Total Assets (%)
Trade debtors in relation to the total assets of the business.
This measures the value of moneys owed in relation to
business’s asset base.

Current Liabilities/Stock ®
Liabilities to be paid within 12 months expressed as a ratio
in relation to value of stocks.

Export/Sales (%)
Amount of sales revenue attributable to export business
as a percentage of total sales.

Sales/Audit fees ®
Comparison of sales revenue to cost of audit.

Total assets to audit fees ®
Comparison of total assets to audit fees.

Shareholders’ funds/Total assets (%)
The relationship of the business’s assets to shareholders
funds.

Sales/Capital Employed ®
This measures the amount of revenue generated by a business in relation to the level of investment made. Referred to as Capital Utilisation and when combined with profit margin gives the principal measure of profitability, return on capital.

Stocks/Working Capital (%)
The value of stocks represented as a percentage of the
working capital of the company.

Current assets/Total assets (%)
Percentage of current assets against long term assets;
indicates where the asset base rests.

Profit/Current Liabilities (%)
Pre-tax profit in relation to liabilities due within the next
12 months.

Sales/Current liabilities ®
Sales expressed as ratio to those liabilities due within next
12 months.

Net Cash/Current Liabilities ®
Net cash (defined as cash less bank overdraft) expressed
as a ratio to those liabilities due within the next 12 months.

Liquid assets/Total assets (%)
Percentage measurement of liquid assets against total asset base - good indicator of which assets could be quickly realised.

Net Worth/Total assets - Intangibles (%)
This measures the accounting value of the business
against total assets. Intangibles are discounted as they cover perceived value such as goodwill, R&D development, patents, trademarks etc.

Net Worth/Total fixed assets (%)
This measures the net worth of the business against those
assets whose value may be great, but are not necessarily
quick to liquidise. Fixed assets normally make up a far
greater proportion of total assets.

Net Worth/Current Liabilities (%)
This measures the short-term percentage risk against the
value of the business.

P&L Acct Reserve/Net Worth (%)
Accumulated profits/losses as a percentage of shareholders’
funds less intangible assets.

Revaluation Reserve/Shareholders funds (%)
This takes into account revaluation of investments or
properties and measures it against the shareholders’ funds.

Bank Overdraft/Current Assets (%)
The current bank overdraft as a percentage of short term
assets. A good measurement of whether these assets cover the bank overdraft.