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Buisness > 2.3 Managing finance > Flashcards

2.3 Managing finance Flashcards

1
Q

What is gross profit

A

shows what is left after taking away the costs directly involved in making product/ providing service

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2
Q

Give the formula for gross profit

A

gross profit = total revenue - cost of sales

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3
Q

What is cost of sales

A

costs directly associated with making a product (e.g. materials)

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4
Q

What is profit

A

difference between revenue of a business and costs generated by business during a period of time

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5
Q

Give the formula for operating profit

A

operating profit = gross profit - fixed overheads

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6
Q

Give the formula for operating profit

A

operating profit = gross profit - fixed overheads

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7
Q

Give the formula for net profit (profit for the year)

A

net profit = operating profit - (net financing cost and corporation tax)

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8
Q

What is net financing cost

A

income from interest on bank deposits

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9
Q

Name 2 ways a business can improve profit

A

-increase revenue
-reduce costs
-

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10
Q

Give the formula for profit

A

profit = total revenue - total costs

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11
Q

What is a statement of comprehensive income

A

document produced by public limited companies that shows revenue, break-down of different types of cost, different types of profit for a year

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12
Q

What is profitability

A

states profit as a % of sales revenue

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13
Q

What is gross profit margin

A

shows gross profit as a % of sales revenue

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14
Q

Give the formula for gross profit margin

A

gross profit margin = gross profit/ sales revenue x100

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15
Q

Give the formula for operating profit margin

A

operating profit margin = operating profit/ sales revenue x100

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16
Q

Give the formula for gross profit margin

A

gross profit margin = gross profit/ sales revenue x100

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17
Q

Give the formula for net profit margin

A

net profit margin = profit for year (net profit)/ sales revenue x100

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18
Q

Name 2 ways to improve profitability

A
  • increase selling price

- cut costs

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19
Q

What is ratio analysis

A

form of analysis used to obtain quick indication of a firms financial performance in profitbaility, liquidity, efficiency

20
Q

What is liquidity

A

a businesses ability to pay day to day debts

21
Q

What is ratio analysis

A

analysis- indicatess financial performance in profitability, liquidity, efficiency

22
Q

What is a statement of comprehensive income

A

document produced by public limited companies- shows revenue, break-down of types of cost & types of profit for year

23
Q

What is a statement of financial position

A

a snapshot of the businesses assets (owns and owes) and liabilities (owes) on particular day

24
Q

What is a cash flow statement

A

shows how business has generated and disposed of cash (inflows and outflows) and liquid funds during period under review

25
Q

Give the formula for current ratio

A

current ratio = current assets/ current liabilities

26
Q

What does the measuring of liquidity involved

A

comparing value of current assets with current liabilities that need to be paid

-can be done through:
calculating current ratio
-ca;culatijng acid test ratio

27
Q

Give the formula for acid test ratio

A

acid test ration = (total current assets - stock)/ current liabilities

28
Q

What does improving liquidity involve

A

brinign extra cash onto balance sheet

29
Q

Name the 5 componenets of the statement of fiancial position/ balance sheet

A
  • current assets/ non-current assets
  • current liabilities/ non-current liabilities
  • net current assets
  • net assets employed
  • net capital employed
30
Q

What are current assets

A

items business owns short term- in form of cash/ can easily be turned into cash

-examples: cash, money owed by customers, inventory

31
Q

What are non current assets

A

items business owns long term- full value won’t be recognised until at least a year

-examples: land, proerpty

32
Q

What are current liabilities

A
  • debts owed by business in short term

- examples: trade creditors, overdrafts

33
Q

What are non current liabilities

A

debts owed by business in long-term

-examples: loans, mortgages

34
Q

What are fixed assets

A

items owned by business- used over and over to generate profit (property, machinery)

35
Q

What are net current assets

-give the formula for net current assets

A

diff between company’s current assets (cash, stocki) & current liabilities- (accounts payable, debts.)

net current assets = current assets - current liabilities

36
Q

What are net assets employed

A

net assets employed = non-current assets + net current assets

37
Q

What are net capital employed

A

net capital employed = non-current liabilities + total share holder’s equity

38
Q

What is working capital

A

money avaliable for the day-to-day running of the business

39
Q

Describe the diagram of the different stages through which the working capital passes a business by

A
  • buy materials
  • produce goods
  • capital injected into business
  • sell to customers on credit
  • customers (debtors) pay up
40
Q

Name 5 main reasons why businesses fail

A
  • not really understanding consumers
  • failure to differentiate from rivals
  • failing to communicate what is special about product/ service to consumers
  • poor leadership
  • not being able to find enough ways to generate revenue
41
Q

Name 3 internal causes of business failure

A
  • marketing failure- problems understanding changes in marketplace/ what customers are rlly looking for
  • financial failure- finance should be managed- cash flow issues could occur
  • systems/ operational failure- things start going wrong if IT systems dont provide business with correct info
42
Q

Name 4 external causes of business failure

A
  • changes in technology- technical advancements can destroy companies sales- products struggle to compete
  • new competitors- new rival entering market- large effect on a business
  • economic change- economic downturn- luxury goods dry up- businesses may find it hard to continue operating
  • behaviour of banks- failure to supply credit to businesses/ forcing businesses to accept high interest rates- failure
43
Q

Why may increasing selling price not improve profitability

A
  • as whilst ^ in price- ^ profit margin- ^ in price -> fall in sales volume
  • for price elastic products- increasing price -> reduces profits
44
Q

Why do you have to ensure there is always enough working capital

A

ensure money is avaliable for day-day running of business

  • preventing blockages/ delays
  • ensuring successful financial management
45
Q

Name 2 ways you can manage working capital

A
  • ensuring enough money is in the system

- making sure cash moves through cycle asap

46
Q

What 2 actions do financial managers consider when ensuring there is enough working capital

A
  • control cash used- sell products asap, reducing stock

- minimise spending on fixed assets- leasing

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