Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Business A Level Definitions CIE > Section 5 > Flashcards

Section 5 Flashcards

1
Q

Cost centre

A

A section/department of a business, to which costs can be allocated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Profit centre

A

A section of a business to which both costs and revenues can be allocated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Full costing

A

All fixed + variable costs are allocated to products/services or divisions of a business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Contribution/marginal costing

A

Allocates direct costs to cost/profit centres only - overheads are not included

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Budget

A

A detailed financial plan for the future

~ Can be used for sales and costs
~ Must account for financial needs = consequences
~ Financial targets facilitate measurement performance of each part of the budget
~ Usually set for 12 months

Purpose:
• Planning - realistic future target
• Effective resource allocation - ensures access to to/afford resources according to priorities
• Set targets - realistic targets to be achieved creates motivation
• Coordination - coordination between departments
• Monitoring + control- check if plans are in place regardless of change in conditions
• Modifying - determine plan change using budget
• Measure/assess performance - Variance analysis can be used to compare

Features:
• Not a forecast - it’s a plan
• Created by budget holder
• Delegated budgets are completed by junior managers

Stages of preparations:
1. Establish objective
2. Identify key factors/considerations
3. Sales budget prepared - sales managers in all branches + divisions in business
4. Subsidiary budgets prepared - budget holder
5. Budgets are coordinated - commitee
6. Prepare master budget + budgeted IS + SFP
7. Present master budget for approval

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Budget holder

A

Individual responsible for the initial setting and achievement of a budget

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Variance analysis

A

Calculating differences between budgets and actual performance, analysing reasons for such differences

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Delegated budgets

A

Giving some delegated authority over the setting and achievement of budgets to junior managers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Incremental budgeting

A

Uses last years budget as a basis and an adjustment is made for the coming year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Zero budgeting

A

Setting budgets to zero each year and budget holders have to argue their case to receive any finance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Flexible budgeting

A

Cost budgets for each each expense allowed to vary if sales or production vary from budgeted levels

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Adverse variance

A

Exists when the difference between the budgeted and actual figure leads to a lower than expected profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Favourable variance

A

Exists when the difference between the budgeted and actual figure leads to a higher than expected profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Intellectual property

A

The amount by which the market value of a firm exceeds its tangible assets less liabilities (intangible asset)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Market value

A

The estimated total value of a company if it were taken over

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Capital expenditure

A

Any item bought by a business and retained for more than one year that is a NCA

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Revenue expenditure

A

Any expenditure on costs other than NCA expenditure

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Depreciation

A

The decline in the estimated value of an NCA over time
~Normal wear and tear through use
~ technological change making it obsolete

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Net book value - NBV

A

NBV = original cost of asset - accumulated depreciation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Straight line depreciation

A

A constant amount of depreciation is subtracted from the value of the asset each year (amount doesn’t change)

Cost of asset - expected residual value
expected useful life of an asset

21
Q

Net realisable value

A

The amount for which an asset (usually inventory) can be sold minus the cost of selling it

~ Inventory should be valued in the SFP at the lower of NRV or cost

22
Q

Return on capital employed - ROCE

A

Operating profit x100
Capital employed

Improve ROCE:
~> Increase operating profit
• Raise prices
• Reduce variable costs
• Reduce overheads
~> Reduce capital employed
• Sell assets
• Reduce debts

Other:
- ⬆️ amount = ⬆️ invested capital
- Compare with other companies and previous years
- Compare with return with interest + cost of borrowing
- Not used to assess risk

23
Q

Capital employed

A

Total value of all long term finance invested in the business
= Total assets - total liabilities + shareholders equity

24
Q

Inventory turnover ratio

A

Cost of good sold (COS)
Value of inventories

• In no. Of days
• ⬆️ no. = more efficient sales management
• N/A to service industries

25
Q

Day’s sales in receivable ratio / Trade receivables ratio

A

Trade receivables x 365
Revenue

• Cash only business - lower results
• ⬆️ ratio could be strategy to get more customers by offering ⬆️ credit
• value can be reduced by ⬇️ credit terms

26
Q

Share price

A

Quoted exchange price of one share on the stock exchange

27
Q

Dividend

A

Share of the company profit paid to shareholders

28
Q

Dividend yield ratio

A

Dividend per share x100
Current share price

Notes:
• Want ⬆️ ratio to retain shareholders
• Share price ⬆️, yield ⬇️
• Compared with investments + companies

29
Q

Dividend per share

A

Total annual yield
Total no. Issued shares

30
Q

Dividend cover ratio

A

Profit for the year
Annual dividends

Notes:
• Want ⬆️ ratio - ⬇️ directors retain low profits for future investments
• ⬆️ dividends without ⬆️ profits, ratio ⬇️

31
Q

Price/earnings ratio

A

Current share price
Earnings per share

• Compared only with companies in industry

32
Q

Earnings per share

A

Amount of profit after tax and interest earned per share

Profit for the year
Number of shares issued

33
Q

Gearing ratio

A

Measures then degree to which capital of the business is financed from long term loans

NCL x100
Shareholders equity + NCL

Or alternatively

Long term loans x100
Capital employed

Note:
• Extent to which assets are financed from long term borrowing (50% = ⬆️ geared)
• ⬆️ ratio = ⬆️ risk for shareholders
• Results in ⬇️ liquidity
• ⬇️ ratio indicates safe business

34
Q

Investment appraisal

A

Evaluating the profitability /desirability of an investment project

• Using quantitative techniques to assess financial feasibility of projects
• Assess likely future returns on project
• Never use one method alone
• Assumption that results are certain
• Only important guides for final decision making
• Conflicting results from different appraisals (depends on managers attitude)

Quantitative methods:
1. Payback period
2. Average rate of return
3. Discounted payback
4. Net present value
5. Internal rate of return

Qualitative factors:
• Impact on environment + community
• Planning permissions/continuation
• Business aims/objectives
• Different managers and their degrees of risks

35
Q

Annual forecasted net cash flow

A

Forecast cash inflows - forecast cash outflows

36
Q

Payback period

A

Length of time it takes for the net cash inflows to pay back the original capital cost of the investment

Additional net cash inflow needed. x 12 (months)
Annual cash flow in year

Notes:
• Compare with other projects
• Compared with cut-off time

37
Q

Accounting rate of return - ARR

A

Measures the annual profitability of ann investment as a percentage of the initial investment

Notes:
• Comparison between 2 projects - ⬆️ returns projects is chosen
• Compare ARR on other projects
• Minimum expected return can be set
• ARR ⬇️ than interest rate on loan - not worth in using a loan for project
• Good to use with payback results

Annual profit ( = net cash flow) x 100
Initial capital cost

Or

Annual profit
Average capital cost

~ Average capital cost :
= initial capital cost - residual capital value
2

38
Q

Net present value - NPV

A

Today’s value of the estimated cash flow resulting from an investment

Notes:
• Uses discounted cash flow
• Business will choose rate of discount that reflects the interest cost of borrowing the capital to finance the investment

39
Q

Internal rate of return

A

Rate of discount that yields a net present value of zero

~ Higher the IRR = more profitable the investment project
~ Used with NPV
~ Compare with IRR of other projects

40
Q

Criterion rates/levels

A

Minimum levels set by management for investment appraisal results for a project to be accepted

41
Q

Overheads

A

Costs that stay fixed regardless of changes in production units

42
Q

Unit costs

A

Average cost of producing each unit of output

Total costs of producing product
No. Units produced

43
Q

Marginal cost

A

Cost of producing 1 extra unit

44
Q

Contribution

A

Revenue gained from selling after deducting variable + direct costs

45
Q

Goodwill

A

Value of reputation of a business

46
Q

Financial efficiency ratios

A

Indicate effectiveness of business management and ability to use resources and collect debts

• Inventory turnover ratio
• Day’s sales in receivable ratio

47
Q

Liquidity ratios

A

Measure the business’ ability to meet short term debt

48
Q

Shareholder ratio

A

Used by existing/potential customers to assess rate of return on shares and their prospects

• Dividend yield
• Dividend per share
• Dividend cover ratio
• Price/ earnings ratio

49
Q

Discounted payback

A

Used to combat problem of comparing projects with different returns and payback periods. Calculates present value of future cash flows so that investment projects can e compared

Notes:
• Considers size of cash flow and timing of them

Payment today rather than later is preferred:
• Benefits of expenditure is experienced immediately
• Can be saved at current rate of interest
• Future cash is always uncertain

Present value of future sum of money depends on:
• ⬆️ interest rate - ⬇️ value future cash has in today’s money
• ⬆️ into future cash is received, ⬇️ value it has today

Business A Level Definitions CIE (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions