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A Level Business > 2.3 & 3.5 - Managing Finance/assesing competitivness > Flashcards

2.3 & 3.5 - Managing Finance/assesing competitivness Flashcards

1
Q

What is a statement of comprehensive income also known as?

A

A profit and loss account

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2
Q

Gross profit = ?

A

Turnover - cost of sales

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3
Q

Operating profit = ?

A

Gross profit - other operating services

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4
Q

Profit for the year = ?

A

The final profit:

(Operating profit + any exceptional items) - interest payable

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5
Q

How do you work out a profit margin

A

The type of profit / sales revenue x 100

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6
Q

What are non current assets?

A

Assets with a life of more than 1 year eg land and vehicles

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7
Q

What are current assets?

A

Assets a business will use within 1 year
- cash
- stock
- debtors/receivables

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8
Q

What are non current liabilities?

A

Owed more than 1 year eg loans/mortgages

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9
Q

What are current liabilities?

A

To be repaid within a year eg creditors, bank, overdraft

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10
Q

What Is capital employed?

A

The money put into your business:

Equity + non current liabilities + share capital + retained profit

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11
Q

What’s the formula for gearing ratio?

A

Non current liabilities/capital employed x 100

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12
Q

What does it mean if a business is highly geared?

A

(50% or higher) debt equity - Most capital has come from loans
- but may not be bad - may be easy to pay interest if profits and cash flow is strong and don’t have any liquidity problems

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13
Q

What does it mean if a business is lowly geared?

A

Not a lot of debt equity - not a lot of loans to repay
- business has the capacity to add debt if required eg for growth

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14
Q

What % is normally geared

A

25-50%

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15
Q

What’s the formula for return on capital employed (ROCE)?

A

Operating profit/capital employed x 100

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16
Q

What are examples of non debt equity?

A

Share capital, personal equity, retained profot

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17
Q

Why can it be bad if a business is highly geared?

A

They are vulnerable to an increase in interest rates

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18
Q

How do you improve gearing?

A
  • focus on growth
  • buy back shares
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19
Q

How do you reduce gearing?

A
  • repay long term loans
  • improve profits
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20
Q

What is the meaning of liquidity ?

A

The ability of a business to pay its debts in cash when they are due

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21
Q

What are the 3 ways of measuring liquidity?

A
  • current ratio
  • acid test ratio
  • working capital
22
Q

What is the ideal number for current ratio

A

Between 1.5:1 and 2:1

23
Q

Describe current ratio (liquidity) and how to calculate it

A
  • will be written as X:1

Formula = current assets/current liabilities

24
Q

Describe acid test ratio (liquidity) and how to calculate it

A
  • will be written as X:1
  • ideally 1:1

Formula: (current assets - stock) / current liabilities

25
Q

Why should current ratio not be too high? (liquidity)

A

may mean u have too many current assets eg perishable stock laying around or you may have too many people owing you money

26
Q

What should current ratio not be too low? (liquidity)

A
  • business will struggle to pay its short term debts
  • or they are over borrowing or over trading
27
Q

Describe working capital (liquidity) ?

A

The amount of money needed to pay for day to day trading. Needed for wages, raw materials etc

Formula: current assets - current liabilities

28
Q

What are some ways to improve liquidity?

A
  • take out credit agreements with suppliers
  • reduce current liabilities
  • raise current assets (eg sell off stock or make people pay u in cash)
29
Q

What are the two ways to improve profit

A

Either increase revenue or decrease costs

30
Q

What are ways to increase revenue to improve profit

A
  • increase prices
  • add value to the product
  • marketing/promotion
31
Q

What are ways to reduce costs to improve profit

A
  • source cheaper raw materials eg negotiate better deals with suppliers
  • economies of scale
  • reduce production costs
32
Q

What is the difference between cash and profit

A

Cash - used to pay day to day expenses eg suppliers
Profit - used for long term uses eg growth

33
Q

How is working capital more useful than cash

A
  • W.C can help be a back up for businesses instead of holding excessive cash or short term assets
34
Q

What are external causes of business failure

A
  • increased competition
  • change in consumer trends/tastes
35
Q

What are internal causes of business failure

A
  • poor planning
  • poor cash flow
  • lack of skills
36
Q

What are financial causes of business failure

A
  • cash flow issues
  • overtrading
  • too highly geared & cant pay off debts
  • allowing too much trade credit for customers
37
Q

What are benefits of ratio analysis?

A
  • allows a business to calculate and compare trends overtime
  • Allow allow a business to gain insight into their financial decisions eg
38
Q

What are the drawbacks of ratio analysis

A
  • does not take into account qualitative factors such as brand image or customer service performance
  • Doesn’t take into account the impact of long-term decisions such as investments that may lower profitability in the short term but in the long-term may improve it
  • Doesn’t take into account economic climates or performance of other businesses
39
Q

How can a business improve its ROCE

A
  • Increase operating profit
  • Reduce capital employed
40
Q

What is the formula for labour productivity?

A

Total output per time period/no. Of employees at work.

41
Q

What are drawbacks of calculating labour productivity?

A
  • Doesn’t take into account wage rates which may affect an employees performance
  • it does not take it into account technology or machinery used in the production process
  • Doesn’t take into account other factors such as disruptions to production or the nature of the task
42
Q

What is the formula for labour turnover?

A

No. Of staff leaving in a year/average number of staff

  • A measure of how many employees are leaving a company per year
43
Q

What is the formula for absenteeism?

A

No. Of staff absent for a time period/total employees

44
Q

Describe employee share ownership

A
  • employees can purchase company shares and make capital gains on the shares
45
Q

What are benefits of employees share ownership scheme?

A
  • low risk for employees
  • Encourage loyalty and long-term service
  • employees have a direct interest in the company’s financial performance
46
Q

What are examples of empowerment strategies?

A
  • extra training
  • Delegate authority
  • Flexible working
  • Feedback
47
Q

What are drawbacks of employees share ownership scheme?

A
  • depends on how profitable a business is
  • Depends on how many shares each employee owns
48
Q

What are benefits of empowerment/non-financial schemes

A
  • employees are given more control over their day-to-day work
  • Workers may feel more appreciated
  • Lower turnover
  • No cost for the business
49
Q

What are drawbacks of empowerment non-financial schemes?

A
  • some employees may not want the increased responsibility eg from delegation
50
Q

What are consultation strategies?

A
  • taking into account of views of employees lower down the hierarchy

A Level Business (19 decks)

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