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real business > financial decisions > Flashcards

financial decisions Flashcards

1
Q

what is a fincial objective

A

a financial goal that a business wants to atchive

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2
Q

what objective are financial goals based around

A

revenue objective
profit objective
cost objective
cashflow objective
return on investment

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3
Q

how is return on investment calculated

A

return on investsment / cost of investment x 100

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4
Q

what internal factors could affect financial objectives

A

-the overall objectives of the company

-other areas of the business e.g hr needs funding

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5
Q

what external factors could affect finanical objectives

A

-competions finanical data

-state of the economy e.g inflation

-shareholder needs

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6
Q

what is the calculation for percentage change in profit

A

current years profit - previous years profit/ previous years profit x 100

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7
Q

what is gross profit

A

amount left over when cost of sales is subtracted from sales rev
gross profit = sales rev - cost of sales

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8
Q

what is operating profit

A

opersting profit = sales revenue - cost of sales - operating expenses

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9
Q

how is profit for the year calculated

A

profit for the year = operating profit + other profits - net finance costs - tax

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10
Q

why is finding the profit margins important

A

finds the amount of profit relative to revenue

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11
Q

what is cash flow

A

cash flow is money flowing into and out of a business

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12
Q

what is cash inflow

A

sums of money brought in by a business

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13
Q

what is cash outflow

A

cash outflow is sums of money paid out by a business

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14
Q

why is cash flow forecasting important

A

Cash flow forcasting is important because cash flow is often dynamic and unpredictable and as a result many business’s fail due to cashflow problems. Regular cash flow forcasting can help prevent these problems.

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15
Q

how might a business improve their cash flow

A

a business can improve their cashflow through

debt factoring - selling debts owed to the business to a debt factoring company to obtain a short term increase in cash inflow

getting rid of too much stock as cash outflows can get tied up in maintaining to much stock.

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16
Q

how is th net cash flow calculated

A

net cash flow is calculated by taking away totol cash outflow from total cash inflow

17
Q

how is the opening balance found

A

the opening balance is simply just the closing balance of the previous month / year

18
Q

how is the closing balance found

A

closing balance is usually found throughnet cash flow + opening balance.
However if the net cash flow is a minus number it becomes net cash flow - opening balance

19
Q

what is a budget

A

a budget is a financial plan for the business’s future concerning factors such as revenue profit or costs

20
Q

what a budgets used for

A

budgets can be compared alongside the business’s actual preformance to establish any difference between the figures that the firm predicted and there actual results

21
Q

give some advantages of setting a budget

A

a business might set a budget as it :

-provides direction for the company
-good for monorting preformance
-movitvate staff
-communicates targets

22
Q

what are some disadvantages of setting a budget

A

some disadvantages of setting a budget include:

  • there are many external, unpredictable factors that can affect a business’s finacial results (infation)
  • setting a budget can also be time consuming
23
Q

what is historical budgeting

A

historical budgeting is where this years budget is based upon a percentage increase or decrease from last years budget.

24
Q

what is zero base budgeting

A

this is where budget holders start with £0 and have to request for each expenses

25
Q

what is variance in relation to budgets

A

variance is the difference between the actual figures and the budgeted figures

26
Q

what is favourbale variance

A

when the actual figrues turned out to be better than the budgeted fighures - e.g costs were lower than expected

27
Q

what is adverse variance

A

adverse variance is when the actual results were worse than what was predicted - e.g profits lower by 20%

28
Q

what is contribution

A

contirbution is what a business needs to obtain from selling a product in order to cover its fixed costs as well as to generate a profit

29
Q

how is contribution per unit calculated

A

selling price per unit - variable costs

30
Q

how is total contribution calcualted

A

total revenue - total variable costs

31
Q

how is break even output calculated

A

fixed costs / contribution per unit

32
Q

what is break even

A

break even means covering your costs, the break even point for a business is where costs = revenue
before break even the business is yet to make a profit and all revenue is going toward costs

33
Q

why should a new business always find their break even

A

banks will ask to see the break even output as a part of a business plan if they are considering providing a loan

34
Q

give a disadvantage of break even analysis

A

one disadvantage is that break even only works for one single product and many firm provide a varity of products

break even analysis also assumes that variable costs will constantly go up when this isnt always the case - economies of scale

35
Q

what is debt factoring

A

debt factoring is where a business sells debt owed to them to another debt factoring company

36
Q

give an advantage and disadvantage of debt factoring

A

an advantage of debt factoring is that it is good for short term cash inflow however it means that the full value of what is owed to the is not obtained

37
Q

what is an advantage and a disadavantage of an overdraft

A

an advantage would be that it it is flexable however it occurs higher interest rates

38
Q

what is an overdraft

A

when you don’t have eneogh money in your bank acount to make a transfaction so the bank does it for you

real business (8 decks)

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