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Bus Man > Finance > Flashcards

Finance Flashcards

0
Q

Objectives a business requires finance for:

A

Survival

Growth

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1
Q

Role of finance

A

See sheet

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2
Q

What financial information is used for:

A

See sheet

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3
Q

(Info used) to enable costs and expenditure to be controlled

A

See sheet

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4
Q

(Info used) to enable cash flow going in and out of the organisation to be monitored

A

See sheet

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5
Q

(Info used) to forecast what might happen in the future

A

See sheet

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6
Q

(Info used) to monitor the organisation’s performance

A

See sheet

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7
Q

(Info used) to provide management with information for decision making

A

See sheet

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8
Q

Interest HMRC have for financial information

A

Taxes, business profits - corporation tax

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9
Q

Interest employees have for financial information

A

Business profitability - to ensure salaries/wages can be paid

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10
Q

Interest banks have for financial information

A

To ensure firm will be able to repay debt on time

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11
Q

Interest supplier has for financial information

A

Won’t supply materials if bills aren’t paid

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12
Q

Final accounts consist of:

A

Balance sheet

Trading, profit and loss account

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13
Q

Debtors

A

Customers that owe the business money for goods sold on credit (trade credit: 30/60/90 days)

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14
Q

Creditors

A

Suppliers of goods purchased on credit by the business and to whom the business owes money (suppliers have offered your business trade credit)

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15
Q

Net current assets/working capital

A

Difference between the current assets and the current liabilities

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16
Q

Opening capital

A

Is the amount invested by the owner(s) of the business

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17
Q

Drawings

A

Are money taken out of the business by the owner for their own personal use

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18
Q

Ratio analysis is used to:

A

Compare current performance with that of previous years, of similar organisations, identify differences in performance to help decide future action, highlight trends over a period of time

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19
Q

3 types of ratios

A

Profitability, Liquidity, Efficiency

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20
Q

Profitability

A

To show how profitable a business is. Used to analyse organisation’s expenses, costs of stock, selling price

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21
Q

Liquidity

A

To show a business’ ability to pay short-term debts. Indicates if an organisation needs to arrange additional finance to pay its bills e.g. Overdraft

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22
Q

Efficiency

A

To show how efficiently and effectively the organisation is performing

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23
Q

Profitability ratios

A 
Gross profit (as a % of sales)
Net profit (as a % of sales)
Mark up Gross profit (as a % of cost of goods sold)
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25
Q

Gross profit (as a % of sales)

A

Shows profit made from buying/selling stock. Any increase means more gross profit is being made from each £ of sales. The higher the better

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26
Q

Why gross profit changes

A

See notebook

27
Q

Net profit (as a % of sales)

A

Shows profit made once expenses have been deducted by organisation. Increase means more net profit from each £ of sales. The higher the better

28
Q

Why net profit changes

A

See notebook

29
Q

Mark up Gross profit (as a % of costs of goods sold)

A

Shows how much profit has been added to the cost of goods sold. Increase means more profit has been made after cost of goods sold. The higher the better

30
Q

Liquidity ratios

A 
Current ratio ( Working capital ratio)
Acid test ratio (quick ratio)
31
Q

Current/Working capital ratio

A

Current Assets/Current Liabilities : 1. E.g. 2:1 For every £1 owed, business has £2 to cover it. Shows how able an organisation is to pay off its short-term debts. Increase means more able to pay off short-term debts

32
Q

Why current ratio changes

A

See notebook

33
Q

Acid Test/Quick ratio

A

(Current Assets-Stock)/Current Liabilities : 1. (Same as current). Shows how able organisation is to pay off its short-term debts without having to sell off its stock in a crisis situation. Increase means increased ability to pay.

34
Q

Why acid test ratio changes

A

See notebook

35
Q

Efficiency ratios

A

ROCE - Return on Capital Employed. (Often used as a profitability ratio as well)

36
Q

Return on Capital Employed (%)

A

Net profit/opening capital (x100) Shows if organisation is performing effectively & efficiently & how well capital invested to organisation is being used. Should be compared with return offered by other investment opportunities

37
Q

Limitations of ratio analysis

A

See notebook

38
Q

Sales Budget

A

Forecasts no of units of each product that the business aims to sell next year, price level that will be charged, corresponding amount of sales revenue that is likely to be received

39
Q

Production budget

A

Forecasts no of units of each product that business aims to produce over next year. Includes materials budget, which indicates raw materials that need to be purchased

40
Q

Payroll/Staffing budget

A

Specifies the direct & indirect staff that are required throughout the business for forthcoming year, in terms of no of staff & their wages

41
Q

(Production) Overhead budget:

A

Attempts to forecast the fixed overheads that the business will incur in the forthcoming year, which can be related to production.

42
Q

Cash budget (Master)

A

The detailed budgets are then consolidated into the Master Budget. Thus also includes other forecasted documents: profit & loss account, balance sheet, cash flow, capital expenditure budget (shows fixed assets which business forecasts will purchase in forthcoming year)

43
Q

Benefits of preparing a cash budget/forecast

A

See notebook

44
Q

Reasons for cash flow problems

A

See notebook

45
Q

To resolve a cash flow problem

A

See notebook

46
Q

Management function of Cash Budgets

A

Plan, Organise, Command, Co-ordinate, Control, Delegate, Motivate

47
Q

Management - Plan

A

Set aims & strategies. Decisions may be based on projected cash flow figures. By identifying where cash is going in/out, managers can plan to borrow for either short or long term finance

48
Q

Management - Organise

A

Make arrangements for all resources to be in right place at right time in right quantities. Management ensures resources can be afforded & takes advantage of bulk-buying, trade credit etc.

49
Q

Management - Command

A

…

50
Q

Management - Coordinate

A

…

51
Q

Management - Control

A

…

52
Q

Management - Delegate

A

…

53
Q

Management - Motivate

A

…

54
Q

Users of financial information

A

Managers, Owners, Creditors/Suppliers, Employees/Trade Unions, General public/Local community, Banks/Lenders, HMRC (Inland Revenue), Financial Journalists

55
Q

Users of financial info: Managers

A

…

56
Q

Users of financial info: Owners

A

…

57
Q

Users of financial info: Creditors/Suppliers

A

…

58
Q

Users of financial info: Employees/Trade Unions

A

…

59
Q

Users of financial info: General Public/Local Community

A

…

60
Q

Users of financial info: Banks/Lenders

A

…

61
Q

Users of financial info: HRMC

A

…

62
Q

Users of financial info: Financial Journalists

A

…

63
Q

Why mark up gross profit changes

A

See notebook

Bus Man (18 decks)

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