2.3

Question 1

Profit formula

Answer 1

Total Revenue - Total Costs

Question 2

Revenue formula

Answer 2

Selling Price x Quantity Sold

Question 3

Total Cost formula

Answer 3

fixed costs + variable costs

Question 4

Variable cost formula

Answer 4

variable cost per unit x quantity

Question 5

Which type of profit is favoured by entrepreneurs when they are trying to get investment because it over estimates the profit you have

Answer 5

Gross profit

Question 6

Which type of profit includes the overheads/expenses that the business has to pay

Answer 6

Operating profit

Question 7

Which profit is the true profit that is reported to Inland Revenue to calcualte the level of tax that is due

Answer 7

Net profit

Question 8

Gross profit formula

Answer 8

Revenue - cost of sales

Question 9

Operating profit formula

Answer 9

Gross profit - operating expenses

Question 10

Net profit formula

Answer 10

Operating profit - interest and other expenses

Question 11

What does the Profit and Loss Account show

Answer 11

The income and expenses of the business during the year
And will always shows the figures for the current year and previous year

Question 12

Purpose of the Profit and Loss Account

Answer 12

Show whether a business has made a profit or loss
Describe how the profit or loss arose

Question 13

What does the Trading Account show

Answer 13

Shows the income from sales and the direct costs of making those sales

Question 14

Definition of Overheads and expenses

Answer 14

Costs not directly involved in the production process

Question 15

Why are Profit percentages used

Answer 15

To see how profitable a business
Measures how much profit is made from the revenue that the business makes

Question 16

Why are Market share percentages used

Answer 16

To see how powerful a business is in their market

Question 17

What is ratio analysis

Answer 17

Analysing and comparing performance of a business to help suggest strategies to improve performance of a business

Question 18

Gross profit margin formula

Answer 18

Gross profit / revenue x 100

Question 19

Operating profit margin formula

Answer 19

Operating profit / revenue x 100

Question 20

Net profit margin formula

Answer 20

Net profit / revenue x 100

Question 21

What are the two main ways to improve profitability

Answer 21

Increasing revenue
Lowering cost

Question 22

Asset definition

Answer 22

Resoruces owned by a business that have value

Question 23

Liabilities definition

Answer 23

The debts of the business

Question 24

Capital definition

Answer 24

Money put into the business
Other sources of finance
Used to buy assets
Machinary / make assets/goods

Question 25

What is the Balance Sheet / Statement of Financial Position

Answer 25

Summary of the assets , liabilities and capital of a business

Question 26

Current assets definiton

Answer 26

Assets changed into cash within one year

Question 27

Non current asset definition

Answer 27

Assets that will will be used repeatedly over a period of time

Question 28

Current liabilities

Answer 28

Debts due within one year

Question 29

Non current liabilities

Answer 29

Debts that do not have to be paid for at least one year

Question 30

Tangible assets

Answer 30

Assets which a business physcially owns and can touch e.g. the product , building etc

Question 31

Non tangible assets

Answer 31

Assets which a business owns but they aren't physical e.g. the brand etc

Question 32

Net assets formula

Answer 32

Total Assets - Total Liabilities

Question 33

Assets formula

Answer 33

Liabilities + Equity

Question 34

Liquidity definition

Answer 34

How quickly something can be turned into cash How able a business is to repay their debts using assets

Question 35

Current ratio formula

Answer 35

Current assets / current liabilities

Question 36

If current ratio is 1.5:1 - 2:1 what does this mean

Answer 36

that the business has plenty of working capital to meet its day to day bills

Question 37

If current ratio is above 2:1 what does this mean

Answer 37

Too much money is tied up in assets that are not making money and aren't being properlly invested

Question 38

If current ratio is below 1.5:1 what does this mean

Answer 38

Could be a problem but depends of the type of business

Question 39

Some issues with stock

Answer 39

Space Could be perishable Could be outdate / not in fashion anymore Cost to hold it

Question 40

Acid test ratio formula

Answer 40

Current assets - Inventories / Current liabilities

Question 41

What does a less than 1:1 current ration mean

Answer 41

A business' current assets minus stock do not cover its current liabilites # So shows the business is too reliant on stock

Question 42

Working capital definition

Answer 42

the capital of a business used in its day to day trading operations

Question 43

What is the working capital cycle

Answer 43

Time taken to convert net current assets and current liabilities into cash Often expressed as a period of time If this length has to be increased it suggests that it takes longer to turn stocks and debtors into cash Each time it happens a little money is put back in than flows out

Question 44

Working capital formula

Answer 44

Current assets - Current liabilities

Question 45

Why is cash important

Answer 45

Most liquid business asset Part of working capital Poor cash flow can lead to business failure

Question 46

Ways to improve liquidity

Answer 46

Overdraft Loans Cash sales Sales and leaseback Only make essential purchases Extend credit with suppliers Reduce personal drawings from busines Introduce fresh capital

Question 47

External causes of business failure

Answer 47

Competition Changes in legislation Changes in consumer taste Economic conditions Changes in market price

Question 48

Financial reasons for a business to fail

Answer 48

Bankrupt - legal process declaring they can no longer pay debts Insolvent - can't pay debts Shortage of cash

Question 49

Non-financial reason for a business to fail

Answer 49

Lack of planning Lack of business skills Inability to compete efficiently Failure to meet customer needs

Question 50

What can casue cash flow problems

Answer 50

Overtrading Investing too much in fixed assets Allowing too much credit Over borrowing Seasonal factors Unforeseen expenditure External factors - consumer taste legalisation Poor financial management