2.3 Managing Finance Flashcards
(17 cards)
What is the formula for gross profit?
GP=Revenue-cost of sales
What is the formula for operating profit?
OP=Gross profit-Operating expenses
What is the formula for net profit?
NP=Operating profit-(net interest+Exceptional costs)
What is a profit margin?
The amount by which the sales revenue exceeds the cost?
What is the formula for gross profit margin?
Gross profit/Revenue x 100
What is the formula for operating profit margin?
Operating profit/revenue x 100
What is the formula for net profit margin?
Net profit/revenue x 100
What are the four ways to improve profitability?
1)Increase prices
2)Reduce variable costs(Bulk Buy EOS)
3)Reduce expenses
4)Reduce one off costs and interest
What is liquidity?
The ability of a business to meet its short term commitments with its available assets.
What are the two ways to measure liquidity?
1)Current ratio
2)Acid test ratio
What is the formula for the current ratio?
Current assets/Current liabilities
What is the formula for the acid test ratio?
Current Assets - Inventory/Current liabilities
What are the four ways to improve liquidity?
1)Ask suppliers for an extended repayment time
2)Make use of overdraft facilities or short term loans
3)Sell off excess stock
4)Sell assets and lease fixed assets instead
What is the formula for working capital?
Current assets-Current liabilities
What are the five internal causes of business failure?
1)Poor planning
2)Lack of leadership
3)Ineffective marketing
4)Cash flow problems
5)Lack of funds
What are the five external causes of business failure?
1)Economic challenges
2)Changes in consumer tastes
3)Legal factors
4)Market challenges
5)Technological change
