2.3 Managing finance

Question 1

What is the difference between gross profit and net profit

Answer 1

Gross profit = revenue - cost of goods, Net profit = gross profit - all other expenses (e.g operating costs,taxes)

Question 2

How is the gross profit margin calculated

Answer 2

Gross profit margin = (Gross profit ÷ Revenue) × 100

Question 3

What is the difference between profit and cash flow

Answer 3

Profit is the surplus after deducting expenses from revenue, while cash flow is the movement of money in and out the business

Question 4

What does the current ratio measure and how is it shown

Answer 4

The current ratio measures liquidity by comparing current assets to current liabilities (ratio)

Question 5

What is working capital and why is it important

Answer 5

Working capital is the difference between current assets and currents liabilities. It is important for ensuring a business can meet its short-term obligations

Question 6

What are two internal causes of business failure

Answer 6

Poor financial managemeny and lack of innovation