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Flashcards in 2.3 managing finance Deck (45)
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1

what is the formula for profit?

- total revenue - total costs

2

what is gross profit?

- the difference between revenue and cost of sales

3

what is the formula for gross profit?

- revenue - cost of sales

4

what is operating profit?

- the difference between gross profit and business overheads

5

what is the formula for operating profit?

- gross profit - other operating expenses

6

what is profit of the year/net profit?

- the difference between operating profit and interests/exceptional items

7

what is the formula for net profit?

- operating profit - exceptional items/interest

8

what is a comprehensive income statement?

- shows how much profit or loss has been made at the end of a financial year

9

what is a gross profit margin?

- measures the relationship between gross profit and revenue, assets and capital employes

10

what is the formula for gross profit margin?

- gross profit
------------------- X 100
revenue

11

what is a operating profit margin?

- measures the relationship between operating profit and revenue, assets and capital employed

12

what is the formula for operating profit margin?

- operating profit
------------------------- X 100
revenue

13

what is a problem caused by low liquidity?

- struggle to pay suppliers

14

what are ways to solve a short term liquidity crisis?

- sell assets
- delay payments

15

what is liquidity?

- the ease with which assets can be converted into cash

16

what is a current ratio?

- measures the liquidity of a business

17

what is the formula for current ratio?

- current assets
----------------------
current liabilities

18

what is a sufficient liquidity ratio?

- between 1.5:1 and 2:1

19

what is an acid test ratio?

- a more severe test of the liquidity of a business
- inventories (stock) are not treated as liquid assets

20

what is the formula for the acid test ratio?

- current assets - stock
--------------------------------
current liabilities

21

what are ways to improve profitability?

- raise your price
- lower your costs
- operate more efficiently

22

what is a statement of financial position?

- shows what the business owns and what it owes

23

what is a statement of financial position split into?``

- assets
- liabilities
- capital

24

who is a debtor?

- owe us money

25

who is a creditor?

-we owe money

26

what are non-current assets?`

- the assets the business owns and expects to keep for more than 1 year

27

what are current assets?

- cash or the things a business owns that it wants to turn into cash within 1 year
- e.g raw materials, stock, cash

28

what are non current liabilities?

- debts a business has to pay over more than one year
- e.g. bank loan

29

what are current liabilities?

- debts a business has to pay within one year
- e.g. gas, electric, suppliers

30

what is capital?

- how the business is funded