2.4 Making Financial Decisions

Question 1

How do u calculate average rate if return

Answer 1

Average annual profit (total profit/number of years / ilnitial outlay X 100

Question 2

Advantages of using the average rate of return

Answer 2

• it considers all of the net cash flow is generated by an investment over time.
• It is easy to understand and compare the percentage returns with each other.

Question 3

What is average rate of return

Answer 3

• The average rate of return measures the profit from a proposed capital project.
• It is used when a decision is required about which of the two projects should be purchased in order to generate the most profit.

Question 4

Disadvantages of using the average rate of return

Answer 4

• as it depends on an average of cash flows, it ignores the timing of those cash flows.
• The opportunity cost of the investment is ignored.

Question 5

What is the calculation for market share

Answer 5

Sales revenue of a business / total sales revenue in the market X 100

Question 6

What is sales volume

Answer 6

Number of products sold

Question 7

What are the 4 sources of quantitive data

Answer 7

• graphs and charts
• financial data
• marketing data
• tables or infographics (Visual representation of quantitive data in a way that makes information interesting and easy to understand)

Question 8

What are the 3 main types of graphs

Answer 8

Bar chart
Pie chart
Scatter graph

Question 9

What are examples of financial data

Answer 9

• sales revenue
• profit
• costs
• tax
• interest and exchange rates
• valuations of assets
• bank balances

Question 10

What are examples of marketing data

Answer 10

• surveys
• focus groups
• observations
• customer feedback
• retail or online footfall
• government or trade publications
• the media

Question 11

What is marketing data

Answer 11

Data collected through primary and secondary research
- market data can help businesses manage for car sales and to make business decisions about products development and promotional plans

Question 12

What is market data

Answer 12

• market data refers to the characteristics and performance of the market in which a business operates

Question 13

What are the 3 types of market data

Answer 13

• demographics Data relates to the market population structure, such as age, gender and income statistics.
• Market dimensions including factors, such as size of the market, the market shares of the queue, competitors and the rate of the market growth and average prices across the market.
• Investments data relates to the prices of commodities as well as exchange rate, data and stock market performance

Question 14

How can businesses use financial data

Answer 14

• to identify trends and make calculations for comparison over time with other businesses.
• To support an application for external finance such as a loan.
• To attract potential investors.
• To support spending decisions.

Question 15

What are the 3 limitations of using financial data

Answer 15

• different interpretations of graphs
• data becomes out of date quickly
• qualitative factors are ignored

Question 16

How does different interpretations of data a limitation

Answer 16

• Statistical information can be interpreted in different ways. Financial data can be window dressed (presenting financial data in the most positive way) to present a positive impression of information

Question 17

How does data become in gout of data quickly a data limitation

Answer 17

• but its very nature of financial data relating to sales costs and profit is out of date as soon as it’s generated.
• Using financial data to make decisions relies on future performances to be at least broadly similar to past performances.

Question 18

How is quantitative factors ignored a data limitation

Answer 18

• businesses measure the performance against a range of financial and non-financial criteria