2.4 - Making financial desicions Flashcards Preview

Edexcel GCSE Business > 2.4 - Making financial desicions > Flashcards

Flashcards in 2.4 - Making financial desicions Deck (12)
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1
Q

2.4.1 - What is Gross profit?

A

A measure of the profit a business makes exclusing fixed costs

2
Q

2.4.1 - What is the formula for a gross profit margin (GPM)

A

(GPM) is a measure of how well the business is doing by seeing how much of their sales revenue is profit. The higher, the better.

3
Q

2.4.1 - What is Net Profit?

A

Regular profit. Revenue - total sales

4
Q

2.4.1 - What is the formula for a net profit margin (NPM)

A

(NPM) is a measure of how well the business is doing by seeing how much of their sales revenue is profit. The higher, the better.

5
Q

2.4.1 - What is Average rate of return (ARR)?

A

When a business wants to analyse the profitablility of a potential project they will use ARR to see how quickly the investment costs will eb paid off and how much profit is made per year

6
Q

2.4.1 - How do you calculate ARR?

A

(Average annual profit ÷ Initial capital outlay) x 100

Firstly, to find the average annual profit, add up all profits given and divide by the number of profits given. [You may be given yearly revenue instead of profit, in which case you would need to take away the initial capital outlay]

Initial capital outlay is the money spent on the investment and is usually given in the question

ARR is a percentage

7
Q

2.4.2 - What is quantitative data?

A
  • Quantitative data is data about numbers
  • Quantitative data is displayed in charts, graphs, as statistics and percentages
8
Q

2.4.2 - What is market data?

A
  • Market data refers to the electronic streaming of prices, volumes and related information used for the trading of shares on the stock markets around the world
  • PLCs will be interested to see how their share price is doing, and if their competitors shares are going up or down
9
Q

2.4.2 - What is financial data?

A
  • A business which is a ltd or plc must produce an annual financial report each year.
  • The financial data is important to anyone who is considering investing money in the business
  • Financial data can be compared year-on-year to see how the business is doing
10
Q

2.4.2 - What are the uses of financial data when understanding business performance?

A
  • A Ltd or plc will have to prepare two types of financial statement at the end of the financial year.
  • Balance sheet – this is a snapshot in time of what the business owes and what it owns
  • Income statement – this shows if the business has made a profit or a loss during the year
11
Q

2.4.2 - What are the uses of financial information when making business desicions?

A
  • Banks - The bank would use the financial information of a business to see if they will lend more money in the future
  • Government - HMRC would look at the financial information to see if the correct amount of tax has been paid
12
Q

2.4.2 - What are the limitations of financial data?

A
  • May only show a snapshot of a short period of time
  • Can quickly become out of date
  • May have been inaccurately gathered
  • Can be interpreted in different ways