5.1 Financial Objectives Flashcards
(30 cards)
What are some financial objectives
Increase profit
Increase revenue
Delay cash/ decrease outflow
Speed up /increase cash inflow
Decrease costs
Improve return on investment
Improve profit margins
Capital structure (how are they funded)
Define cash
Finance needed to meet short term debts
What is cash needed for
Employees
Running costs
Suppliers
Utilities
Refunds
Interest/repayment of loans
Formula for net cash flow
Inflows - outflows
Name some forms of cash coming in
Revenue
Investments
Interest earned
Retained profit
Forms of cash going out
Pay suppliers
Pay employees
Pay utilities
Rent/bills
Remain solvent / pay back debt
What is working capital
Cash flowing through business and needed for the day to day running of the business
Examples of fixed costs
Rent
Insurance
Salaries/wages
Interest
Marketing
Tax
Examples of variable costs
Raw materials
Wages (piece rate)
Delivery costs
Packaging
Examples of semi-variable costs
Utilities (used to create output)(eg.heating or cooling)
Commission
Ways to decrease costs
Negotiate with suppliers
Increase capacity utilisation
Economies of scale
Reduce fixed costs (eg. Offshoring)
Reduce variable costs (eg. Cheaper packaging)
Gross profit formula
Revenue - variable costs Improve return
Operating profit formula
Gross profit - fixed costs
Net profit formula
Operating profit - tax
Profit margins formula
Profit/revenue x 100
Return on investment formula
Profit from investment / cost of investment x 100
Average rate of return formula
Average annual expected profit / initial investment cost x 100
Average annual profit formula
Total profit / number of years
What is capital structure and the two kinds
Long term finance of he business
Equity and borrowing
The proportion to borrowing to equity is important
What will happen if the borrowing is higher?
The higher the interest rates, which will lead to higher repayment costs
The proportion to borrowing to equity is important
What will happen if the share capital (equity) is higher?
The lower the retained profit for future investment will be
3 internal sources of finance
Retained profit
Owners own capital
Sale of assets
10 external sources of finance
Loans
Debentures
Crowdfunding
Angel investors
Venture capitalists
Overdraft
Hire purchase
Ordinary shares
Trade credit
Government grants
What is being insolvent
Inability to meet short term debts
