AS3 Flashcards
(155 cards)
1
Q
types of decision making?
A
strategic
tactical
operational
2
Q
what is decision making?
A
the process of determining and selecting the most appropriate choice of action from a range of alternatives in order to ensure the best outcome
3
Q
profit equation?
A
profit= revenue-cost
4
Q
sales revenue equation?
A
quantity x sales price
5
Q
loss in sales revenue ?
A
entry into new market
promotional campaign
decrease sales prices
6
Q
cost of sales ?
A
= cost of stock
decrease the costs of providing the goods- find a cheaper supplier
reduce the levels of inventory=stock
reduce unit costs
7
Q
profitability?
A
reduce costs of trading and expenses
review operational decisions
8
Q
what is an asset?
A
something that you own
9
Q
types of assets?
A
non-current=long term
current= short term
10
Q
examples of non current assets
A
vehicles and equipment
11
Q
current assets ?
A
bank
inventory
trade receivables
12
Q
what is a liability?
A
something that you owe
13
Q
types of liabilities?
A
non-current
current
14
Q
examples of non current liabilities
A
houses
properties
15
Q
current liabilities ?
A
trade payables
equity
16
Q
how to improve costing ?
A
reduce material costs
reduce labour costs
reduce expenses
17
Q
improve planning?
A
design and implement an agreed system of budgeting
implement the budget process using master budget
18
Q
improving control ?
A
differences may be investigated using variance analysis
follow up reporting
19
Q
what are retained earnings ?
A
money that the business has earned for the accounting period without the deduction of expenses
20
Q
what are dividends?
A
payments to shareholders representing a return on their investment, usually on an annual basis.
21
Q
what do dividends do ?
A
provide a financial return to investors
provides an inducement to shareholders to continue to invest in the business
22
Q
what is shareholders funds ?
A
the amount of money invested in the company by shareholders, initial investment and retained earnings since the start of trading
23
Q
what is pension advice ?
A
businesses are obliged to pay part of the pension costs for their employees
24
Q
what are intangible assets ?
A
brand names
copyright
patents
25
advice about intangible assets a consultant may provide to a business?
protection of assets from competitors, fraudulent traders and improving future business income
26
why is effective decision making important ?
exercise stewardship
use resources efficiently, and report on the use of resources
planing ahead in order to achieve business outcomes
meet the needs of stakeholders
achieve non financial objectives such as corporate social responsibility
to meet their legal obligations
27
internal sources of finance ?
```
profit after tax
net profit
owners capital
disposal of assets
inventories
```
28
external sources of finance?
```
loan capital
ordinary shares
preference shares
dividends
leasing
hire purchase
trade receivables
trade payables
bank overdraft
```
29
what is profit after tax? ( retained earnings)
the amount of profit a company has earned for the accounting period, after the deduction of expenses for the accounting period
30
advantages and disadvantages of profit after tax ?
represents a cheaper source of finance- dont need to pay interest on it
enables control to be retained
unpredictable- you dont know how much youre going to have
31
what is net profit ?
the amount of profit a sole trader has earned after the deduction of expenses for the accounting period
32
advantages and disadvantages of net profit ?
represents a cheaper source of finance for the future
reducible by drawings
unpredictable
33
what is owners capital?
the amount of money invested in the business by a sole trader
34
advantages and disadvantages of owners capital?
enables control to be retained within the business
| any funds are subject to unlimited liability
35
what is disposal of assets?
an asset is an item of value held by a business which is likely to generate future income
36
examples of disposal of non-current assets ?
disposal of tangible assets - property, machinery,equipment
| disposal of intangible assets- intellectual rights
37
advantages and disadvantages of disposal of assets
proceeds of an asset disposal can be re-invested in the business quickly
may not receive as much money as predicted due to the depreciation of asset
38
what are inventories ?
goods that have been purchased for resale but remain unsold as at the year end
39
examples of large stock holidays ?
end of line product runs
seasonal fluctuations
business cycles
out of date items
40
advantages and disadvantages of inventories?
inventory reductions make more cash available to fund other projects
may be difficult to sell dated or end of line products so less money is received
41
what are loan capitals?
an amount of money borrowed from a lender which is usually repaid over a fixed period of time and at a fixed rate of interest
42
advantages and disadvantages of loan capital ?
enables a business to buy an asset up froont with cash
enables a business to manage cash flows
usually carries a fixed rate of interest so cost is known in advance which enables the business to plan
reduces profit- interest rates can be high
reduces cash flow in long term
43
what are ordinary shares ?
amount of money invested in the company by its shareholders
44
advantages and disadvantages of ordinary shares ?
voting rights at a AGM
entitled to a variable rate of dividend
high risk investment with no dividend guaranteed
company can still be the subject of a hostile takeover
45
what are preference shares ?
amount of money invested in the company by preference shareholders.
46
advantages and disadvantages of preference shares ?
can represent a cheaper source of finance for management since dividends are fixed
no voting rights
fixed rate of dividend
dividends dont qualify for tax relief
47
what are dividends ?
payments to shareholder representing a return on their investment
48
what is leasing ?
an agreement between two parties to provide a business with an asset which is required for use in a business for a fixed period of time in return for a fixed amount of money repaid over a fixed rate of time
49
advantages and disadvantages of leasing ?
the lessee doesnt own the asset
business isnt responsible for repairs or updates to asset
the business will never own the asset which could be critical in some businesses
lease agreement must be paid regularly and may be a burden on cash flows
50
what is hire purchase ?
an agreement between two parties to provide a business with an asset which is required for use in a business for a fixed period of time in return for a fixed amount of money over a fixed period of time
51
advantages and disadvantages of hire purchase ?
use of asset immediately
at the end of the contract period, ownership of the asset transfers to the customer only when the final payment is made
the hire purchase company owns the asset at all times until the final payment has been made
regular payments must be maintained which may represent a burden on cash flow position over the long term
52
what are trade receivables (debtors)
money that is owed by customers to the business
53
advantages and disadvantaged of trade receivables ?
encourage growth in the business, revenue receipts are postponed until later date
expensive
credit control costs
54
what are trade payables ?
money is owed by abusiness to a supplier
55
advantages and disadvantages of trade payables
represents a cheaper source of finance
suppliers may refuse to supply further goods if invoices aren't paid on time
additional charges if not paid within credit period allowed
56
what is bank overdraft ?
a short term lending facility
57
advantages and disadvantages of a bank overdraft ?
suitable for short term financial needs
| expensive method of finance if used over long term
58
what is a budget??
a budget is a plan expressed in financial terms, covering the activities of a business for a future specified time period.
59
reasons for a budget??
facilitates decision making
enables greater coordination
improves communication
enables control
60
types of budget?
fixed and flexible
61
What is a fixed budget?
a budget that is unchanged
62
What is a flexible budget ?
a budget that changes as you go along
63
what is a sales budget?
this budget is prepared to determine the costs quantities, revenues and overall totals
64
what is a production budget?
the amount required to produce enough products to meet the sales budget
65
what is the materials budget?
the planned levels of materials/components, specifications, quantities and related costs
66
what is labour budget?
the planned levels of staff grades, working hours and related costs of staff resources.
67
what is overheads budget?
the likely expenses which are incurred in support of business activities e.g light and heat
68
what is cash budget?
the amount of cash in the business at any point in time
69
What is the master budget
the overall financial position of the business
70
what is a variance ?
the difference between the budget and actual amounts reported for any financial item
71
types of variance ?
favourable and adverse
72
What is favourable ?
positive differences
73
what is adverse ?
negative differences
74
equation for variance ??
Variance=budget - actual
75
what is cash flow ?
the net movement of cash,taking into conideratio the cash inflows and outflows of a business at a given period of time
76
what is the difference between cash flow and profit ?
profit Is the amount of money you've earned and a cash flow is the amount of cash received or paid out
77
importance of cash flow forecasting ?
enables control
improves communication
facilitates decision making
greater coordinatioon
78
types of cash flow ?
cash inflow
| cash outflow
79
what is cash inflow ?
money received by a business e.g. cash sales or trade receivables
80
what is cash outflow?
money being paid out of the business e.g. trade payables, stock, payments for noncurrent assets
81
how do you construct a cash flow forecast ?
opening cash balance
cash inflows- receipt
cash outflows- payments
closing cash balance
82
what is a time lag?
a payment may not be actually paid for another 30 days
83
purpose of a cash flow forecast ?/
facilitates future planning to avoid cash deficit
can assist in setting product prices
can assist in managing daily cash flows
can alert managers to additional action to improve sales or revenue collection strategies
cash flow data may be useful to a bank when considering the lending decision of a business
can assist managers in future investment decisions
84
How to improve the financial position of a business ?
```
Reduce sales prices
Avoid large one off payments
Spread the cost of purchase
Negotiate payment terms
Reduce inventory levels
Reduce operating costs
```
85
Benefits of cash flow forecasting
Improved planning and control
Forecast future cash flows
Anticipate peaks and troughs
Consider the timing of payments and receipts
86
Limitations of cash flow forecasting
May not be entirely accurate
Data may change due to s number of external factors e.g. changed on interest rates
Consider cash payments and receipts only
87
types of financial statements ?
income statement
statement of financial position
notes to the financial statements
88
what is sales revenue ?
income earned in the accounting period from the trading activities
89
cost of sales ?
a subsidiary calculation used to determine the actual cost o selling products
90
gross profit or loss ??
the difference between sales revenue and cost of sales
91
expenses ?
the cost of running the business during the accounting period
92
net profit or less ??
total income in the period less the total expenses incurred in the accounting period
93
income statement ?
summarises income/expenses and details the profits/losses made by the business in the accounting period
94
statement of financial position ?
details in summary format the financial position of the business.
95
what is the income statement and the statement of financial position known as ?
final accounts
96
what is a tangible asset ?
property/ premises, plant/ machinery and equipment that have a physical nature
97
what is an intangible asset ?
intellectual rights/property- items of value that my not be physical in nature
98
non-current assets ?
assets that the business expects to retain ownership of for a eriod of at least one year
99
current assets ?
assets that the business expects to turn to cash within one year
100
inventories ?
goods that have been purchased for resale but remain unsold as at the year end
101
trade receivables ?
money that is owed from customers to the business
102
non current liabilities ?
debts/obligations that the business is required to pay within a one year accounting period
103
current liabilities ?
liabilities that the business expects tp pay within a one year accounting period
104
trade payables ?
money that is owed from a business to a supplier
105
equity ?
term used to define the value of funds within the business which can be attributed to the owner
106
Net profit formula ?
gross profit - expenses
107
Gross profit formula?
sales revenue - cost of sales
108
cost of sales formula?
opening inventory + purchases - closing inventory
109
what stakeholders are likely to be interested in the financial accounts of a business ?
```
owners
consultants
government
staff
lenders
```
110
usefulness of financial statement information?
summarising the financial position at the end of the accounting period
using the data to obtain debt finance
using the data to collect and end report taxes
planning for the future
111
what is financial statements ?
summarises the financial position of a business using the income statement and statement of financial position
112
what is ratio analysis
a method which analyses financial statement information with reference to a series of key ratios covering important elements of the financial position of a business
113
what is return on capital employed
how much money you have gotten back from investing
114
what is the ratio for ROCE
Netprofit divided by total assets minus current liabilities x 100 equals percentage
115
what is the gross profit margin ratio
gross profit divided by sales revenue x 100 equals percentage
116
how to describe ROCE
for every 1 pound invested you make ...
117
how to describe gross profit margin
for every 1 pound of sales revenue the business makes ... gross profit
118
what is the net profit summary
the total profit made per year
119
how to describe net profit margin
for every 1 pound of sales revenue the business gets ... net profit
120
ratio for net profit margin
net profit divided by sales revenue x 100 equals percentage
121
what is liquidity
how quickly assets can be turned into cash
122
what are the three profitability ratios
return on capital employed
gross profit margin
net profit margin
123
what is the current ratio
current assets divided bz current liabilities equals x:1
124
how to describe current ratio
for every 1 pound of current liabilities we have ... current assets to pay it off
125
what is gearing
how much of the business is funded by debt
126
what is the gearing ratio
non current liabilities divided by total equity plus non current liabilities x 100 equals percentage
127
what is considered as a highly geared business
a business over 50 percent is considered highly geared
128
why is it bad for a business to be highly geared
because this means they are more prone to higher interest payments
129
what is the trade payables ratio
trade payables divided by cost of sales x 365 equals days
130
what does the trade payables ratio show
how efficiently the business is when paying for its credit purchases within the agreed time period of days
131
5 types of ratios
```
profitability
liquidity
gearing
financial efficiency
shareholder
```
132
profitability ratios ?
net profit margin
gross profit margin
return on capital employed
133
liquidity ratio?
current ratio
134
gearing ?
gearing
135
financial efficiency ratios ?
trade payables
| trade receivables
136
shareholder ratios?
earnings per share
| return on equity
137
what is the benchmark for current ratio
2:1
138
what is the benchmark for gearing ratio
over 50% is considered a highly geared business
139
what is the benchmark for trade payables and trade receivables _
30 days
140
what is the trade receivables ratio
trade receivables divided by cost of sales x 365
141
what is the earnings per share formula
profit after tax divided by number of ordinary shares equals ... pence
142
what is the formula for return on equity _
profit after tax divided by equity x 100 equals %
143
what are the benefits of ratio analysis
1. provides consultant with opportunity to scrutinise kez aspects of financial position
2. helps simplify the financial statements an owner will have for their business which will allow for a clearer understanding
3. helps with trend analysis to compare the business over a period
4. highlights important info quickly instead of looking at financial statements
5. highlights strengths and weaknesses and compares with similar competitors
144
what are the limitations of ratio analysis
1. info is historical based and tends to date quickly
2. information on financial statement may be window dressed which makes it unreliable
3. different versions of ratios which means it may be difficult for the business to make comparisons
4. ratios dont take account of inflation which can lead to a distortion of figures
5. industry standards may not be the best benchmark to assess if it is a small business- tough to compare small businesses against large ones
6. the external environment may change but the effect or result may be felt e.g recession
7. financial ratios ignore other objectives e.g growth
145
what is investment appraisal?
what other areas need improved on in the project
146
definition of investment appraisal
an analysis of alternative investment projects using standard investment appraisal techniques in order to determine the investment most likely to meet organisational objectives
147
reasons for investment appraisal ?
enables a consultant to provide a detailed analysis of options to managers and helps with decisions on capital investment projects
projects can be evaluated by consultant and the strengths and weaknesses of it can be highlighted
competing projects can be compared
management decisions are based on financial criteria
discounting technique results in optimal decision being taken and implemented
148
2 methods of investment appraisal ?
payback
| net present value
149
what is the payback method ?
it calculates the amount of time it takes for the cash inflows from a project to equal the cash outflows
150
what is the initial outlay ?
th amount paid at the start
151
rule with payback period ?
always go for the project with the shortest payback time
152
advantages of payback method ?
```
easy to understand
simple to use
good for screening projects
indicates how long money is at risk
useful in a changing market
```
153
disadvantages ?
doesn't take account any cah flow after payback period
overall profitability of investment isn't considered
doesn't consider the net value of cash
154
what is the net present value ?
the future value of money
155
rule for net present value ?
invest in the project that has the highest positive net present value
