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Chapter 19: financial performance Flashcards

1
Q

Adverse variance

A

Actual profit is lower than budgeted profit

Due to costs being higher than targeted

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2
Q

Assets

A

Items of value

Eg. Land / machinery /. Cash

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3
Q

Balance sheet

A

Statement of an organisation assets and liabilities at one point

Shows value of the company

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4
Q

Break even output

A

Quantity of output where total revenue = total costs

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5
Q

Budget

A

Financial plan

States futures expected costs and revenue

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6
Q

Budgeting

A

Making a budget

Or trying to keep below a certain level of spending

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7
Q

Capital expenditure

A

Spending on new non-current assets

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8
Q

Capital structure

A

Way a business raises finance to purchase assets

How much from shares vs loans

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9
Q

Capital structure objectives

A

Raising finance in a cheap way

Provides sufficient funds for survival / expansion

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10
Q

Contribution

A

Money left over from sale of product after variable costs are deducted

Used to pay of fixed costs

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11
Q

Contribution per unit

A

Price - variable cost per unit

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12
Q

Current assets

A

Items of value owned by a business. That will be turned to cash within 1 year

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13
Q

Current liability

A

Debts scheduled for repayment within 1 year

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14
Q

Current ratio

A

Measurement of the level of liquidity

Should be 1;5;1

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15
Q

Current ratio formula

A

Current asset/current liabilities

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16
Q

Debt factoring

A

Business sells its receivables to a third party at a discount

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17
Q

Direct cost s

A

Cost of sales

Includes raw materials. Direct labour

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18
Q

External source of finance

A

Funding from outside of the business

Eg. Bank loan

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19
Q

Favorable variance

A

Situation where the financial outcome is better than budgeted for

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20
Q

Financial decision making

A

Strategies chosen to help improve cash flow

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21
Q

Financial efficiency ratio

A

Measuring how well an organisation mangers its working capital

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22
Q

Financial objectives

A

Monetary goals that a business sets itself usually set target in Caltrain time

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23
Q

Gearing

A

Measure of the extent to which a firms capital is financed using long term loans

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24
Q

Gearing formula

A

Non-current liabilities / total equity + non current liabilities X100

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25
Going into administration
Court appoints accountants to run a business after its declared insolvent
26
Gross profit
Excess of revenue over cost of sales = revenue - direct costs
27
Income statement
Account that shows income and expenditure of a firm over a set Time span
28
Insolvent
Company with little hope of ever being able to pay debts
29
Internal source of finance
Funding that comes from the business owners
30
Inventory
Stocks of raw materials
31
Inventory turnover
Ratio that shows how many times a business sell its stock in a year
32
Inventory turnover formula
Cost of goods sold / average inventories held
33
Liabilities
Debts owed Eg. Trade credit
34
Liquidation
Turning all assets into cash and paying off liabilities
35
Liquidity
Ability of a firm to meet it short term debts
36
Loan
Sum of money that are borrowed an paid back with interest
37
Long term funding
Finance raised that does not have to be repaid within 1 year
38
Margin of safety
Quantity by which sales may fall before a form incurs a loss = demand - break even output
39
Net assets
Shows value of company = total assets - total liabilities
40
Net current assets
Amount of spare liquid assets once current liabilities have been taken into account = current assets - current liabilities
41
Operating profit
Profit generated by the ongoing business = gross profit - indirect costs
42
Operating profit margin
% of sales revenue that is operating profit = operating profit x 100 / sales
43
Overdraft
Borrowing facility in which any amount of money to a agreed limit can be used
44
Over head
Costs not generated by production process
45
Over trading
Beyond level at which there is a safe level of cash Risk of liquidation despite strong sales
46
Payables
Debts owed by a business
47
Payables days
= payables / cost of sales X 365
48
Profit for the year
Total profit = operating profit + interest received - interest paid - tax on profits
49
Profit for the year margin
% of revenue that is profit for the year = profit for year / turnover x 100
50
Profitability
Compares business profit to other factors like revenue or capital employed
51
Receivables
Amount owing to a firm from debtors Current asset
52
Receivables days
Number of days till convert receivables to cash = receivables/revenue x 365
53
Retained profits
Value of all profits not given to shareholders and kept for company use
54
Return on capital employed
= operating profit / total equity + non current liabilities. X 100
55
Return on investment %
Return on investment / cost of investment x100
56
Share capital
Amount of money invested into the business by shareholders
57
Total contribution
Total revenue - total variable costs
58
Total equity
Money belonging to the shareholders = share capital + retained profit
59
Variance
= actual figue - budgeted figure
60
Venture capital
Investment funding for small businesses which is taking risks
61
Window dressing
Presenting the accounts in a way that make the accounts look better
62
Working capital
= current assets — current liabilities

Business (25 decks)

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