Finance Flashcards

Question

profit for the year percentage

Answer 1

for every £1 of sales revenue, how many pence proft for the year. profit for the year/ sales revenue x100

Answer 2

Shows shareholders return on investment, for every £1 invested how many pence returned. Calculated by dividing PFTY by opening equity and multiplying by 100

Answer 3

- increase selling price - find a cheaper supplier - negotiate cheaper price with current supplier - buy raw materials in bulk to receive bulk buying discount - start promotion to encourage more sales

Answer 4

- improved expense control e.g finding cheaper utility suppliers, reducing overtime - any action that improves gross profit

Answer 5

- increase gross profit - reduce expenses to increase PFTY

Answer 6

Lenders (bank)- to determine whether to lend finance by checking the liquidity of the statement of financial position Employees- to check profitability to see if they are being paid fairly. Is their job secure? Government- to calculate tax by using the income statement (HMRC) (has correct tax been paid) Owner (shareholders)- will use the ROEE ratio to see the level of returns expected, and compare it to other investments Suppliers- to check liquidity to ensure that payment can be made for inventory supplied. Competitors- to make comparisons to assess their position against competitors Financial journalists- to write articles about company performance in national newspapers Trade unions- to assess if members are paid fairly

Answer 7

To identify periods of deficit to allow corrective action to be taken e.g reduce spending, find suitable sources of finance Used to set targets- help motivate employees Highlight periods of surplus- plan investments/ capital expenditure Compare actual performance to estimated- help managers make decisions Control overspending- estimates future cash position Can be shown to bank managers- help acquire additional funding e.g bank overdraft, bank loan

Answer 8

Cash at the start of the financial period

Answer 9

Any money received by the business

Answer 10

Any money spent by the business

Answer 11

Cash available at the end of the financial period

Answer 12

Opening balance + receipts - payments = closing balance

Answer 13

Expenditure exceeds income

Answer 14

Income exceeds expenditure

Answer 15

Falling sales revenue- start a sales promotions e.g promotional price to encourage sales Increased capital expenditure spending on in current assets- arrange to buy in hire purchase or spread payments Increased raw material costs- find a cheaper supplier or negotiate a new price with current supplier Increasing wage costs- lay off temporary workers or reduce overtime hours Increasing expenses e,g electricity- find a cheaper utilities supplier Deficit closing balance- arrange an overdraft to cover the shortage temporarily

Answer 16

1. Ask supplier for extended credit terms 2. Arrange suitable short term finance e.g bank loan 3. Offer cash discounts to customers for prompt payments 4. Hold less inventory to reduce cash tied up.

Answer 17

1. It is a legal requirement for limited companies 2. It calculates the net equity (value o the firm) 3. It summarises assets and liabilities 4. It is used to calculate liquidity ratios 5. It shows the working equity 6. Used by creditors to determine the risk of lending

Answer 18

Items owned by the business for more than a year e,g motor vehicles, premises

Answer 19

The value of cash or near cash items available to the business leg cash, cash in bank, debtors (trade receivables)

Answer 20

Money owned by a business for a period of less than a year elf suppliers, bank overdraft

Answer 21

Money owned by a business for more than a year e.g loans, mortgages

Answer 22

The ability to pay short term debts calculated by current assets- current liabilities

Answer 23

Show the value of the company once all liabilities have been deducted from assets

Answer 24

Show the money invested and any retained profit

Answer 25

Show how well an organisation uses its resources. Calculated from income statement

Answer 26

Cost of sales/ average inventory (average inventory is opening - closing inventory/ 2) Shows the number of times inventory is replaced

Answer 27

Low advertising, poor quality goods, recession etc.

Answer 28

Have a sale Use marketing techniques to shift inventory Negotiate sale or return with supplier

Answer 29

Ratios calculated for SoFP showing ability to repay short term debts (<1 year)

Answer 30

( working equity ratio) Current assets/current liabilities = x:1 Shows the ability to pay short term debts, idea, ratio is 2:1. £2 owned for every £1 owed.

Answer 31

Current assets - closing inventory / current liabilities Shows ability to pay short term debts in a CRISIS SITUATION, idea, ratio is 1:1. £1 owned for every £1 owed so all debts can be paid.

Answer 32

Increase current assets Sell any unnecessary non current assets Decrease current liabilities.

Answer 33

1. Ratios are easier to understand and analyse than the raw figures 2. They allow comparisons to be made from: Year to year Against competitors Against industry averages 3. They will facilitate decision making by identifying trends 4. Highlight poor performance so corrective action can be taken.

Answer 34

1. Info is historic so it is not relevant to current/ future position 2. Different accounting procedures/ valuations may lead to comparisons being invalid 3. Comparisons are into valid if you do like with like e.g similar size or similar industry. 4. It does not show external factors e.g recession or internal factors e.g highly motivated staff.

Answer 35

can be used to create templates for invoices to send to debtors +templates can be saved and edited, saving time +editing tools show references and formatting to be applied to documents

Answer 36

can be used to email debtors about overdue invoices + can be sent anywhere in the world in an instant at low cost +allows documents to be attached +can be sent to many people at one time

Answer 37

can be used to create presentations to summarise financial performance at AGM + allows info to be made more engaging by adding animations and transitions +chairman's notes can be used by managers

Answer 38

can be used to check bank balance, pay bills etc +saves business time as no need to travel to bank +can import info to account software

Answer 39

assist the transfer if funds from customers bank account to sellers bank account +removes the need for cash exchanges which reduces staffing costs for banking +more secure for business and more convenient for customer

Answer 40

used to reconcile all financial transactions and then prepare income statements etc + reduces staff time/ fewer staff as it can reconcile accounts pulling info from different sources + can generate reports +can deal in multiple currencies

Answer 41

can be used to create income statements, SOFP and cash budgets +calculations more accurate-reduced errors +formulas can be replicated- saves time +'what if?' statements can be used- scenarios can forecasted +charts & graphs easily created from data- info can be compared/ analysed to show trends over number of years + conditional formatting used- decision making easier +spreadsheets password protected- secures financial information to reduce likelihood of info being lost/ stolen

Finance Flashcards

(65 cards)