Finance Flashcards
What are two pros of statement of comprehensive income
It offers a clear and formal record of a business’s financial performance, helping investors, banks, and shareholders understand how the business is doing financially, which can influence their decisions to invest or lend. seems promising and can help attract investors.
Assists in decision-making and comparison:
It provides clear financial data that can be used to compare performance with previous years or competitors, helping managers make informed decisions about budgeting, cost-cutting, or investing in growth. organised, annual comparison. easy to understand and compare layout.
What are two cons of statement of comprehensive income
Does not show cash flow or liquidity position:
The statement only records income and expenses on an accrual basis — it does not show how much cash the business actually has, which can hide liquidity issues or cash shortages.
It shows revenue and expenses that have been earned or incurred, not the actual cash flowing in or out. That’s why it doesn’t reflect liquidity . business can be profitable on paper but still run out of cash.
Can be misleading without context:
It doesn’t explain why profit increased or fell, or include non-financial data (like customer satisfaction or employee morale), so it might give a false impression of performance if viewed in isolatin.
What is statement of comprehensive income also known as
profit and loss statement
What are two pros of induction training
Familiarizes employees with company culture and policies:
Induction training helps new employees understand the company’s values, mission, and workplace culture. This is crucial for aligning them with the company’s objectives and creating a sense of belonging. It also ensures they are aware of important policies (e.g., health and safety, dress code, expected behavior), which can reduce mistakes or misunderstandings in the workplace.
FASTER INTEGRATION- A well-structured induction program allows employees to understand their roles and responsibilities better, which boosts confidence in their ability to perform tasks. This can lead to higher productivity and faster integration into the team, reducing the time it takes for new hires to become fully effective.
Two cons of induction training
Induction training requires both time and resources, which can be costly for a business, especially if the program is lengthy or requires external trainers. The business may also have to allocate additional staff to deliver the training, taking time away from their regular tasks.
If the induction program is too detailed or packed with information, new employees may feel overwhelmed. This could result in information overload, where they may struggle to retain important details, leading to confusion or reduced confidence.
Two pros of off the job training
Off-the-job training often takes place in classrooms, workshops, or through online courses, allowing employees to learn from specialists or industry experts. This training can provide in-depth knowledge and advanced skills that may not be available within the workplace. Employees can focus on learning without the pressure of daily work responsibilities, which can lead to better skill development.
can build employee loyalty and reduce employee turnover costs as it allows them to feel valued and special by their company, enjoying the expert level classes the company is offering them. increase motivation.
Two cons of off the job training
Off-the-job training can be expensive for businesses, especially if it involves hiring external experts, paying for courses, or sending employees to off-site locations. Additionally, employees may need to spend time away from their regular duties, leading to downtime and potential loss of productivity in the short term.
GAP BETWEEN THEORY AND PRACTICE- While off-the-job training provides valuable knowledge, employees may find it challenging to immediately apply what they’ve learned to their daily tasks. The gap between theory and practice can make it harder for employees to see the practical value of the training
Two pros of on the job training
Practical, hands-on learning:
On-the-job training allows employees to learn by doing, which is often more effective than theoretical learning. Employees are trained in a real-world setting, which helps them gain relevant, job-specific skills they can immediately apply to their tasks. This makes the training process highly applicable to their role.
no extra costs for external training programs or courses. Employees learn while performing their job, which helps the business save time and money. There’s also LESS DOWNTIME, as the training is integrated into the daily workflow, allowing employees to continue contributing to the company’s operations.
Two cons of on the job training
On-the-job training depends on the trainer’s ability, and if the trainer is not skilled or knowledgeable, the quality of training can vary. Employees might receive incomplete or incorrect information, which could affect their performance and the company’s operations.
Since employees are learning while working, they might get distracted by daily tasks or have to juggle multiple responsibilities at once. This can slow down their learning progress and might impact overall productivity, especially if the trainer or the trainee is inexperienced. The new customers and pressure to work on first day and observe may overwhelm the new employee.
Two pros of break even analysis
Break-even analysis gives businesses a clear understanding of the minimum sales needed to cover costs, acting as a target goal to reach. Employees can be given a minimum sales target or commision based salary to ensure break even point is reached.
it is quick and easy to analyse, and helps business analyse whether costs need to be lowered to reach and attain a lower break even point.
Two cons of break even analysis
assumes all product, including perishable products, will be sold. Also assumes that there will be no damage or waste of stock
variable costs could change regularly, meaning the analysis could be inaccurate. ex- the value of mangoes increases when good mangoes are rare and it is off season for mangoes.
Two pros of using Boston matrix
The Boston Matrix helps businesses understand which products or business units are performing well and which are underperforming. helps company allocate their investments. For example, Stars may need investment to grow, while Cash Cows can be milked for steady profit, ensuring resources are used where they’ll have the most impact. understand their portfolio
provides visual framewrok to help analyse their strongest and weakest products in portfolio, allowing them to make decisions like rebranding, etc to increase performance of a business.
Two cons of using Boston matrix
The matrix shows a snapshot in time, which can be misleading in rapidly changing industries, fast developing and moving markets. the matrix doesn’t take into account that markets can evolve, making it harder to make long-term predictions based on just this tool.
market share not only measure of success or profitability:
a product may have a large market share but still operate with very low profit margins due to
high production costs
aggressive pricing strategies
strong competition
Similarly, a product in a fast moving and competitive market may require lots of ongoing investment in marketing, R&D, or infrastructure, which can significantly reduce
short-term profitability.
Two pros of cash flow forecast
Cash flow forecasts can reveal potential cash flow shortages, helping businesses avoid insolvency or at least lessen its impact. For example, the business could postpone investments, liquidate assets, lower cash withdrawals, or pay suppliers with credit to minimize cash flow shortages.
Cash flow prediction helps you decide if a significant purchase can be made without jeopardizing the company’s financial health. It’s a way to see if your organization can handle introducing new products or budgeting more
Two cons of cash flow forecast
cash flow forecasting is not an exact science. Many uncontrollable factors can affect the forecasted numbers: environmental changes, changes in political leaders, inflation, and emergency repairs.
Inaccurate computations result from a number of human errors, including inaccurate data entry, imprecise formulas, and duplication. All of these can be very expensive mistakes. Can but business at risk of making bad decisions putting it at risk of financial crises.
Two pros of ROCE
provides a comprehensive measure of a company’s overall performance by considering both profitability and capital efficiency. It helps assess the effectiveness of capital allocation decisions and the ability to generate returns on invested capital.
it reflects the company’s ability to generate returns on their investment. A consistently high ROCE indicates that the company is generating attractive returns, which can instill confidence in investors and potentially attract more capital.
Two cons of ROCE
ROCE also primarily concentrates on profitability and capital efficiency, but it leaves out other crucial elements of financial performance, including revenue growth, margins, the creation of cash flow, and return on equity. DOES NOT GIVE OVERALL VIEW OF FINANCIAL POSITION, JUST FOR INVESTEMENT.
(ROCE) is calculated based on past financial data, it is inherently limited in its ability to prove current or future financial health. ROCE is a backward-looking metric, meaning it reflects past profitability by past investment. does not account for changes in the market environment, consumer behavior, or technological advancements that could change company’s performance
Two pros of acid test ratio
It excludes inventory, so it gives a more realistic picture of a firm’s ability to pay off short-term debts using only its most liquid assets (like cash and receivables).
It can act as an early warning sign if a business is becoming too reliant on stock to stay afloat. Even if the current ratio looks fine, a low acid test ratio can flag deeper cash flow problems that might otherwise go unnoticed.
Two cons of acid test ratio
It’s based on figures at a single moment, so it doesn’t reflect cash flow patterns or future income — just one day’s position.
While the acid test ratio is stricter by excluding inventory, it might underestimate the true liquidity of a business. :
some companies may have fast-moving stock (like retail businesses), which means their inventory can be quickly converted into cash.
By not considering this, the acid test ratio could make the company look less liquid than it actually is.
What is contribution? (In the formula)
Contribution = Selling Price per Unit − Variable Cost per Unit
amount of money remaining from sales after variable costs have been deducted.
Two pros of using cost plus pricing
you make a profit at every product, regardless of market conditions. This gives financial stability and predictability, especially in industries with stable cost structures.
Cost-plus pricing is straightforward and easy to calculate. The business simply adds a set markup on top of the cost of producing the product or service. This simplicity makes it a low-risk approach, particularly for new businesses, who need a profit margin.
Two cons of using cost plus pricing
Cost-plus pricing focuses solely on internal costs and ignores external factors like market demand, competition, or customer willingness to pay. As a result, a business may set prices too high or too low compared to competitors, potentially leading to lost sales or lower profitability.
Puts businesses finance ahead of the comfortable or desirable price for consumers, could lead to less sales.
Two pros of price skimming
create sense of value, luxury and exclusivity as price denotes quality.
This helps businesses recover development costs faster and generate high margins before lowering prices to attract a broader audience.
Two cons of price skimming
The high initial price can deter price-sensitive customers from buying. it may prevent the product from reaching mass-market appeal quickly. slows down market penetration.
may attract competitors into the market who can offer similar products at lower prices. Can steal customers interested in product but price sensitive. can lead to less sales, especially if competitors can provide similar features at more affordable prices.
