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Flashcards in Finance Deck (20):

What is variance analysis? And what are the 2 types of variance?

The analysis of actual figures in perspective of budgeted figures
Favourable and adverse variance


Define budget

A budget is a forward financial plan


What is credit control?

Monitoring debtors of an organisation ensuring that limits are not exceeded and inflows are on time


What are creditors

Creditors are the people whom owe money to an organisation


What is debt factoring?

Where a business, usually a bank buys the right to collect a debt from the creditors of an organisation


What is an adverse variance

Where costs are higher than predicted or where revenue is lower than predicted


What is favourable analysis?

Where costs are lower than predicted or revenue is higher than predicted


What is gross profit and what is its formula

Gross profit is the difference between sales and the costs of goods.
Sales revenue - costs of sales


What is net profit and what is its formula?

It's the bottom line of what the business earns before tax
Gross profit - expenses OR sales revenue - all costs bar ta


What is meant by overtrading?

Where a firm grows too quickly without sufficient funds, putting strain on the capital in the business


What is the formula for net profit margin?

Net profit (before tax)
___________________ x100


What is the formula for return on capital?

Net profit (before tax)
___________________ x100
Capital invested


3 advantages of using budgets

- Provides direction and focus on the aims of the business
- motivates staff to meet and exceed figures
- encourage and aid future budget forecasts


3 drawbacks of budgetting

- May be incorrect due to a change in circumstances
- it's only a prediction
- keeping to a budget (expenditure) may be inappropriate if it means that quality would be decreased


Name some causes of a cash flow problems

- Seasonal demand
- overtrading
- over investment
- credit sales
- paying suppliers too quickly
- unforeseen changes


Ways In which cash flow can be improved

- overdraft
- short term loan
- sale of assets
- debt factoring
- decreasing costs
- increasing sale volume


Possible benefits of a bank overdraft facility

- easy to arrange and no restrictions to what you can use it for
- interest only paid on the level of overdraft actually used
- firms do not need to provide security


Possible benefits of a short term loan

- bank loans usually have a set interest amount making it easier to budget
- interest rates are usually lower than an overdraft rate
- a loan could be set up for a longer period of time if needed


Possible benefits of debt factoring

- cash flow proves quickly
- lower administration costs as factorers now collect the debt
- reduced risk of bad debt as the factorers now take that risk


Possible benefits of selling assets

- sales of fixed assets can raise a considerable sum of money
- it is possible if the business no longer require that asset