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Flashcards in Finance Deck (20):
0

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

1

Define budget

A budget is a forward financial plan

2

What is credit control?

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

3

What are creditors

Creditors are the people whom owe money to an organisation

4

What is debt factoring?

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

5

What is an adverse variance

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

6

What is favourable analysis?

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

7

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

8

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

9

What is meant by overtrading?

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

10

What is the formula for net profit margin?

Net profit (before tax)
___________________ x100
Sales

11

What is the formula for return on capital?

Net profit (before tax)
___________________ x100
Capital invested

12

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

13

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

14

Name some causes of a cash flow problems

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

15

Ways In which cash flow can be improved

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

16

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

17

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

18

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

19

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