Finance

Question 0

Define budget

Answer 0

A budget is a forward financial plan

Question 1

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

Answer 1

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

Question 2

What is credit control?

Answer 2

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

Question 3

What are creditors

Answer 3

Creditors are the people whom owe money to an organisation

Question 4

What is debt factoring?

Answer 4

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

Question 5

What is an adverse variance

Answer 5

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

Question 6

What is favourable analysis?

Answer 6

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

Question 7

What is gross profit and what is its formula

Answer 7

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

Question 8

What is net profit and what is its formula?

Answer 8

It’s the bottom line of what the business earns before tax

Gross profit - expenses OR sales revenue - all costs bar ta

Question 9

What is meant by overtrading?

Answer 9

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

Question 10

What is the formula for net profit margin?

Answer 10

Net profit (before tax)
___________________ x100
Sales

Question 11

What is the formula for return on capital?

Answer 11

Net profit (before tax)
___________________ x100
Capital invested

Question 12

3 advantages of using budgets

Answer 12

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

Question 13

3 drawbacks of budgetting

Answer 13

• 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

Question 14

Name some causes of a cash flow problems

Answer 14

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

Question 15

Ways In which cash flow can be improved

Answer 15

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

Question 16

Possible benefits of a bank overdraft facility

Answer 16

• 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

Question 17

Possible benefits of a short term loan

Answer 17

• 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

Question 18

Possible benefits of debt factoring

Answer 18

• 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

Question 19

Possible benefits of selling assets

Answer 19

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