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
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)
What is the formula for return on capital?
Net profit (before tax)
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
- over investment
- credit sales
- paying suppliers too quickly
- unforeseen changes
Ways In which cash flow can be improved
- 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