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