Financial Forecasting and Analysis Flashcards Preview

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Flashcards in Financial Forecasting and Analysis Deck (36):
1

Formula for Revenue

Quantity sold x Selling price

2

Price elasticity of demand

Sensitivity of a product's change of price

3

Variable Costs

Costs WHICH DO CHANGE when the output of the business changes

4

Fixed costs

Costs that REMAIN THE SAME regardless of output

5

Formula for total costs

Total fixed costs + total variable costs

6

Average costs

The average cost of production is the cost for each unit of a product that a business sells

7

Formula for average costs

total costs / products sold

8

How can business reduce it's average costs?

1. Reduce the amount paid for supplies
2. Reduce wages
3. Increase efficiency of production
4. Achieve economies of scale

9

Break-even point

The point at which the sales are the exact same as the costs

10

Formula for break-even

total fixed costs / (selling price - variable costs per unit)

11

Margin of safety

The difference between the actual level of output and the break-even point

12

Formula for margin of safety

actual sales - break-even sales

13

Why break-even is useful

-Business can set targets
-Can be useful when trying to get a loan
-Can be used to make decisions of increasing prices or reducing costs

14

Break-even limitations

-Forecast figures may turn out to be different to actual figures
-The figures only usually relate to one product
-The tool assumes that all output is sold

15

Cash flow

The movement of money in and out of a business bank account

16

Inflows/income

Money received by the business

17

Outflows/expenditure

This is money that the business spends

18

Formula for net cash flow

inflows - outflows

19

Positive net cash flow

Inflows are greater than outflows

20

Negative net cash flow

Inflows are not enough to cover outflows

21

Opening/closing balance

The amount of money in a business account at any particular time (beginning + end of the month)

22

Cash flow forecast

What is predicted to happen

23

Cash flow statement

What actually happens

24

How to improve cash flow

1. Increase income by investing money or applying for a loan
2. Reduce expenditure by cutting down staff hours, finding cheaper stock etc.
3. Trade credit with suppliers

25

Cash flow forecasts benefits

-Forecasts enable a business to assess the business's ability to meet debts as they fall due
-They identify imminent cash flow problems
-It can help a business make key decisions

26

Cash flow forecasts limitations

-Forecast figures may be different to actual figures
-They are very difficult to do accurately

27

Gross profit

Amount of profit made by a business as a result of buying and selling goods

28

Formula for gross profit

selling price - cost of buying goods (to the business)

29

Net profit

It takes into account the gross profit, along with the allowance for the costs involved in running the business i.e. telephone cost and rent

30

Formula for net profit

gross profit - expenses

31

Expenses

A cost of running the business that occurs as part of a company's operating activities during a specified accounting period

32

Accounting

The process of keeping financial records

33

Why keeping financial records is important

1. To know whether the business is making a profit
2. To be prepared for external organisations e.g. auditors and Inland Revenue
3. To be able to use the records to plan for the future

34

Profit margin

The ratio of profit over revenue, expressed in a percentage

35

Formula for gross profit margin

(gross profit / revenue) x 100

36

Formula for net profit margin

(net profit / revenue) x 100