financial performance

Question 1

define cashflow

Answer 1

the timing of payments and receipts, important on the short term to keep a business afloat

Question 1

what is profit

Answer 1

revenue greater than its expenditure

Question 2

what are income statements

Answer 2

a record of a businesses sales rev and costs over a trading period as well as recording profits and losses

Question 3

calculate gross profit:

Answer 3

rev - cost of goods sold/direct costs/cost of sales

Question 4

cost of good sold =

Answer 4

direct costs or cost of sales or variable costs

Question 5

calculate operating profit:

Answer 5

gross profit - indirect costs

Question 6

calculate profit for the year:

Answer 6

operating profit - interest

Question 7

what are revenue objectives

Answer 7

when aiming for growth, also often specific to an aspect of the business

Question 8

what are cost objectives

Answer 8

reducing costs in aims to increase profits
OR
cost minimisation to keep prices low

Question 9

what are profit objectives

Answer 9

an objective for the entire business
expressed as:
a simple figure
a % increase
% comparison to sales

Question 10

define capital expenditure

Answer 10

spending to purchase non-current assets

Question 11

internal influences on financial objectives

Answer 11

nature of product sold
overall strategy
objectives of senior managers

Question 12

external influences on financial objectives

Answer 12

P TLE - C

Question 13

name the 3 types of budgets

Answer 13

revenue/earnings
expenditure
profit

Question 14

another name for revenue budgets

Answer 14

earnings budgets

Question 15

what are budgets for

Answer 15

to organise planned profits or losses

Question 16

difficulties in constructing budgets

Answer 16

unexpected changes unaccounted for
difficult to forecast due to poor market data
decisions made by governments/ financial institutions

Question 17

variance analysis:

Answer 17

actual figure difference from budgeted figure

Question 18

variance is either….

Answer 18

adverse or favourable

Question 19

advantages of budgeting

Answer 19

effectively control finances
ability divert funds easily
can motivate staff/targets for employees

Question 20

disadvantages of budgeting

Answer 20

allocating funds fairly is hard
normally only relate to the current financial year

Question 21

why are cash flow forcasts used

Answer 21

to support applications for loans
to help avoid unexpected crises

Question 22

format of a cashflow forcast

Answer 22

cash in
cash out
_________
net monthly cashflow

Question 23

closing balance on a cashflow forecast

Answer 23

opening balance + net cash flow

Question 24

payables =

Answer 24

creditors (in credit to)

Question 25

receivables =

Answer 25

debtors (they are in debt of you)

Question 26

what is Break Even

Answer 26

sales of products to cover costs of production

Question 27

break even formula :

Answer 27

fixed costs _______________________________________ selling price per unit - variable cost per unit

Question 28

contribution per unit formula:

Answer 28

selling price per unit - variable cost per unit

Question 29

what does the margin of safety measure

Answer 29

the amount which a businesses current level exceeds break-even output

Question 30

define profitability

Answer 30

a measure of financial performance comparing revenue to other factors

Question 31

what is a profit margin

Answer 31

ratio expressing profit over a % of its revenue

Question 32

how to calculate a profit margin

Answer 32

type of profit --------------------- x 100 rev

Question 33

two main sources of finance

Answer 33

internal external

Question 34

short term internal sources of finances

Answer 34

retained profits sale and lease back of assets

Question 35

short term external sources of finances

Answer 35

debt factoring overdrafts

Question 36

long term internal sources of finances

Answer 36

retained profits

Question 37

long term external sources of finances

Answer 37

venture capital share capital long term loans/mortgages

Question 38

what influences decisions on sources of finance

Answer 38

businesses legal structure cost incurred with the of the source of finance flexibility level of control passed over purpose of finance

Question 39

causes of cash flow problems

Answer 39

overtrading allowing too much trade credit poor credit control inaccurate cashflow forecasts

Question 40

methods of improving cashflow

Answer 40

improved control of working capital negotiate trade credit terms offer less trade credit debt factoring short term borrowing sale and leaseback of assets

Question 41

what is working capital

Answer 41

CA-CL, day to day cash

Question 42

how to improve profits/profitability

Answer 42

Reduce costs increase prices improve efficiency increase capacity utilisation remove substandard products Kaizen/JIT techniques