financial terms

Question 1

break even analysis x2➗

Answer 1

•total cost=total revenue(no profit or loss)
•total cost=fixed cost+variable cost

Question 2

purpose of break even analysis

Answer 2

•Shows the point at which a business expects to start making a profit.
•how much you need to sell to make a profit
•changed prices show them new bep

Question 3

break even point equation 🐟🍟

Answer 3

fixed cost
———————————————-
(selling price - variable cost)

Question 4

advantages of break even analysis 🏷️

Answer 4

•work out min sales need=no loss

•pricing strategy-see impact of diff prices

•bank need bea if loan

Question 5

disadvantages of break even analysis 🗑️

Answer 5

•assumes you make you sell,no wastage

•assumes variable costs of the don’t change

•assumes selling price stays the same,

Question 6

margin of safety

Answer 6

•How many items a business can afford not to make and sell and still not make a loss;

•Or how much can their costs go up and they still do not make a loss

Question 7

calculate margin of safety

Answer 7

• break even point - usual sales

•end number of what u can afford to not sell and still not make a loss

Question 8

income statement

Answer 8

•shows a business financial success over a period of time
•sales revenue,gross profit,net profit

Question 9

purpose of an income statement 🐞

Answer 9

•compare gross and net profit

•spot trends
•make better decisions
•compare with competitors/themselfs

Question 10

who uses income statement

Answer 10

competitors
owners
gov
employees-job security

Question 11

advantages of income statement

Answer 11

•identify trends
•better decision making
•provides info for people

Question 12

balance sheet 🚜

Answer 12

•shows the value of a business on a particular date.
•shows what the business owns and owes
(its assets and its liabilities).

Question 13

asset-definition-types

Answer 13

•resource with value that a business owns ,expectation that it will provide a future benefit

•Fixed assets-current value of major purchases that help in the running of the business, like delivery vans or machinery

•Current assets-cash or near-cash available to the firm. This includes stock ready to sell, money owed to them by debtors and cash in the bank

Question 14

lialabilites-

Answer 14

•financial obligations, like the money a business owes to its suppliers, wages payable and loans owing

•short term-money that is due in the next 12 months eg suppliers

Question 15

importance of liabilities

Answer 15

•Some loans are acquired to purchase new assets,tools/vehicles help a small business operate and grow

•Owners should make sure a business has enough assets (items of financial value) to pay off their debts

Question 16

liquidity ratio

Answer 16

•show the cash levels of a company and the ability to turn other assets into cash to pay off liabilities and other current obligations.

•also a measure of how easy it will be for the company to raise enough cash or convert assets into cash.

Question 17

current ratio-definition-equation

Answer 17

•liquidity/efficiency ratio
• measures firm’s ability to pay off its short-term liabilities
•only use current assets.
•INCLUDE STOCK

•current assets/current liabilities

•too high=unproductive activities
•too low=can’t pay your way

Question 18

acid test ratio-definition-equation ➖🛍️

Answer 18

•liquidity ratio
• measures ability of a company to pay its current liabilities
•only use quick assets(90 days)
•DOSENT INCLUDE STOCK

•current asset-stock/current liabilities