recap struggle 5 Flashcards
(20 cards)
what is return on investment
how much money a business is getting back on its investments
- measure of a firm profitability and performance
what can ROI show
how effective it is using the money tied up within the business to generate profit
what is capital structure
debt vs equity
what is the distinction of profit and cash flow
profit is the financial gain of a business whilst cash flow is movement of money into and out
what is zero bases budgeting
starting from scratch each year
- technique of planning and decision making which reverse the work of traditional budgeting
- need approval to spend
what is an advantage of zero based budgeting
more accurate then the historical budgeting if done properly
- flexible
what are the disadvantages of zero based budgeting
take longer to complete
what is incremental budgeting
use last years budget as a base then add incremental amounts added for new period
what are the advantages of incremental budgeting
- stable
- gradual
- avoids conflict
- co-ordinated
what are the disadvantages of incremental budgeting
- priotise change
- assumptions
- no incentive
- fails to take into account the changing circumstances
what is an external cause to variances
- changes in the economy
- increase in raw material costs
- changes in comp/ cu behaviour
what is an internal cause of a variance
- improving efficency
- might over or under estimate
- chnages in selling price
what are the decisions based of adverse variances
- change marketing mix
- streamlining production
= try increase motivation - cut costs
what are the decisions made for a favourable variance
- more ambitious target
- help everyone do what was responsible for improvements
- indicate more sales so increase production
what is the cash flow cycle
the gap between money coming in and going out
how do you improve cash flow forecasts
- overdrafts
- debt factoring
- credit terms
- loan
- credit control
- stock management
- reduce overheads
what does limited cash flow mean
- missed opportunities
- cant pay debts
what does a cash flow forecast do
- help make decisions
- help predict short cash
- check a firm isn’t
- show banks and venture capitalist
- establish firms based on past experiences
what is venture capital
establish business investing into another business for a % of their equity
- high rate of return in a specific time
- business can benefit from expertise and mentoring
- useful for high risk start ups
what is crowd funding
- raising finance from large no. of people each investing different, often small amounts of money
