theme 2 Flashcards
(21 cards)
define fincial planning
a prediction of future sales revenue and costs based on previous data such as time serise analysis
benefits of sales forcasting/financial planning
enables to plan ahead and avoid surprises
-cash flow, clear idea of inflows and outflows help manage cashflows
-plan orders with suppliers and thus builds relationships with them
-enables firm to know if they have capacity to meet projects, hire more staff order more machines ect
drawbacks of sales forcasting/ financial planning
-consumer trends may change, either technical advancese environmental like EVs or fashion changes ect
-economic variables like the economic cycle, boom reccesion
-competiton, new entrants can impact market share and thus previous data
-external factors, PESTLE
how to calculate sales volume
sales volume = total sales revenue/ selling price
who do you calculate contribution
selling price - variable cost
how do you calculate break even
fixed cost / contribution
how do calculate the margain of safety
sales volume - break even
drawbacks of break even analysis
-only takes into account factors the firm can control like SP
-cant look at more than one product
-donsnt account for unforseen expenses
-break even only works if all products sold at same price
-dosnt account for elasticity of demand
types of budgets
-historical figures, past data to predict budgets
-zero based, department must propose budget and explain no prior data
how do you calculate gross profit
revenue - cost of sales
how do you calculate operating profit
gross profit - operating expenses
who do calc Net profit
operating profit - interest
how do calc gross profit margain
gross profit/revenue x 100
operating profit margain
operating profit / revenue x 100
define exceptional cost
one off cost such as large bad debt
how do you calculate Net profit margain
net profit / revenue x 100
what are the benefits of calculating gross/operating profit margains
making comparisons
- previous years and trends
other businesses, industry average
firms own target
ways of increasing profitablity
decreasing cost of sales, raw materials leads to higher efficeincy lower waste
higher sales, by increasing promotion of the product
increased production, can lead to EOS which will lower ATC improving profitablity
define liquidity
ability of a firm to meet short term liabilities/ financial obligations
define fixed assests
property and equipment that are owned by the business to operate the business factors of production
