THEME 2, Financial Planning Flashcards
(18 cards)
What is sales forecasting, and what are 2 ways of doing it?
Predicting future sales, using historical data or using current market data.
What are 3 things that a sales forecast can help identify
- Positive or negative correlation, helps managers understand relationships between product and different variables, can influence decision making
- Extrapolation, making predictions based around a trend
- Moving averages, helps to smooth out data fluctuations(eg seasonal demand)
What is a break even point?
The point where a business is neither making a profit or a loss.
Name some different types of budget and what they are useful for
Revenue, profit and expenditure budgets. Good motivators act as a target for employees to reach
Explain historical budgeting and its pros and cons
Historical budgeting uses the previous years data to create a new budget.
PROS
Easier and less time consuming to prepare than zero-based
Stable and predictable, useful for long term planning
Fewer resources needed for the budgeting
Good for businesses with consistent operations
CONS
May not adapt with the external market
Little flexibility
Discourages innovation
How do you calculate gross profit and the gross profit margin?
GP= rev-cost of sales
GPM= gp/rev times 100
2
How do you calculate the operating profit and operating profit margin?
OP= GP-FC
OPM= op/rev times 100
How do you calculate the net profit and net profit margin?
NP= OP-TC
NPM=NP/rev times 100
What is a non current asset?
One which is long term for example a building or vehicle
What is a current asset?
A short term asset eg receivables, stock, cash in bank
What is a current liability?
Short term debt, eg payables and short term loans
What is a non current liability?
Long term debt eg mortgage
How do you calculate if theres a net asset or net liability?
Assets-liabilities
What is total equity?
Share capital+retained profit
How do you calculate current ratio?
Current assets/current liabilities. Shown as a ratio :1
How do you calculate the acid test ratio?
(Current assets-inventory)/current liabilities= value as a ratio :1
What are some internal causes of business failure?
Lack of cash flow
Poor financial planning
Poor leadership
Poor marketing
What are some external causes of business failure?
Changes in the economy
Changes in trends+tastes
Legislation
