Theme 2: Section 8 Managing Finance

Question 1

Percentage Increase/Decrease

Answer 1

Profits from year to year, compare if doing well or not.

Question 2

Percentage change in Profit

Answer 2

Current year profit - Previous year Profit/Previous year profit x 100

Question 3

Gross Profit and Formula

Answer 3

Amount left over when the Cost of Sales (cost of product) subtracted from Total Revenue.
Total Revenue - Cost of sales

Question 4

Operating profit and Formula

Answer 4

Cost of Sales and operating expenses.
Gross Profit - Other Operating expenses.

Question 5

Net Profit (Profit for the year) and Formula

Answer 5

Interest the business has to pay for borrowing money.
Operating Profit - Interest.

Question 6

Comprehensive Income statement ( Profit/Loss account)

Answer 6

Shows money coming in (Revenue) and out (Expenses).
Previous years, useful trends overtime.

Question 7

Profit Margins

Answer 7

Measure relationship between profit made and revenue, percentage of selling price of product is profit.

Question 8

Gross Profit Margin and Formula

Answer 8

Percentage of Revenue.
Gross Profit/Revenue x 100.

Question 9

Operating Profit Margin and formula

Answer 9

Costs of regular trading.
Operating Profit/Revenue x 100.

Question 10

Net Profit Margin (Profit of the year) and Formula

Answer 10

Measures Profit for the year as percentage of Revenue.
Profit for the year/Revenue x 100.

Question 11

Increasing Profit Margins

Answer 11

Reducing Cost of Sales, cheaper supplier. May lead to lower quality, reduce sales volume and Revenue.

Question 12

Interpret Profit Margins

Answer 12

Compare with previous years

Question 13

Profit

Answer 13

money left from Revenue once costs paid.

Question 14

Cash

Answer 14

Constantly flowing in and out, bills.

Question 15

Financial Position Statement/ Balance Sheet

Answer 15

Value of Assets (own), liabilities (owe), Capital (retained profit).

Question 16

Total Equity

Answer 16

Total of money ever put into the business.

Question 17

Non-Current Assets

Answer 17

keep for more than a year, property, technology.

Question 18

Total Non-Current Assets

Answer 18

Financial Position combined of all businesses Non-Current Assets.

Question 19

Current Assets

Answer 19

Exchange for cash before next financial position made, money owed, products.

Question 20

Total Current Assets

Answer 20

All Current Assets added together

Question 21

Net Assets

Answer 21

Current and Non-Current Assets added together, Current and Non-Current liabilities deducted.

Question 22

Current liability Debts

Answer 22

Debts paid off within a year, overdrafts, taxes.

Question 23

Non-Curent liability Debts

Answer 23

Debts paid over several years, mortgages, loans.

Question 24

Liquidity of an Asset

Answer 24

How easily it an be turned into cash, for new things.
Improved by speeding up collection of debts to business.

Question 25

Current Ratio (Working Capital Ratio) and Formula

Answer 25

Compares Current Assets to Current Liabilities.
Current Assets/Current Liabilities.

Question 26

Acid Test Ratio (Liquid Capital Ratio) and Formula

Answer 26

Tougher measure of liquidity than the current ratio as it accounts for inventory.
Current Assets - Inventory/Current liabilities.

Question 27

Inventory

Answer 27

Takes long time to sell or may not at all, removing from Current Assets, Acid Test Ratio, more accurate measure of the ability of a firm to pay Current Liabilities.

Question 28

Working Capital and Formula

Answer 28

Amount of cash, pay day-to-day debts.
Current Assets - Current Liabilities.

Question 29

Working Capital Cycle

Answer 29

Cash, Production Costs (Wages,Raw Materials), Finished Stock ,Sales (Receivables).

Question 30

Business Failure

Answer 30

No longer open, not making enough money to cover Costs.
Not enough Cash to pay Current Liabilities.

Question 31

Business Failure Internal Financial Factors

Answer 31

Bad Management, not enough Cash
Poor Efficiency, Costs aren’t as low as they can be.
Bad Decisions, expensive finance, overdrafts high costs.

Question 32

Business Failure Internal Non-Financial Factors

Answer 32

Poor Communication, departments not working well.
Inadequate MR and Analysis, fails to monitor change.
Failure to Innovate, consumer preferences, lack new products.

Question 33

Business Failure External Financial Factors

Answer 33

Economic Recession, consumers have less money to spend.
Exchange Rates, close if lost too many overseas customers.

Question 34

Business Failure External Non-Financial Factors

Answer 34

Competitors, similar products at lower price, sales fall.
Consumer Trends, stop wanting a product, drop revenue.
Poor Communication, lose suppliers, lose production.

Question 35

Dynamic Market

Answer 35

Technology, lack of innovation declines sales.