Theme 2.4 Flashcards
Making financial decisions (26 cards)
What is the primary purpose of financial decision-making in a business?
To allocate resources effectively to maximize profits.
True or False: Financial decisions only involve spending money.
False
Fill in the blank: The three main financial statements are the income statement, balance sheet, and _______.
cash flow statement
What does the income statement show?
It shows a company’s revenues and expenses over a specific period.
Multiple choice: Which of the following is NOT a source of finance?
Market research
What is the difference between fixed and variable costs?
Fixed costs do not change with production levels, while variable costs do.
True or False: A high gross profit margin indicates a company is inefficient.
False
Fill in the blank: The formula for calculating profit is _______ minus expenses.
revenue
What is cash flow?
The movement of money in and out of a business.
Multiple choice: Which of the following is a long-term source of finance?
Debentures
What is the break-even point?
The level of sales at which total revenues equal total costs.
True or False: Profit is the same as cash flow.
False
Fill in the blank: A _______ is a financial plan that outlines expected revenues and expenses.
budget
What is the purpose of a cash flow forecast?
To predict future cash inflows and outflows.
Multiple choice: What does ROI stand for?
Return on Investment
What is a financial ratio?
A mathematical comparison of two financial metrics.
True or False: A higher debt-to-equity ratio indicates a business is less risky.
False
Fill in the blank: A _______ is an obligation to pay back borrowed money.
debt
What is the importance of budgeting for a business?
It helps manage finances and ensures resources are allocated effectively.
Multiple choice: Which of the following is a short-term source of finance?
Overdraft
What does liquidity refer to in financial terms?
The ability of a business to meet its short-term obligations.
True or False: A profit and loss account is the same as a balance sheet.
False
Fill in the blank: The _______ ratio compares a company’s current assets to its current liabilities.
current
What is the significance of the net profit margin?
It indicates how much profit a company makes for every dollar of revenue.
