Themes 2 AND 3 Flashcards Preview

Business A Level Balfour > Themes 2 AND 3 > Flashcards

Flashcards in Themes 2 AND 3 Deck (28)
Loading flashcards...
1
Q

What is the formula for break even & contribution

A

Break even= Fixed costs / contribution per unit

Contribution= Selling price - Variable cost per unit

2
Q

Uses of break even analysis

A
  • Shows whether or not a business idea is viable and profitable
  • Identify level of output and sales neccesary to make a profit
  • Assess changes in level of production
3
Q

Limitations to break even

A
  • Unrealistic assumptions- products not sold at same price
  • Sales less likely to be the same as output
  • Variable costs fluctuate.
4
Q

Formula for total contribution

A

Total output x contribution per unit

5
Q

Strengths of break even analysis

A
  • Shows business what output is needed to make a profit
  • Helps entrepreneur understand level of risk involved when starting the business
  • Calculations are quick and easy
  • Ensures the business whether or not they are going to need loans or potential investors.
6
Q

what is contribution?

A

what a business needs to achieve from selling its products in order to cover its fixed costs so they can start to make a profit.

7
Q

What would happen to variable costs if business decided to use a cheaper supplier?

A

VC would decrease lowering b/e point as it would lower the total costs

8
Q

what would happen to an increase in rent for a building for a mcdonalds restraunt, how would this affect mcdonalds.

A

Increase in rent leads to higher variable costs increasing the total costs for the business making the b/e point higher

9
Q

What is the margin of safety

A

This is the difference between the b/e point and the current level of output

10
Q

Formula for profit

A

margin of safety X contribution per unit

11
Q

formula for margin of safety

A

Current level of output - Break/even point

12
Q

what is investment appraisal

A

the process of analysing whether investement projects are worthwhile.

13
Q

What is payback

A

method used to calculate length of time for an investment to recoup its original cost

14
Q

Why is payback useful for firms

A

Useful for firms who need quick return and may be facing liquidity issues

15
Q

How to calculate payback if it falls between two years

A

Amount remaining to recover / Amount recovered following year X100

16
Q

What is Average rate of return (ARR)

A

measures profit from an investment over time

17
Q

One negative to ARR

A

Profits may fluctuate over time and ARR does not take this into account

18
Q

Formular for ARR

A

Average anual profit / Asset’s initial cost X100

19
Q

Three steps to calculating ARR

A
  1. Total income from investment - Cost of investment = total profit of investment
  2. Total profit from investment / expected lifespan of asset = Average anual profit
  3. Average anual profit / cost of investment X100 = ARR
20
Q

What is net present value

A

the difference between the present value of cash inflows and the present value of cash flows over a period of time.

21
Q

formula for net present value

A

Net cash flow X discounted factor

22
Q

What is gearing ratio

A

Gearing analyses how a business has raised its long term finance. the ratio shows how much of a firms equity that is borrowed

23
Q

Formula for gearing ratio

A

Non current liabilities / total equity+Non current liabilities X100

24
Q

factors affecting demand in a market

A
  • Advertising and branding
  • Ethical issues
  • Changes in income
  • Changes in price of complementary goods
25
Q

Factors affecting supply

A
  • number of suppliers
  • demand for product
  • cost of production
    external factors:
    -covid
    -war
    -trends
26
Q

What is formula for return on capital employed (ROCE)

A

OPERATING PROFIT / CAPITAL EMPLOYED X 100

27
Q

What is roce

A

Roce is a ratio that compares operating profit and capital employed. Capital employed is the total equity plus non current liabilities

28
Q

How to work out capital employed

A

Total equity + Capital employed