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a level business > UNIT 5 > Flashcards

UNIT 5 Flashcards

1
Q

why are financial objectives important

A
  • poor management of financial control is the main cause of business’ failing
  • easy to manage with numbers
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2
Q

4 types of profit

A
  • revenue
  • gross profit
  • operating profit
  • net profit
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3
Q

name 3 cash flow objectives

A
  • specific, reserved cash
  • shortening payments periods for customers
  • extending cash outflow to suppliers
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4
Q

name 3 investment and return objectives

A
  • a target for capital investment, aligned with growth target
  • reducing capital to reduce debt
  • calculate return on investment
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5
Q

whats ROCE

A

return on capital employed
- amount of profit made compared to how much has been put in

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6
Q

calculate return on capital employed

A

operating profit/ capital employed
all times 100

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7
Q

how to calculate capital employed

A

total equity+ non current liabilities

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8
Q

whats the ideal capital employed

A

20-30 percent

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9
Q

whats capital structure

A

a balance between amount borrowed and how much they owe shareholders

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10
Q

what does too much share capital lead to

A

more dividends paid out

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11
Q

what does too much loan capital lead to

A

risk of interest increase

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12
Q

name 3 internal influences on financial objectives

A
  • help to meet corporate objectives
  • type of product
  • other functional objectives eg: operations objective of being more efficient will have a knock on effect
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13
Q

whats a budget

A

a financial plan for the future

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14
Q

2 purposes of budgeting

A
  • control/ monitoring
  • motivation
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15
Q

what are the 2 types of budget

A

revenue vs expenditure

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16
Q

what are types of budget usually based on

A

historical data

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17
Q

whats a zero based budget

A

requires all expenditures to be justified, to ensure value for money

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18
Q

strength and 2 weakness of zero based budget

A
  • minimise cost
  • time consuming
  • past data may not be best to indicate future
  • external factors can affect eg: interest rates
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19
Q

whats a variance analysis

A

a difference between actual and budget figures

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20
Q

whats the difference between a favourable and adverse variance

A

favourable is where costs are lower than expected
adverse is where costs are higher, therefore revue lower

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21
Q

whats a cash flow forecast

A

a prediction of cash coming in and out of the business, usually in a table format

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22
Q

3 reasons why a cash flow is important

A
  • to avoid bankruptcy
  • overview of expenses
  • help a business avoid insolvency ( not being able to pay off debt )
23
Q

whats a net cash flow

A

total inflow- total outflow

24
Q

how to we figure out opening balance on a cash flow forecast

A

its the same as months before closing balance

25
Q

whats a trade union

A

a union that protects rights and interest of workers

26
Q

whats labour turnover

A

department of employees over a period of time

27
Q

whats delayering

A

removing layers of management to increase efficiency

28
Q

what are receivables

A

money owed to a business

29
Q

2 ways to improve cash flow

A

speed up inflows
- loan/ overdraft
- destock
slow down outflow
- reduce costs

30
Q

name 3 difficulties improving cash flow

A
  • relationships can be affected
  • overdrafts are expensive and short term
  • consequences!!
31
Q

3 strengths 3 weakness’ of cash flow forecast

A
  • predict demand surges
  • identify negative cash flow
  • apply loan
    • based on estimates
    • doesnt account for external
    • biased figures
32
Q

3 advantages of break even

A
  • allows business to plan how many products need to be sold to make profit
  • pricing strategy
  • supports application for loan
33
Q

2 disadvantages of break even

A
  • assumes all products are sold at same price
  • assumes cost increase constantly and firms don’t benefit from bulking
34
Q

whats an income statement

A

calculates profit or loss made by a business in the last 12 months
it compares performance and is useful for investors

35
Q

gross profit

A

money after deducting costs

36
Q

operating profit

A

amount left after expenses and costs

37
Q

net profit

A

operating profit- interest and all expenses

38
Q

why should we work out GP and NP

A

we can see if the business is doing well compared to competitors

39
Q

how to work out GPM

A

gross profit/ revenue
x 100

40
Q

calculate net profit margin

A

NP/ revenue x 100

41
Q

3 difficulties in improving profit

A
  • spending money to make money
  • lower quality if cheap??
  • consequences with change
42
Q

what are the 3 types of internal finance

A

savings
retained profit
sales of assets

43
Q

advantage and disadvantage of savings

A
  • no interest
  • may not be enough
44
Q

whats debt factoring

A

sell debt to 3rd party
- its immediate
- the company will take a cut from debt theyre chasing for you

45
Q

whats trade credit

A

obtains stock from suppliers however you dont pay immediately
- it helps with cash flow
- not suitable for large amounts

46
Q

bank loan

A

suitable for large amounts however have to pay interest

47
Q

bank overdraft

A

insant
however, high interest

48
Q

venture capital

A

business angel buys shares
- advice and finance
- loose some ownership
LATER ON THE BUSINESS ANGEL WILL SELL SHARE AND BUY ELSEWHERE

49
Q

family and friends

A

no interest
may not be enough

50
Q

share capital

A

sell shares for money
- loose ownership, take over
- no interest

51
Q

P2P LENDING

A

loan from peers, without bank
- high returns than savings
- high risk, not covered

52
Q

crowd funding

A
  • raise large amount
    -may not raise enough?
53
Q

grant

A

local council
- dont need to pay back
- need to meet certain criteria

54
Q

mortgage

A
  • re mortgage for cash
  • large amount
  • pay interest

a level business (7 decks)

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