Unit 5:

Question 1

What are financial objectives?

Answer 1

Targets related to finance, such as revenue, costs, profits, cash flow, return on investment.

Question 2

Give examples of financial objectives.

Answer 2

Revenue objectives, cost minimisation, profit maximisation, cash flow targets, return on capital employed (ROCE).

Question 3

What internal factors influence financial objectives?

Answer 3

Corporate objectives, characteristics of the firm, operational and marketing performance.

Question 4

What external factors influence financial objectives?

Answer 4

Economic conditions, competitor actions, interest rates, exchange rates, inflation.

Question 5

What is revenue?

Answer 5

The income generated from sales.

Formula: Revenue = Price × Quantity.

Question 6

What are costs?

Answer 6

Expenditures incurred in producing goods/services.

Question 7

What is profit?

Answer 7

The financial gain.

Formula: Profit = Revenue - Costs.

Question 8

What are fixed costs?

Answer 8

Costs that do not change with output, e.g., rent.

Question 9

What are variable costs?

Answer 9

Costs that change with output, e.g., raw materials.

Question 10

What is break-even analysis?

Answer 10

Determines the level of output where total revenue = total costs.

Question 11

What is the break-even formula?

Answer 11

Break-Even Point = Fixed Costs / (Price Per Unit - Variable Cost Per Unit)

Question 12

What is contribution per unit?

Answer 12

Selling Price - Variable Cost per Unit.

Question 13

What is margin of safety?

Answer 13

Actual output - Break-even output.

Question 14

What is budgeting?

Answer 14

Setting financial targets for revenue and expenditure.

Question 15

What is favourable variance?

Answer 15

When actual results are better than budgeted.

Question 16

What is adverse variance?

Answer 16

When actual results are worse than budgeted.

Question 17

Advantages of budgeting?

Answer 17

Improves planning, coordination, motivation, control.

Question 18

Limitations of budgeting?

Answer 18

Can be time-consuming, based on forecasts, may demotivate if unrealistic.

Question 19

What is cash flow?

Answer 19

The movement of money in and out of a business.

Question 20

What is cash inflow?

Answer 20

Money received by the business (e.g. from sales).

Question 21

What is cash outflow?

Answer 21

Money paid out (e.g. wages, rent, suppliers).

Question 22

Why is cash flow important?

Answer 22

Ensures a business can meet short-term liabilities.

Question 23

Methods of improving cash flow?

Answer 23

Speeding up inflows, delaying outflows, overdraft, factoring.

Question 24

What is gross profit?

Answer 24

Revenue - Cost of Sales.

Question 25

What is operating profit?

Answer 25

Gross Profit - Operating Expenses.

Question 26

What is profit for the year?

Answer 26

Operating Profit - Interest and Taxes.

Question 27

What is profit margin?

Answer 27

Profit as a percentage of revenue.

Question 28

How to improve profitability?

Answer 28

Increase revenue, reduce costs, improve efficiency.

Question 29

Internal sources of finance?

Answer 29

Retained profits, sale of assets.

Question 30

External sources of finance?

Answer 30

Bank loans, overdrafts, share capital, venture capital, trade credit.

Question 31

Short-term sources of finance?

Answer 31

Overdrafts, trade credit.

Question 32

Long-term sources of finance?

Answer 32

Loans, share capital, retained profit.

Question 33

Factors influencing finance choice?

Answer 33

Cost, risk, control, financial position, purpose of finance.

Question 34

Give examples of financial objectives.

Answer 34

Revenue objectives, cost minimisation, profit maximisation, cash flow targets, return on capital employed (ROCE).

Question 35

What is variance analysis?

Answer 35

the difference between a company's actual financial performance and what was planned in their budget