Unit 5 Flashcards
(22 cards)
List 3 specific types of profit recorded on an income statement?
Gross profit - Profit made before overheads e.g. rent are paid
Operating profit - Profit made after overheads like rent are paid but before tax
Profit for the year - Annual net profit - all overheads paid
List and give examples for financial objectives
/5
Revenue - Growth in revenue or a set target - 10% increase in revenue or 10 million GBP in revenue
Costs - Cost minimisation e.g. reduce operating costs by streamlining operations
Profit - Maximisation by increasing revenue or decreasing costs, e.g. % increase or set amount goal
Cash Flow - e.g. increasing cash inflows by 10%
Return on investment - e.g.15% ROI on all projects in the next year
What is the formula for net cash flow?
Cash inflows - Cash outflows
What is the formula for return on investment?
Profit from investment / cost of investment x 100
What is an income statement?
A record of a business’s sales revenue, relevant costs incurred and its profit/loss over a trading period
What is profitability?
A measure of how efficiently a business generates profit from revenue and operations
What is the formula for profit margins?
type of profit / revenue x 100 = %
What is a budget?
Financial plans that outline expected expenditure and income over a specific period
What is the formula for contribution?
revenue - variable costs
What is the formula for contribution per unit?
price - variable costs per unit
What are the 2 usable formulae for calculating the break-even point?
- Fixed costs / contribution per unit
- Fixed costs / price - variable cost per unit
What is the formula for margin of safety?
output - break even point
What are trade receivables?
Sums of money owed to a business by debtors who have bought on credit
What are trade payables?
When a business owes money to a creditor as it has bought from them on credit
What is internal finance? + list 2 sources
A source of finance that already exists inside the business
Retained profits - Profit left over after paying shareholders (if it does)
Sale of assets - if they are not being used / profitable which can also reduce costs
What is debt factoring?
An external source of finance where businesses sell trade receivables for a lesser value to an institution for up-front cash
Negatives: loss of money and customers will likely not like being chased up by the banks giving the business a worse reputation
What are overdrafts?
An external source of finance that allows a business to withdraw more money than its account balance up to a previously agreed set limit
Negatives: Very high interest rates on overdraft payments
What is share capital?
An external source of finance available for companies - means selling shares
Negatives: dilutes ownership and thus control, and increases dividend payments
What is crowdfunding?
An external source of finance where businesses raise funds from a large amount of people, done effectively with marketing strategies that attract and convince the public to donate
Negatives: may be difficult, has to be public meaning competitors may copy
What is venture capital?
Selling shares to experienced business people (who want ROI) who will also offer advice and opportunity
Negatives: loss of control
List causes of cash flow problems?
/3
- Overtrading
- Allowing too much credit and poor credit control
- Inaccurate cash flow forecasting
List methods of improving cash flow
/5
- Negotiating improved trade credit terms with suppliers
- Offering less trade credit
- Debt factoring
- Overdrafts
- Sale and leaseback
