Unit 5 - finance Flashcards Preview

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Flashcards in Unit 5 - finance Deck (42):
1

Name 4 areas for financial objectives

Return on investment
Cash flow targets
Profit and shareholder returns
Cost minimisation

2

What is cash flow?

The amount of money that flows into and out of a business over a period of time

3

What is overtrading?

When a firm tries to grow to quickly

4

What can be the consequences of overtrading?

A firm can run out of money as money is going out far faster than it is co I got in, especially if trade credit periods are offered to customers

5

What is gross profit?

The difference between revenue and the direct costs of producing a good or service

6

What is operating profit?

When the direct costs and overheads have been deducted from the revenue

7

What is profit for the year?

Revenue minus direct costs of production, overheads and taxes and interests

8

How do you calculate a profit margin?

(Specific type of) profit / sales revenue X100

9

Name 3 cash flow targets

Reducing receivables days
Increasing payables days (credit period)
Reduce borrowings
Reduce seasonal swings in cash flow

10

What is capital expenditure?

Money spent on long-term investment into a business

11

What is revenue expenditure?

Money spent on the day to day running of the firm, e.g. Buying raw materials

12

How do you calculate return on Investment?

Net profit/amount invested X100

13

Define a business' capital structure

The way in which it has raised its long term finance

14

What are the two sources of long term funding for a business?

Borrowing and share capital

15

Name 3 external influences on financial objectives

Whether the market is growing or not
What other businesses are doing, e.g. To keep up?
Changes in legislation may mean firm needs to adapt

16

Name 3 internal influences on financial decisions and objectives

Overall corporate objectives
Operational capacity
Resources, from finance to workers

17

When may cash flow be more important to a business than profit

When it is first set up
During a recession

18

What is a budget?

A financial plan that estimates the revenues, profits and costs over a specified future time period

19

What are the 3 things that are budgeted?

Expenditure, revenue and profit

20

What is variance analysis?

The process of explaining the differences between budgeted figures and actual figures

21

What is an adverse variance?

If the actual profit is lower than expected

22

What is a favourable variance?

If the actual profit is higher than the expected

23

What is a cash flow forecast?

A prediction of money coming into and out of the business

24

What is net cash flow?

The difference all cash in and all cash out

25

What is the opening balance on a cash flow forecast?

The closing balance carried forward from the previous month

26

What is the closing balance on a cash flow forecast?

The sum of the net cash flow and opening balance

27

Why is it important to do a cash flow forecast?

To stop the business running out of cash
To plan
To help apply for loans

28

What is break even?

When a businesses sales revenue is equal to its total costs

29

What is on each of the axis on a break even graph?

X axis- output
Y axis-costs and revenues

30

What is contribution?

The difference between sales revenue and variable costs

31

HOw do you calculate contribution per unit?

Sales revenue - variable costs/output

Sales price per unit - variable cost per unit

32

How do you calculate break even output?

Fixed costs/contribution per unit

33

How can you use contribution to calculate profit?

Total contribution - fixed costs

34

WHat effect will a rise in price have on the break even output?

It will go down

35

WHat does 'service a debt' mean?

Refers to being able to make repayments on any loans

36

Why is selling more than one product a problem when calculating break even?

The selling price per unit will be different

37

WHat is the difference between profit and profit margin?

Profit is just a figure, the profit margin compares the profit to something, usually sales revenue

38

What is retained profit?

The profit that is reinvested in the business rather than being laid out to shareholders in dividends

39

Name some external sources of finance

Long term loan
Debt factoring
Overdrafts
(Trade credit - not actual finance but helps finances)

40

Name some internal sources of finance?

Retained profit
Sale of assets
Share capital

41

Name an advantage and disadvantages of an overdraft

-the facility is always there
-it's quick

-often high interest
-usually only small amounts

42

Name an adv and disadvantage of debt factoring

-saves the firm the effort of getting the money themselves
-can get the money more quickly

-lose some of the money they would have received if they'd have collected it themselves
-may lose contact with customers