W4, Financial management Flashcards Preview

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Flashcards in W4, Financial management Deck (7)
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1

What is an income statement (profit and loss statement)? 

  • profit and loss statement
  • shows income and expenses
  • shows whether the business has made or lost any money
  • 5 key elements
    • revenue (sales/ turnover)
      • total income from core business activities
      • grants/rebates/ any income received
    • cost of goods sold
      • costs directly incurred as a result of buying or making product 
      • variable cost- tied to level of production or service
    • gross profit
      • revenue- cost of good sold
      • the profit that you have to be able to pay for your expenses(overhead)
    • expenses
      • fixed costs
      • incurred regardless of the volume of business that you're doing
    • net profit
      • before tax, shows what the business has earned or lost in a period of time, usually monthly, quarterly or annually after expenses have been subtracted from revenue
  • SALES-COGS= GROSS PROFIT-EXPENSES=NET PROFIT

2

What is a balance sheet?

  • A balance sheet is a snapshot (specific) of what your business owns (assets) and owes (liabilities), at a specific point in time, often produced at the end of the financial year
  • Also shows debt and liquidity 
  • The balance sheet provides a good picture of the financial health of your business and helps you understand the financial strength and capabilities of your business
  • ASSETS – LIABILITIES = OWNER’S EQUITY
  • owners equity- reflects state of business

3

What are the assets?

  • cash at bank
  • accounts receivable
  • allowance for bad debt

4

What are liabilities?

  • accounts payable 
  • mortgage on building
  • bank loan

5

What is a cash flow statement?

  • shows the movement of cash in your business
  • the more cash available for business operations, the better 
  • consists of THREE components
    • cash inflows (receipts)
      • from sales 
      • returns from investments 
    • cash outflows (payments)
      • rent
      • salaries
      • interest on loans
      • taxes
      • expenses
    • net cash position (receipt minus payments)

6

What is the purpose of a cash flow statement?

  • To pinpoint periods of cash shortage
  • To plan for borrowings/capital expenditure
  • To effectively negotiate a loan
  • To take advantage of money making opportunities with forecast excess cash
  • To finance seasonal requirements
  • For greater confidence in where your business stands
  • To act as a management tool against which actual results can be measured

7

What are examples of performance indicators?

  • Staff to turnover % = total staff expenses/total sales x 100.
    • • $373,827/$3,450,000 x 100 = 10.83%
    • • (Average 10-15%)
  • Rent to turnover % = Rent & Outgoings/ total sales x100 
    • $96,000/$3,450,000 x 100 = 2.78%
    • (Average 5-8%)
  • Average sales (staff) = total of all sales/ number of customers
  • Products per customer = total sales/number of products