2.3

Question 1

how is profit calculated

Answer 1

total revenue - total costs

Question 2

what is a statement of comprehensive income (profit/loss)

Answer 2

A formal financial document that summarises the businesses trading activities and expenses to show whether a profit or loss has been made

Question 3

what is shown on a statement of comprehensive income?( profit/loss)

Answer 3

-Sales revenue
-Cost of sales
-Gross profit
-Operating expenses
-Operating profit
-Interest
-Exceptional items
-Profit for the year/net profit

Question 4

how is sales revenue calculated?

Answer 4

Quantity sold x selling price

Question 5

what are cost of sales?

Answer 5

Variable costs

Question 6

how is gross profit calculated?

Answer 6

Sales revenue - cost of sales (variable costs)

Question 7

what are operating expenses?

Answer 7

Fixed costs

Question 8

how is operating profit calculated?

Answer 8

gross profit - operating expenses

Question 9

how is profit for the year/net profit calculated?

Answer 9

Operating profit - (interest + exceptional items)

Question 10

what does gross profit show?

Answer 10

-money the business is made from just selling the product products alone
-Financial success of a product

Question 11

what is gross profit margin

Answer 11

A measure of a firm profitability by looking at the relationship between grace profit and sales revenue

Question 12

how is gross profit margin calculated?

Answer 12

gross profit
sales revenue. x100

Question 13

what might a low gross profit margin suggest

Answer 13

-cost of sales are not managed effectively
-Sales are in decline

Question 14

what is the operating profit margin?

Answer 14

A measure of a firms profitability by looking at the relationship between operating profit and sales

Question 15

what might a low operating profit margin suggest

Answer 15

-Expenses are not managed effectively
-Sales are in decline

Question 16

how is operating profit margin calculated?

Answer 16

Operating profit
Sales revenue. x100

Question 17

what is net profit margin?

Answer 17

A measure of a firms profitability by looking at the relationship between net profit and sales revenue

Question 18

what might a low net profit margin suggest?

Answer 18

-Gross or operating profit are in decline
-Interest rates have changed

Question 19

how is net profit margin calculated?

Answer 19

net profit
Sales revenue. x100

Question 20

how can profitability be increased?

Answer 20

-Sell the same quantity at a higher price
-Sell more at current price
-Sell same at same price but reduce costs

Question 21

what is a statement of financial position? (balance sheet)

Answer 21

A formal financial document summarise the net worth of a business at a given point in time

Question 22

what is an asset?

Answer 22

item of Value owned by a business that can be turned in to cash

Question 23

What’s a non-current asset?

Answer 23

asset likely to be kept by the business for more than a year, won’t turn into immediate cash

Question 24

what is the current asset?

Answer 24

affect likely to be turned into cash within a year

Question 25

what is a liability?

Answer 25

debts the business has to pay

Question 26

whats a current liability

Answer 26

debts the business will have to repay within a year -creditors -overdrafts

Question 27

non current liabilities

Answer 27

-debt the business has more than a year to pay -loans

Question 28

what is working capital/ net current assets

Answer 28

cash available to a business for everyday activities/ payments eg suppliers or bills

Question 29

how is working capital calculated

Answer 29

current assets - current liabilities

Question 30

what is the other name for working capital

Answer 30

net current assets

Question 31

how is net worth calculated

Answer 31

(NC assets + working capital) - NC liabilities basically just assets - liabilities (will equal total equity)

Question 32

how is total equity calculated

Answer 32

share capital + retained profit (will equal net worth)

Question 33

what is on a statement of financial position (balance sheet)

Answer 33

-NC assets -current assets -C liabilities -working capital -NC liabilities -net worth -total equity

Question 34

what is liquidity

Answer 34

A measure of a firm short-term survival, e.g. it’s ability to meet short-term debts and daily expenses

Question 35

how can liquidity be measured

Answer 35

-current ratio -acid test ratio

Question 36

how is current ratio calculated

Answer 36

current assets / current liabilities

Question 37

how is acid test ratio calculated

Answer 37

current assets - stock/ current liabilities

Question 38

how can a business increase liquidity

Answer 38

-increase current assets -reduce current liabilities -sell NC assets no longer used -move cash balances from current accounts to high interest accounts -switch to long term sources of finance -monitor/ pressure debtors

Question 39

what is business failure

Answer 39

failure to continue trading under existing ownership and/or financial structure

Question 40

what are financial causes of business failure

Answer 40

-cash flow management -failure to reach break even output -external shocks

Question 41

what are the non financial causes of business failure

Answer 41

-poor management -inefficiency -ineffective marketing

Question 42

whatre the internal causes of business failure

Answer 42

-failing to understand market -poor planning -poor decision making -badly organised -overtrading -non viable idea

Question 43

whatre the external causes of business failure

Answer 43

-economic environment -changing social trends -demographics -political environment -competitors actions -gov regulations -supplier insolvency -external factors

Question 44

how can failing to understand the the market cause business failure

Answer 44

-no thorough market research -underestimated competition

Question 45

how can poor planning lead to business failure

Answer 45

-inaccurate cash flow forecast -failure to break even -inadequate resources

Question 46

how can poor decision making lead to business failure

Answer 46

-management inefficiency -lack of innovation -expanding into new markets -ineffective marketing

Question 47

how can bad organisation lead to business failure

Answer 47

-poor stock control -inefficient labour -bad customer service -cash flow/ liquidity issues

Question 48

how can economic environment lead to business failure

Answer 48

-brexit/ covid -dip in consumer confidence -consumer spending power

Question 49

how can changing social trends lead to business failure

Answer 49

-online shopping -out of town outlets -more price sensitive PED

Question 50

how can demographic changes lead to business failure

Answer 50

-ageing population may have less disposable income -migration

Question 51

how can political environment lead to business failure

Answer 51

-changes to tax rates