Business A Level > Unit 5 > Flashcards

Unit 5 Flashcards

(59 cards)

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1
Q

What are financial objectives?

A

Targets related to financial performance of business, often linked to profit, revenue, costs or return on investment

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2
Q

What factors influence financial objectives?

A
  • Corporate objectives
  • Internal resources
  • Competitor performance
  • The economy
  • Stakeholder pressure
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3
Q

What is an income statement?

A

Financial document, shows revenue, costs and profit / loss over specific time period

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4
Q

What is profit for the year?

A

Net profit after all costs, taxes, and interest have been deducted.

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5
Q

What is the formula for gross profit?

A

GrossProfit=Revenue−CostofSales

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6
Q

What is the formula for operating profit?

A

OperatingProfit=GrossProfit−OperatingExpenses

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7
Q

What is the formula for net profit?

A

NetProfit=OperatingProfit−InterestandTax

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8
Q

What is the formula for gross profit margin (%)?

A

(gross profit / revenue) X I00

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9
Q

What is the formula for operating profit margin (%)?

A

(Operating profit/ revenue ) x 100

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10
Q

What is the formula for return on capital employed ( ROCE)?

A

(operating profit/ capital employed) X 100

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11
Q

What does a high ROCE mean?

A

Efficient use of capital to generate profit — good for investors.

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12
Q

What are the internal sources of finance?

A
  • Retained profit
  • Sale of assets
  • Reducing working capital
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13
Q

What are external sources of finance?

A
  • Bank loans
  • Overdrafts
  • Share capital
  • Trade credit
  • Venture capital
  • Government grants
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14
Q

What is venture capital?

A

Finance provided by investors to high-risk, high-growth businesses in return for equity

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15
Q

What is the formula for break-even output?

A

Break- even output = fixed costs / (selling price - variable cost per unit)

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16
Q

What is the contribution per unit?

A

SellingPrice−VariableCostperunit

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17
Q

What is the formula for margin of safety?

A

ActualOutput−Break-evenOutput

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18
Q

Pros and cons of break-even analysis?

A

✅ Simple to understand
✅ Helps set targets
❌ Based on assumptions
❌ Doesn’t account for external factors

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19
Q

What is the cash flow forecast?

A

Projection of cash inflows & outflows over a period, used to predict cash shortages / surplus

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20
Q

Causes of cash flow problems?

A
  • Poor sales
  • High overheads
  • Late customer payments
  • Overtrading
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21
Q

Definition of cash inflow and cash outflow

A

Cash inflow is the money going into a business which could be from sales, investments, or financing

cash outflows all of the money moving out of the business to pay for its costs, for example suppliers, employees and overheads.

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22
Q

How to calculate closing balance

A

Closing Balance = Opening Balance + Total Credits - Total Debit

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23
Q

How to calculate opening balance

A

Opening Balance = Assets - Liabilities

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24
Q

How to calculate variances

Study These Flashcards
A

Variance = Actual Value - Budgeted/Standard Value

25
Return on investment definition
A measure of the efficiency of an investment in financial terms, used to compare the financial returns of alternative investments.
26
Debts as a proportion of long-term funds equation?
(Debts/long term funding) X 100
27
Revenue objectives?
- sales maximisation - targeting specific increase in sales revenue - exceeding sales of competitor
28
Cost minimisation objectives?
- achieving certain cost reduction in purchase of raw materials - reducing wage costs per unit - lowering levels of wastage
29
Profit objectives?
- profit maximisation - targeting a specific level of, or increase in, profit - exceeding the profit of close competitors
30
Depreciation definition?
The fall in value of an asset over time, reflecting the wear and tear of the assets as it becomes older, the reduction in its economic use or its obsolescence
31
Factors influencing investment decisions and objectives?
- expected return on investment - interest rates = rise in I.R increases cost of borrowing, therefore may lead bus. deciding certain investment proj. not financially worth it. - expected demand - levels of technological change = new tech. leads to obsolescence, or machinery becoming out of date quickly, replacement investment.
32
External factors influencing objectives?
- political factors - economic factors - social factors - technological changes
33
3 types of budgets?
- income budget: shows agreed, planned income of business over period of time - expenditure budget: shows agreed, planned expenditure of business over period of time (raw materials, labour costs, rent e.g) - profit budget: showed agreed, planned profit of business over period of time
34
Variance analysis definition?
Process by which outcomes of budgets examined then compared with budgeted figures
35
Favourable variance definition?
When costs lower than expected or revenue higher than expected
36
Adverse (unfavourable) variance definition?
When costs higher than expected or revenue lower than expected
37
Variance equation?
Variance = budget figure - actual figure
38
Reasons for setting budgets?
- to gain financial support - t measure that a business doesn’t overspend - to establish priorities - to improve efficiency
39
Problems of setting budgets?
- problems in gathering information - unforeseen changes in the future - levels of inflation (price rises) is not easy to predict
40
Cash flow forecasting definition?
Process of estimating expected cash inflows and cash outflows over period of time, cash flows often seasonal so it is advisable to forecast for period of 1 year.
41
Net cash flow definition?
Sum of cash inflows to a organisation minus sum of cash outflows over period of time
42
Why businesses forecast cash flow:
- identifying potential cash flow problems in advance - guiding firm towards appropriate action - making sure sufficient cash available pay suppliers make other payments
43
Receivables definition?
People who owe money to business Also known as debtors
44
Payables definition?
People who the business owe money to Also known as creditors
45
Contribution per unit equation:
Selling price per unit - variable cost per unit
46
Total contribution definition:
Difference between total revenue and total variable costs
47
Total contribution equation:
Contribution per unit X units of output
48
Break even output definition:
Level of output at which total sales revenue is equal to total costs of production
49
Break even equation?
Fixed costs/ contribution per unit
50
Margin of safety definition?
Difference between actual output and break even output
51
Margin of safety equation?
Actual output - break even output
52
Bank overdraft definition?
When bank allows individual or organisation to overspend current account in bank up to an agreed (overdraft) limit and for stated period of time
53
Advantages of bank overdraft:
- extremely flexible - interest only paid on amount of overdraft being used - security usually not required
54
Disadvantages of bank overdraft:
- levels of interest rate charged - flexible interest rates = bus. may find payments going up or down, makes hard to budget, payments not fixed in advance - banks may demand immediate repayments
55
Advantages of loans:
- easy for budgeting - lower interest rates - designed to meet businesses needs
56
Disadvantages of loans:
- limitations on amount available - inflexibility - potential expense
57
Venture capital definition:
Finance that is provided to small - or medium - sized firms that seek growth but which may be considered as risky by typical share buyers or other lenders
58
Advantages of venture capital:
- suited for high-risk companies - venture capitalists may allow interest or dividends to be delayed - source of advice and contact
59
Disadvantages of venture capital:
- giving up some ownership of the business - possible high finance costs - excessive influence
Business A Level
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