Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

business (paper 2) > 204 analysing financial performance > Flashcards

204 analysing financial performance Flashcards

1
Q

explain what is meant by budget variance

A
  • a budget is a financial plan for the future, variance analysis s checking actual outcomes over predicted outcomes
  • the difference between the business budgeted and the actual figure
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

variance calculation

A

actual- budgeted figures

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

favourable variance is shown when

A
  • actual revenue is greater than budgeted revenue
  • actual costs and below budgeted costs
  • the variance results in more profit being made
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

adverse (unfavourable) variance is shown when

A
  • actual revenue is less than budged revenue
  • actual costs are above budgeted costs
  • the variance results in less profit being made
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

importance of budgets to stakeholders

A
  • understand when money is coming in and out- avoid cash flow difficulties
  • understand why variances have occurred- solutions to maximise favourable variances
  • can be used to se and monitor achievements to targets - motivating for employees
  • helps set departmental targets for individual managers for focus on
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

disadvantages of budgets to stakeholders

A
  • competition and economy - unable to predict budget
  • only a prediction of future- if incorrect/unreliable research is used- inaccurate budgets- can be demotivating (if targets are set too high)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

usefulness of budgeting depends on

A
  • expertise of budget setter
  • stability of market
  • amount of historical data available
  • size of business - small may not have time/knowledge
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

what is a balance sheet

A
  • a balance sheet is a statement of a firms assets, liabilities and shareholder’s or owners funds.it shows the net worth of a business at a specific point in time.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

what are fixed (non-current) assets

A

fixed assets expected to be retained in the business for over a year, used to produce output of the business eg.machinery , land

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

what are current assets

A
  • short term assets, maintain value for the business for less than a year eg.stock
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

what are current liabilities

A
  • debts that are normally paid within a year eg. overdraft, loan
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

what are long term (non-current) liabilities

A
  • money repaid over more than a year eg bank loans and mortgages
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

what are net assets

A
  • total assets- total liabilities
  • calculated by adding both fixed an current assets together and then deducting current liabilities and long term liabilities
  • this shows business value
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

what is shareholders capital/ funds

A

-also called equity
- is money that has been invested into the business by owners (through the sale of shares) and also includes retained profit and reserves

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

shareholders funds equation

A

Fixed assets + (Current assets- Current liabilities) - Long term liabilities = Shareholder’s funds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

what is working capital

A
  • the money needed in the business to pay for the day-to-day expenses of a business
    current assets-current liabilities
17
Q

what is meant by capital employed

A
  • the amount of money that is used to. finance a business sin the long term, this finance has either been invested by shareholders or borrowed long term
18
Q

capital employed equation

A

capital employed= shareholder’s funds + long. term liabilities

19
Q

what is depreciation

A
  • the decrease in value of fixed assets overtime eg.due to wear and tear
  • the straight-line method of depreciation assumes that a fixed asset depreciates an equal
    amount to each year of its expected useful
20
Q

decrepitation equation

A

Calculation:
Original Cost - Residual Value
———————————————-
Useful life of the asset (years)

-> take the answer from the equation away year by year from the original cost

21
Q

what is ROCE

A
  • measures how effectively a business is creating profit based on the money they invested into the business
  • the answer is a percentage
22
Q

ROCE equation

A

ROCE = net profit before tax
———————————- x 100
capital employed

23
Q

what is current ratio

A

shows the business ability to meet short term payments eg. to suppliers

24
Q

current ratio equation

A

current ratio= current assets
———————— : 1
current liabilities
(idea, ratio between 1.5:1 and 2:1)

25
Q

interpreting current ratios

A
  • below 1.5:1-> business may not be able to pay its short term debts
  • ^above 2:1*-> business has space cash that is not being used productively
  • but some business hapily survive on low ratios -> eg. supermarkets have high volume sof stock and are able to sell stock quickly and consistently
26
Q

what does the acid test ratio show

A
  • shows how well a company can cover its short term liabilities, without relying on the sale of stock
27
Q

what does the acid test ratio show

A
  • shows how well a company can cover its short term liabilities, without relying on the sale of stock
28
Q

acid test ratio formula

A

current assets - stock
———————————-
current liabilities

29
Q

interpreteing acid test ratio

A
  • ideal range 1:1
  • less than 1:1- business does not have enough cureent asets (minis stock) to cover its liablities
  • some busisnes surive on low acid test ratios-> business swith high level of stock turnover
  • acid tes of 2:1- buisness holding too much cash-could be better used investing in growth
30
Q

what does gearing ratio look at

A
  • shows how much a company relies on borrowed money compared to its own money
31
Q

gearing ratio equation

A

long term (non-current liabilties)
—————————————————————— x 100
capital employed
(as a %)

32
Q

inrepret gearing ratios

A

high gearing :
(-)- interest rates increase-costly payments-reduces pfofits available to shareholders-less money to re-invest/- investors reluctant to invest in companies with high gearing ratio-feel lower chance of profit
(+) - interest rate low-cost effectve to borrow-helps business grow
- quciker way of raising finance for larg companies

-low gearing :
(+) less risk to changes in interst rates as most of the capital in the business comes from shareholder investment, more capital available to pay shareholders their dividends
(-) business might only be focusing on cash flow- not expanding-miss out on oppotunities/markets

33
Q

usefullness of a balence sheet

A

-shareholders are owners of the business-want to know how well it is doing.

-If the current liabilities are a lot more than the currentassets in each year, then the business could have a problem in paying its debts.

-can be compared over time.

34
Q

gearing ratio percenatges

A
  • high= 51%+
    -medium= 26-50%+
    -low = 0-25%
35
Q

what is window dressing

A

manipulation of financial accounts by a business to improve the appreance of its preformace

36
Q

methods of window dressing

A
  • overstating brand value
  • cash flow problmes can be hidden using sale and leaseback eh.sale of fixed assets eg.buildings, and leasing then back so they can still be used
  • expetional items
  • if fixed asset isjt depreacuated enough it will make the balence sheet look better as the asset will be listed as having higher value than they actually do
37
Q

what can affect window dressing

A
  • change in demand eg.covid-busineses had to close-not reperesntive of the state of the business
  • inflation- may look like a business has increased sales/profits- all businses increased profts-not refeltive of improved performace
38
Q

evalaute window dressing

A

(-) legal implications, demanged stakehlder relationshop,devalue comany, loose acsess to soirces of finance

39
Q

income statement equation

A
  • gross profit = revenue- cost of sales
  • net profit = grss profit - expences
  • GPM= pross profit
    —————— x 100
    revenue
    -NPM= net profit
    —————— x100
    revenue

business (paper 2) (10 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions