2.2 + 2.3 Flashcards
1
Q
Problems with sales forecasting?
A
- Volatile customer tastes and preferences
- Subjective expert opinions - many forecasts supported by opinions and experience of a manager within the business
- Fluctuations in economic variables - unforeseen external shocks such as changing commodity prices
- The data used - the quality of the data a business uses may vary considerably
- Volatile markets - some markets are more volatile and unpredictable than others
2
Q
Uses of break even analysis?
A
- Decide whether a business idea is profitable and viable
- Identify the level of output and sales necessary to generate a profit
- Assess changes in the level of production
- Assess the effects of costing and pricing decisions
3
Q
Benefits of break even analysis?
A
- Can be used to analyse impact of varying customers, prices and costs on a business’s profit
- Simple and easy to use
- Useful guidance to help business make decisions
4
Q
Drawbacks of break even analysis?
A
- Simplifies what can be a very complex process - most businesses sell multiple products, which makes BEP more difficult
- Costs rarely constant - presumes that costs stay the same over the various levels of output
- Break even focuses on output - presumes the business will sell all of its output at the same price
5
Q
Drawbacks of budgets?
A
- A budget is only as accurate as the data on which it is based
- Past trends can be a poor indicator of what is likely to happen in the future. Therefore, it can be very difficult to forecast sales
- New decisions taken by governments and public bodies can affect budgets e.g. interest rate changes and employment legislation
- Unexpected changes in process e.g. commodity prices, can impact budgets
- When a budget is unrealistic it loses all value as a motivational tool
6
Q
What can we find out from a statement of comprehensive income?
A
- changes in sales revenue
- changes in the direct costs of sales
- how well a business is managing it’s operating costs
- the profitability of a business
- unusual incomes/expenses during the year
7
Q
Ways to increase revenue?
A
- increase prices
- reduce process (dependent on PED)
- create awareness and desire through marketing
- add value to the product - increase benefits and features
8
Q
Why businesses are unprofitable?
A
- no demand for product
- selling at wrong price
- low contribution per unit
- poor management of costs
- expansion of the business - profit retained and not available to return to return to shareholders
9
Q
Ways to reduce costs?
A
- reduce production costs
- improve efficiency
- use capacity more fully
- eliminate unprofitable processes such as unprofitable product lines
- reduce variable costs - negotiate better deals with suppliers
- lower overheads - move to a cheaper location
10
Q
Ways to improve profit?
A
Increased revenue
Decrease costs
11
Q
What is liquidity?
A
The ability of a business to pay it’s debts and liabilities in cash when they fall due
12
Q
What does working capital take into account?
A
Takes into account current assets e.g. stocks and debtors
These cannot be easily used to pay expenses
Shows why cash is most important asset when assessing the liquidity of a business
13
Q
Ways to improve liquidity?
A
- use an overdraft facility
- delay payments
- take out credit agreements with suppliers
- sell off current assets (stock)
- encourage early settlement of debts
- encourage cash sales
- negotiate additional short-term loans
14
Q
Internal forces of business failure?
A
- poor planning
- cash flow
- marketing
- lack of skills
15
Q
External forces of business failure?
A
- Competition → new competition or a crowded market can lead to a shortage of demand and falling sales
- Legislation → new legislation can often mean increased costs as a business adjusts it’s products and processes to comply
- Market conditions → for example, changes in commodity prices or consumer tastes
- Economic conditions → recession, inflation, unemployment e.t.c.
