2.2 - financial planning Flashcards
What is sales forecasting?
Predicting future sales
What is correlation?
The relationship between two variables
What is a moving average?
Smoothing out fluctuations in data
What is break even?
When a profit makes neither a profit or a loss
Contribution per unit is
The selling price without the variable cost
What is financial planning?
The process of forecasting and budgeting for the financial future of a business.
What are fixed costs?
Costs that do not change with the level of production (e.g.
What are variable costs?
Costs that change with the level of production (e.g.
What is contribution?
The amount remaining from sales revenue after variable costs are deducted.
What is a break-even point?
The level of output at which total revenue equals total costs.
What is break-even analysis used for?
To determine how many units need to be sold to cover costs.
What is a cash flow forecast?
A prediction of a business’s cash inflows and outflows over a period.
What is a cash flow statement?
A financial document showing the actual cash inflows and outflows during a period.
What is working capital?
The money available for day-to-day operations (current assets minus current liabilities).
What is a profit and loss account?
A financial statement showing a business’s revenues
What is the purpose of financial planning?
To ensure a business has enough cash to meet its obligations and achieve its goals.
What is liquidity?
The ability of a business to meet its short-term financial obligations.
What is insolvency?
When a business cannot pay its debts and liabilities.
What is a financial budget?
A plan for expected revenues and expenditures for a set period.
Why is cash flow important?
It ensures the business has enough funds to operate and avoid insolvency.
What are direct costs?
Costs that can be directly attributed to producing a good or service (e.g.
What are indirect costs?
Costs that cannot be directly attributed to a specific product (e.g.
What is cost-plus pricing?
A pricing method where a fixed percentage is added to the cost of production.
What is profit margin?
The percentage of revenue that is profit after all costs have been deducted.
What is a margin of safety?
The difference between the break-even point and the actual level of sales.
