2.2 Financial Planning Flashcards
What is sales forecasting?
Involves a business using a range of techniques and information to predict future sales volumes and values and make decisions eg.purchasing raw materials
Explain approaches to sales forecasting?
A business may use a range of information in order to accurately carry out a sales for east such as market research and back data economic forecasts
Explain economic variables in relation to sales forecasting?
They influence levels of demand thus, sales in the market eg. GDP, interest rates, inflation, unemployment, exchange rates
Explain consumer trends in relation to sales forecasting?
Seasonal variations- sales fluctuate depending on the season or day of the week
Fashions- constantly change and make it hard to carry out accurate sales forecast
Long term trends- most consumer behaviours change over a period of time eg. Solar powered energy
Explain actions of competitors to sales forecasting?
Adjust forecast based on competitors actions eg. Competitors launch sales promotion, business expect sales to fall
eg. Closure of competitor, rise in sales
What are 5 problems with sales forecasting?
1) fluctuations in economic variables- unforeseen external shocks
2) the data used- the quality of it
3) volatile markets- how unpredictable is the market
4) volatile customer tastes and preferences
5) subjective expert opinions- forecasts supported by opinions and experiences of a manger within the business
What is sales volume?
Expressed in units
What is sales revenue?
Value of sales made during trading period
How can a business increase revenue?
Increasing the price of their products and by stimulating more demand
How do you calculate sales revenue?
Price x quantity sold
What’s a variable cost?
They change directly with the level of output or sales
eg. Materials
What’s a fixed cost?
They don’t change with the level of output or sales
eg. Rent
How can a business improve profit?
By reducing either variable costs or fixed costs while maintaining value in their products
Explain revenue in relation to measuring success?
Achieving high revenue demonstrates the business has been able to produce a product that is desirable at the right price for consumers
What is average cost and how is it calculated?
The cost per unit of production
The unit cost determines the profit margin
The larger the output the lower the unit/average cost
Calculation: total costs / output
Explain profit and loss in relation to sales,revenue and costs?
Understanding revenues and costs allows a business to work out its profit or loss
How do you calculate profit?
Total revenue - total costs
What is meant by break even output?
The point at which a business’ Rev he generated through the sales of its products will cover the total costs
The business is neither making a miss nor a profit
What are 4 uses of break even analysis?
1) decide whether a business idea is profitable and viable
2) identify the level of output and sales necessary to generate a profit
3) assess changes in the level of production
4) assess the unit effects of costing and pricing decisions
How do you calculate the break even point?
Fixed costs / contribution per unit
What is contribution?
The difference between the variable costs of one unit and its selling price
How do you calculate total contribution?
Selling price - variable cost per unit
What is the margin of safety?
The difference between the break even point and the current level of output
The size will determine the risk of the business, it should be as high as possible
How do you calculate the margin of safety?
Current level of output - break even point
