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Business Flash Cards > 2.3 > Flashcards

2.3 Flashcards

1
Q

Profit formula

A

Total Revenue - Total Costs

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2
Q

Revenue formula

A

Selling Price x Quantity Sold

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3
Q

Total Cost formula

A

fixed costs + variable costs

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4
Q

Variable cost formula

A

variable cost per unit x quantity

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5
Q

Which type of profit is favoured by entrepreneurs when they are trying to get investment because it over estimates the profit you have

A

Gross profit

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6
Q

Which type of profit includes the overheads/expenses that the business has to pay

A

Operating profit

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7
Q

Which profit is the true profit that is reported to Inland Revenue to calcualte the level of tax that is due

A

Net profit

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8
Q

Gross profit formula

A

Revenue - cost of sales

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9
Q

Operating profit formula

A

Gross profit - operating expenses

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10
Q

Net profit formula

A

Operating profit - interest and other expenses

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11
Q

What does the Profit and Loss Account show

A

The income and expenses of the business during the year
And will always shows the figures for the current year and previous year

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12
Q

Purpose of the Profit and Loss Account

A

Show whether a business has made a profit or loss
Describe how the profit or loss arose

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13
Q

What does the Trading Account show

A

Shows the income from sales and the direct costs of making those sales

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14
Q

Definition of Overheads and expenses

A

Costs not directly involved in the production process

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15
Q

Why are Profit percentages used

A

To see how profitable a business
Measures how much profit is made from the revenue that the business makes

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16
Q

Why are Market share percentages used

A

To see how powerful a business is in their market

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17
Q

What is ratio analysis

A

Analysing and comparing performance of a business to help suggest strategies to improve performance of a business

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18
Q

Gross profit margin formula

A

Gross profit / revenue x 100

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19
Q

Operating profit margin formula

A

Operating profit / revenue x 100

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20
Q

Net profit margin formula

A

Net profit / revenue x 100

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21
Q

What are the two main ways to improve profitability

A

Increasing revenue
Lowering cost

22
Q

Asset definition

A

Resoruces owned by a business that have value

23
Q

Liabilities definition

A

The debts of the business

24
Q

Capital definition

A

Money put into the business
Other sources of finance
Used to buy assets
Machinary / make assets/goods

25
Q

What is the Balance Sheet / Statement of Financial Position

A

Summary of the assets , liabilities and capital of a business

26
Q

Current assets definiton

A

Assets changed into cash within one year

27
Q

Non current asset definition

A

Assets that will will be used repeatedly over a period of time

28
Q

Current liabilities

A

Debts due within one year

29
Q

Non current liabilities

A

Debts that do not have to be paid for at least one year

30
Q

Tangible assets

A

Assets which a business physcially owns and can touch e.g. the product , building etc

31
Q

Non tangible assets

A

Assets which a business owns but they aren’t physical e.g. the brand etc

32
Q

Net assets formula

A

Total Assets - Total Liabilities

33
Q

Assets formula

A

Liabilities + Equity

34
Q

Liquidity definition

A

How quickly something can be turned into cash
How able a business is to repay their debts using assets

35
Q

Current ratio formula

A

Current assets / current liabilities

36
Q

If current ratio is 1.5:1 - 2:1 what does this mean

A

that the business has plenty of working capital to meet its day to day bills

37
Q

If current ratio is above 2:1 what does this mean

A

Too much money is tied up in assets that are not making money and aren’t being properlly invested

38
Q

If current ratio is below 1.5:1 what does this mean

A

Could be a problem but depends of the type of business

39
Q

Some issues with stock

A

Space
Could be perishable
Could be outdate / not in fashion anymore
Cost to hold it

40
Q

Acid test ratio formula

A

Current assets - Inventories / Current liabilities

41
Q

What does a less than 1:1 current ration mean

A

A business’ current assets minus stock do not cover its current liabilites #
So shows the business is too reliant on stock

42
Q

Working capital definition

A

the capital of a business used in its day to day trading operations

43
Q

What is the working capital cycle

A

Time taken to convert net current assets and current liabilities into cash
Often expressed as a period of time
If this length has to be increased it suggests that it takes longer to turn stocks and debtors into cash
Each time it happens a little money is put back in than flows out

44
Q

Working capital formula

A

Current assets - Current liabilities

45
Q

Why is cash important

A

Most liquid business asset
Part of working capital
Poor cash flow can lead to business failure

46
Q

Ways to improve liquidity

A

Overdraft
Loans
Cash sales
Sales and leaseback
Only make essential purchases
Extend credit with suppliers
Reduce personal drawings from busines
Introduce fresh capital

47
Q

External causes of business failure

A

Competition
Changes in legislation
Changes in consumer taste
Economic conditions
Changes in market price

48
Q

Financial reasons for a business to fail

A

Bankrupt - legal process declaring they can no longer pay debts
Insolvent - can’t pay debts
Shortage of cash

49
Q

Non-financial reason for a business to fail

A

Lack of planning
Lack of business skills
Inability to compete efficiently
Failure to meet customer needs

50
Q

What can casue cash flow problems

A

Overtrading
Investing too much in fixed assets
Allowing too much credit
Over borrowing
Seasonal factors
Unforeseen expenditure
External factors - consumer taste legalisation
Poor financial management

Business Flash Cards (19 decks)

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