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Business > 2.3 > Flashcards

2.3 Flashcards

1
Q

Definition of Gross Profit

A

The difference between revenue and costs of production

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2
Q

Formula of Gross Profit

A

Revenue - Cost of Sales

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3
Q

Definition of Operating Profit

A

The difference between gross profit and indirect expenses involved

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4
Q

Formula of Operating Profit

A

Gross Profit - Operating Expenses

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5
Q

Definition of Net Profit

A

The difference of operating profit and any interest paid and received or one-off costs

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6
Q

Formula of Net Profit

A

Operating Profit - (Net interest + Exceptional Costs)

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7
Q

What is a Statement of Comprehensive Income used for

A

-Shows income and expenses over 12 months
-All profit is calculated within

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8
Q

Definition of Profit Margin

A

The amount which sales revenue exceed costs

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9
Q

Definition of Gross Profit Margin

A

The proportion of revenue that is turned into gross profit

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10
Q

Formula of Gross Profit Margin

A

(Gross Profit / Revenue ) *100

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11
Q

Definition of Operating Profit Margin

A

The proportion of revenue that is turned into operating profit

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12
Q

Formula of Operating Profit Margin

A

(Operating Profit / Revenue) *100

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13
Q

Definition of Net Profit Margin

A

The proportion of revenue that is turned into net profit before tax

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14
Q

Formula of Net Profit Margin

A

(Net Profit / Revenue) * 100

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15
Q

4 Ways to improve Profitability

A

-Increase Prices
-Reduce Expenses
-Reduce One-off Costs and Interest
-Reduce Variable Costs

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16
Q

Definition of Profit

A

The difference between revenue generated and business costs

17
Q

Definition of Cash

A

The full range of money flowing in and out of a business

18
Q

What is the Statement of Financial Position used for

A

Draw conclusions about the liquidity of the business

19
Q

Definition of Liquidity

A

The ease and cost that assets can be turned into cash to cover short term commitments (current liabilities)

20
Q

Definition of Non Current Assets

A

Items that are owned by the business for the long term
Machinery, Buildings

21
Q

Definition of Current Assets

A

Items that are converted to cash quickly
Cash, Inventory, Trade Receivables

22
Q

Definition of Current Liabilities

A

Money that is owed and will be settled soon Trade Payables, Short Term Borrowing (Bank Overdraft)

23
Q

Definition of Non Current Liabilities

A

Money that is owed but doesn’t need to be settled for at least 12 months
Bank Loans, Mortgages

24
Q

Formula of Net Assets (Capital Employed)

A

Assets - Liabilities

25
Q

Definition of Current Ratio

A

A way to measure liquidity
£s of current assets to cover £1 of short term debt

26
Q

Formula of Current Ratio

A

Current Assets / Current Liabilities
? : 1

27
Q

Definition of Acid Test Ratio

A

A way to measure liquidity
£s of current assets to cover £1 of short term debt
Takes away inventory

28
Q

Formula of Acid Test Ratio

A

Current Assets - Inventory / Current Liabilities
? : 1

29
Q

6 Ways to Improve Liquidity

A

-Reduce Credit Period for customers
-Ask supplier for extended repayments
-Make use of overdraft or short term loan
-Sell of excess stock
-Sell assets and lease fixed assets
-Introduce new capital and reduce drawings

30
Q

Definition of Working Capital

A

The money that a business has to fund its day to day activities
Can be called Net Current Assets

31
Q

Formula of Working Capital

A

Current Assets - Current Liabilities

32
Q

5 Internal Reasons for Business Failure

A

-Poor Planning
-Lack of Leadership
-Ineffective Marketing
-Cash Flow Problems
-Lack of Funds

33
Q

5 External Reasons for Business Failure

A

-Economic Challenges
-Changes in Consumer Tastes
-Legal Factors
-Market Challenges
-Technological Change

Business (42 decks)

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