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Business Theme 2 > 2.3 Managing finance > Flashcards

2.3 Managing finance Flashcards

1
Q

What is profit?

A

The difference between the revenue of a business and the costs generated by the business during a period of time

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2
Q

How to calculate gross profit:

A

Sales revenue - (cost of sales) aka variable costs

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3
Q

How to calculate operating profit:

A

Gross profit - fixed overheads (fixed costs)

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4
Q

How to calculate net profit:

A

Operating profit - interest/tax

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5
Q

How to improve profit:

A

Increase revenue

Reduce costs

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6
Q

What is a statement of comprehensive income?

A

Produced by PLC’s showing revenue and different types of costs/profit for the year

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7
Q

What is profitability?

A

States profit as a percentage of sales revenue

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8
Q

How to calculate gross profit margin?

A

Gross profit
———————- x 100
Sales revenue

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9
Q

How to calculate operating profit margin?

A

operating profit
———————- x 100
Sales revenue

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10
Q

How to calculate net profit margin?

A

Net profit
———————- x 100
Sales revenue

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11
Q

Ways to improve profitability:

A

Increase selling price

Cut costs

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12
Q

What is the distinction between cash and profit:

A

Sales revenue does not equal cash inflows

Costs do not equal cash outflows

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13
Q

What is liquidity?

A

The ability of a business to find the cash it needs to pay it’s bills

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14
Q

What are the two ways in measuring liquidity?

A

Calculating current ratio

Calculating acid test ratio

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15
Q

How to calculate current ratio:

A

Current liabilities

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16
Q

How to calculate acid test ratio:

A 
   Current liabilities
17
Q

How to improve liquidity:

A

Raising more share capital

Selling under-used fixed assets e.g machinery

Increasing long term borrowing through loans

Postponing planned investments

Reduce credit period offered to customers

18
Q

What is working capital?

A

Money available for the day to day running of the business

19
Q

What does managing the working cycle involve?

A

Ensuring there is enough money in the system altogether

Making sure cash moves through the cycle as quickly as possible

20
Q

What does it mean if a business fails?

A

Means the end of trading for a business e.g BlockBuster

21
Q

Why do businesses fail?

A

Refuse to move in time with the dynamic market

Technology has advanced

22
Q

Internal causes of business failure:

A

Failure to understand the market

Poor planning

Poor decision making

Badly organised

Overtrading

Non viable idea in the first place

23
Q

External causes of business failure:

A

Economic environment

Changing social trends

Demographic changes

Political environment

Business Theme 2 (5 decks)

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