2.3 managing finance Flashcards
gross profit formula
sales revenue-cost of sales
operating profit formula
gross profit-sales
net profit formula
operating profit - interest and taxation
what is profit ?
the difference between revenue and all costs involved in generating the revenue
what are dividends ?
annual payments made to shareholders
gross profit margin formula
gross profit/sales revenue x100
operating profit margin
operating profit/sales revenue x100
net profit margin
net profit/ sales revenue x100
gross profit definition
The amount of profit remaining once direct costs (cost of sales) have been paid by the business.
operating profit definition
The amount of profit remaining once direct costs (cost of sales) and indirect costs (expenses) have been paid by the business.
fixed overheads definition
the indirect costs that have to be paid regardless of the business performance. e.g rent and salaries
name the 2 ways to increase profits
-increase revenue
-decrease costs
Current ratio formula
Current ratio = current assets ÷ current liabilities.
Acid test ratio formula
(current assets-stocks) /current liabilities
When does business failure occur?
Business failure usually occurs when there is insufficient cash available to sustain the usual levels of trading.
Name 2 internal reasons for business failure.
-Poor cashflow management
-Lack of experience with business management
Name 3 external reasons for business failure.
-Government regulation change
-Lower consumer spending
-Intense competition
Name 2 financial reasons for business failure.
-Poor cashflow management
-Unsustainable levels of cost
Name a non-financial reason for business failure
Political and legal changes
what determines quality ?
-The quality of the materials that are used.
-The quality of the production process.
-The style of a product.
-The durability, speed and quality of a service.
The two main aspects of a product or service that customers use to make decisions are p……. and q……..
price + quality
name the 3 main consequences of poor quality
-product recalls
-lost customers
-high costs due to processing returns
what are the 2 main ways of measuring quality of a product/service ?
-customer feedback
-customer surveys
What can businesses do to measure and identify quality?
-Check quality in production process
-Customer service and complaints
what does TQM stand for ?
total quality management
what is TQM?
Total Quality Management (TQM) is a set of management principles that places quality at the heart of everything a business does.
3 main Benefits of Maintaining High Quality (business)
-avoid product recalls
-higher price of product=more revenue
-good image/reputation
what are the 3 main costs of maintaining high quality as a business (internal)
-inspection costs
-staff training
-provision services
what is kaizen ?
Kaizen is an approach to innovation. It involves lots of small and continuous improvements being made to a process so that over time the process becomes more efficient.
what does the kaizen approach require? (employees)
-kaizen approach requires the support of employees
-employee must feel passionate about helping business to improve
name 2 advantages of kaizen
-improvements are likely to not demand high level of investments
-improvements are mostly supported by employees (cost effective method)
name 2 disadvantages of kaizen
-managers may shy from making fundamental changes
-employees may not like constant pressure to improve
-kaizen depends on democratic leadership style
what is job production ?
e.g
the production of “one off” (bespoke) items to meet the needs of each individual customer
e.g wedding dresses
2 positive and negative for job production
+cheap and easy to set up
+businesses can charge more
-expensive to produce
-time consuming as its specific to customers wants and needs
true or false.
job production requires hight skilled workers
what does this mean ? (expenses)
true.
this means that the method is more expensive as higher skilled workers tend to be paid more
what is batch production?
where small quantities of identical products are made-each item passing through the production process at the same time
2 positive and negative for batch production
+ allows for quicker and cheaper production
+more uniform products
-worker may be less motivated (repetitive)
-time consuming
