2.3 Managing Finance Flashcards
How do you work out profit?
Total Sales - total Costs
What is profit?
is the return and reward for taking risks and making investment
How do you work out Gross Profit?
Revenue - Costs of Sales
How do you work out Gross Profit Margin?
gross profit/ revenue X 100
How do you work out Opperting Profit?
gross profit - expences / overheads
How do you work out Opperting Profit Margin?
Opperating Profit/ Revenue X 100
How do you work out Profit for the Year?
Opperating Profit - Tax
How do you work out Profit for the Year Margin?
Profit for the year / revenue X 100
Why does a business use profit margins?
- tell if the business is making a profit and is growing
- convince others to invest into the business
- to tell if the business is efficent in turning revenue into profit
- Has the same profit been achived with the rest of the industry
How do you calculate current ratio?
Current assets/ current liabilites
- ideally should be between 1.5 and 2.0
How do you calculate acid test ratio?
current assets- stock/ current liabilities
- ideally acid test ratio should be 1 or 1:1
- Anything less than 1 indicates liquidity problems
What is a Statement of Comprehensive Income?
show how much money has been coming into the business (revenue) and how much has been going out (expences) over a period of time
- can show 3 differnt measures of profit
- should cover one whole accounting year
- asses the businesses financal performace
- have previous years data to provide a comparision
- Public limited companies publish their accounts so anyone can look at them including shareholders and investors
how do you calculate working capital?
current assets - current liabilities
What are some internal factors for business failure?
Financial Factors - Bad Management, poor efficency, bad decisions
Non Financial Factors - Poor Communication, Marketing, Failure to innovate, Inadiquete market research
What are some external factors for business failure?
Financial Factors - Economic Recession, change in exchnage rates
Non Financial Factors - Actions of Competitors, Change in customer trends, Poor communication outside business
