2.3 Managing Finance

Question 1

What is the gp calculation?

Answer 1

Revenue - cost of sales (vc)

Question 2

What is the op calculation?

Answer 2

Gross profit - fixed costs/expenses

Question 3

What is the np calculation?

Answer 3

Operations profit - interest

Question 4

What is the gp margin calculation?

Answer 4

Gross profit / revenue x 100

Question 5

What is the op margin calculation?

Answer 5

Operations profit / revenue x 100

Question 6

What is the np margin calculation?

Answer 6

Net profit / revenue x100

Question 7

What is ratio Analysis?

Answer 7

Analysing relationships between financial data to assess the performance of a business

Question 8

What is liquidity?

Answer 8

Ability of a business to turn its assets into cash to pay its current liabilities

Question 9

What is a balance sheet?

Answer 9

Document showing what a business owns (assets) and what it owes (liabilities)

Question 10

What are non current assets?

Answer 10

Assets not expected to be sold within the next year

Question 11

What are current assets?

Answer 11

Short term assets - expected to be sold within the next year

Question 12

What are non current liabilities?

Answer 12

Long term - not expected to be payed off within a year

Question 13

What are current liabilities?

Answer 13

Short term - expected to be paid off within the next year

Question 14

What is equity?

Answer 14

Indicates money owed to shareholders

Question 15

What is the current ratio formula?

Answer 15

Current assets / current liabilities

Question 16

What is the acid ratio formula?

Answer 16

Current assets - stocks / current liabilities

Question 17

How to improve liquidity?

Answer 17

• Increase current assets
• switch to long term finance
• monitor debtors to valide bad debts
• sell assets that are no longer used
• move cash balances from current accounts to high interest accounts

Question 18

What is working capital? Calculation?

Answer 18

A measure of a firm’s liquidity/ ability to meet day to day expenses
Current assets - current liabilities = working capital (net current assets)

Question 19

More ways to improve liquidity?

Answer 19

• reduce stock it holds
• pay suppliers later on agreed credit
• increase borrowing long term and clear short term debts
• reduce credit period given to customers

Question 20

What is business failure?

Answer 20

when a business ceases to trade or doesn’t trade in a profitable way or when an ineffective decision is made

Question 21

What is liquidation?

Answer 21

The process of closing a limited company. Includes a sale of assets and the company is dissolved some retail companies sell the brand name, stock and stores and continue under diff management

Question 22

What are internal reasons for business failure?

Answer 22

• poor efficiency
• poor marketing
• failure to innovate
• bad management of working capital

Question 23

What are external reasons for business failure?

Answer 23

• economic recession
• strong pound - reduced export demand
• interest rates

Question 24

What are financial reasons for business failure?

Answer 24

• poor cash flow management
• inadequate or inappropriate financing

Question 25

What are non financial reasons for business failure?

Answer 25

• lack of management control
• significant external shock

Question 26

What is poor cash flow management?

Answer 26

• holding too much stock
• inadequate credit control
• bad debts incurred
• inaccurate forecasts

Question 27

What is inadequate financing?

Answer 27

• use of short term overdrafts
• failure to use debt factoring
• inadequate shareholders capital

Question 28

What is lack of management control?

Answer 28

• failure to develop a credible business plan
• failure to understand costs
• failure to administer company properly
• excessive marketing expenditure