2.3 Managing Finance Flashcards
Equation for operating profit?
gross profit - operating expenses
Equation for gross profit
revenue - cost of sales
Equation for net profit?
operating profit - interest (and exceptional costs)
Equation for gross profit margin?
( gross profit / revenue ) x 100
Equation for operating profit?
( operating profit / revenue ) x 100
Equation for net profit margin?
( net profit before tax / revenue ) x 100
What is Amortisation?
the writing off of an intangible asset
How can you improve profitablility?
Raise prices
- leads to more TR, if costs remain same
- however if price goes up demand could fall g/s is price elastic
Lower costs
- cheaper resources, or use existing more efficiently (cheaper suppliers, cheap labour)
- however, cheaper could mean low quality and reliability
- better training -> better productivity
- upgrade machinery -> capital efficiency
What is a statement of financial position (balance sheet)?
financial position of a
summary of assets, liabilities, capital
What are the 2 types of assets?
Non-current - long term resources, fixed
e.g. land, property, equipment
Current - changed into cash within 12 months
e.g. stock, raw materials
What are the 2 types of liabilities?
Non-current - long term loans
e.g. mortgages
Current - short term, must be repaid within a year
e.g. tax, loans, payables
What are the 2 ways to measure liquidity?
current ratio - current assets / current liabilities
Acid test ratio - (current asset - inventory) / current liabilities
What is the working captial?
current assets - current liabilities
funds left over to meet day-to-day expenses
How can you manage working capital?
Size of business
- larger the business - more working capital
Stock levels
- window cleaning business will have less stock than retailer
- more stock -> higher working capital
