2.3 managing finance Flashcards
What is gross profit?
The difference between revenue and production costs
What is operating profit?
The difference between gross profit and indirect expenses
What is net profit?
The difference between the operating profit and any interest
What is the statement of comprehensive income?
an end of year financial statement that shows all of a businesses income and expenses over the previous twelve months
What is a profit margin?
amount by which the sales revenue exceeds the costs
How can a business improve profitability?
Increase prices
Reduce variable costs
Reduce expenses
Reduce one off costs and interest
What is the difference between profit and cash?
Profit is the difference between revenue generated and business costs, cash is the money in and out of a business
What is liquidity?
Liquidity is the ability of a business to meet short term commitments with available assets
What is the difference between as asset and a liability?
An asset is resources owned by the business to generate cash and liabilities is a debt that needs to be repaid
What is the difference between current and non current assets?
Current assets are items owned by the business in the long term
Non current assets are items converted to cash quickly
What is the difference between current and non current liabilities?
Current liabilities is money a business owes and is due to be settled soon and non current liabilities is money a business owes and does not need to be paid back for at least 12 months
What are some current and non current assets + liabilities
Current assets
- inventory
- trade receivables
Non current assets
- machinery
- buildings
Current liabilities
- overdraft
Non current liabilities
- loans
- mortgage
What are two ways to measure liquidity?
The current ratio - little stock
The acid test ratio - realistic measures for debt for business with large stock
How can you improve liquidity?
Budget
Objectives
Reduce credit period
Ask suppliers for extension payment
Sell of excess tock, assets
Lease fixed assets
Introduce new caputal
What is working capital?
The money that a business has to fund its day to day activities
