2.3 Managing Finance

Question 1

cash

Answer 1

an asset of a business which can come from investors, lenders or customers

Question 2

cost of sales

Answer 2

the cost of inventory bought or produced

Question 3

gross profit

Answer 3

revenue - cost of sales

Question 4

gross profit margin

Answer 4

gross profit/sales revenue x 100

Question 5

operating profit

Answer 5

gross profit - other operating expenses

Question 6

operating profit margin

Answer 6

operating profit/sales revenue x 100

Question 7

profit

Answer 7

is recorded straight away after sales . total revenue - total sales

Question 8

profit of the year margin

Answer 8

net profit/sales revenue x 100

Question 9

profit for the year/net profit

Answer 9

operating profit - interest

Question 10

profitability

Answer 10

profit as a proportion of sales

Question 11

statement of comprehensive income

Answer 11

a document to show income and expenditure of a business over a financial year

Question 12

tax

Answer 12

a charge made by governments on activities, earning and income of individuals and businesses

Question 13

2.3.2

acid test ratio

Answer 13

current assets - inventory / current liabilities

Question 14

capital

Answer 14

cash put into the business by the owner

Question 15

assets

Answer 15

valuable things that a business can use

Question 16

current assets

Answer 16

liquid assets, those assets that will be converted into cash within 12 months

Question 17

current liabilities

Answer 17

debts owed by a business that must be repaid within one year

Question 18

current ratio

Answer 18

current assets/current liabilities

Question 19

liabilities

Answer 19

debts owed by a business to lenders and suppliers

Question 20

liquidity

Answer 20

the ability the pay bills in cash when they fall due or the ability to meet current liabilities with current assets

Question 21

net assets

Answer 21

total assets - total liabilities

Question 22

non current assets

Answer 22

long term resources that will be used by the business for more than one year e.g. property and equipment

Question 23

Non-current liabilities

Answer 23

Debts owed by the business were more than one year E.G.loans

Question 24

Shareholders equity

Answer 24

The value of the shareholders investment in a business

Question 25

Statement of financial position/balance sheet

Answer 25

A summary as a particular point in time of the value of a firms assets, liabilities and equity

Question 26

Total equity

Answer 26

Share capital + retained profit or, owners capital + retained profit less drawings

Question 27

Working capital

Answer 27

Working capital is a difference between the current assets and current liabilities of business. It gives some indication of the liquidity level within the business.

Question 28

2.3.3 External causes for business failure

Answer 28

The factors outside the control of the business which might cause it to fail E.G.competition, legislation, customers and economic conditions

Question 29

Financial factors for business failure

Answer 29

Factors which may contribute to a business running out of cash E.G.late payments, inability to borrow

Question 30

Internal causes for business failure

Answer 30

Factors which a business can control E.G.poor decision-making, loss of key staff

Question 31

Non-financial factors for business failure

Answer 31

Can come from inside or outside the business E.G.poor management, external shocks

Question 32

Overtrading

Answer 32

The situation where a business does not have enough cash to support its production and sales, usually because it is growing too fast