2.3 Managing Finance

Question 1

What goes in a trading profit + loss A/C

Answer 1

Revenue 
Cost of sales 
Gross profit 
Expenses 
Net profit 
Tax 
Dividends 
Retained profit

Question 2

What goes a balance sheet

Answer 2

Fixed assets
Non current liabilities
Current assets
Current liabilities

Question 3

What is fixed assets

Answer 3

Capital expenditure it is not everyday expenses such as a company car , buildings, factories which lasts longer than 12 months

Question 4

What are non current liabilities

Answer 4

Long term loans , we have longer than 12 months to pay off e.g debenture

Question 5

What is current assets , debtors and closing stock

Answer 5

Items we owe and turn into money after 12 months

We sell them on credit , they owe us money and they have 12 months to pay it back businesses prefer it before in order to pay creditors

Stock/products which are left over the end of the year

Question 6

What is current liabilities

Answer 6

Loans that we owe and we have 12 months to pay it back e.g creditors

Question 7

What is assets

Answer 7

We own which are valuable (generates income)

Question 8

What is liability

Answer 8

We owe and have to pay back

Question 9

What is the ideal figure for current ratio

Answer 9

2:1

For every pound we have , we 2 pounds to pay it off

Question 10

What is the ideal figure for acid test

Answer 10

1:1

For every pound we have , we have one pound to pay back

Question 11

What is business failure

Answer 11

It is the inability to keep a business going. This can be in relation to debts and liquidity or the profits being earned

Question 12

reasons for business failure

Answer 12

No direct communication with the customer
Leadership breakdown
No real differentiation
Inability to make/create sufficient revenue streams

Question 13

What is a trading profit + loss A/C

Answer 13

Either making a profit or a loss over the course of 12 months

Question 14

What can cause good gross profit margin

Answer 14

Sales revenue
Lower cost of sales
ECS
Increasing prices but demand is inelastic

Question 15

What are the is effects of good gross profit margin

Answer 15

Better chances are to cover expenses

Question 16

What can cause bad gross profit margin

Answer 16

Low revenue

Increase of cost of sales

Question 17

What are the effects of bad gross profit margin

Answer 17

Loss of money to cover expenses

Question 18

What are the causes of good net profit margin

Answer 18

Low expenses

Higher gross profit margin

Question 19

What are the effects of good net profit margin

Answer 19

More dividends
Higher retained profit
Shareholders likely to invest
Can invest in something

Question 20

What are the causes of good current ratio

Answer 20

Good levels of stock
Debentures pay back quicker
Long term credit with creditors
Low/no bank overdraft

Question 21

What are the effects of good current ratio ( also the same for acid test ratio)

Answer 21

Good ability to pay back short term debts
High working capital -able to meet unexpected expenses
Good relationship with suppliers - negotiate better

Question 22

What can cause bad current ratio

Answer 22

Poor trade credit
Low stock
Bad debts
High overdraft

Question 23

What are the effects of bad current ratio (also the same for acid test ratio )

Answer 23

Low relationship with suppliers -not able to pay short term debts
Low working capital - unable to meet unexpected expenses

Question 24

What are this causes of good acid test ratio

Answer 24

Company is non reliant on closing stock to back debts

Question 25

What are the causes for bad acid test ratio

Answer 25

Over reliant on their stock

Question 26

What are the ways in which you can improve profitability

Answer 26

Change selling price
Change suppliers
Improve efficiency of the the company