2.3 Managing finance

Question 1

amortisation

Answer 1

the writing off of an intangible asset

Question 2

cost of sales

Answer 2

the direct costs of a business

Question 3

exceptional costs

Answer 3

a one-off cost, such as a large bad debt

Question 4

gross profit

Answer 4

the difference between revenue and cost of sales

Question 5

gross profit margin

Answer 5

gross profit expressed as a percentage of revenue

Question 6

operating profit

Answer 6

the difference between gross profit and business overheads, such as selling and administrative expenses

Question 7

operating profit margin

Answer 7

operating profit expressed as a percentage of revenue

Question 8

net profit

Answer 8

the difference between operating profit and interest and exceptional items such as taxation

Question 9

net profit margin

Answer 9

net profit before tax, expressed as a percentage of revenue

Question 10

statement of comprehensive income (profit and loss account)

Answer 10

a financial document showing a company’s income and expenditure over a particular time period, usually one year

Question 11

revenue/turnover

Answer 11

the total income of a business resulting from sales of goods or services

Question 12

current ratio

Answer 12

assesses whether or not a business has enough resources to meet any debts that arise in the next 12 months, it is found by dividing current liabilities into current assets

Question 13

acid test ratio

Answer 13

silmilar to the current ratio but excludes stocks from current assets, a more severe test of liquidity

Question 14

assets

Answer 14

resources that belong to a business

Question 15

capital

Answer 15

money put into the business by the owners

Question 16

current assets

Answer 16

liquid assets, i.e. those assets that will be converted into cash within one year

Question 17

current liabilities

Answer 17

money owed by the business that must be repaid withi one year

Question 18

intangible assets

Answer 18

non-physical assets, such as brand names, patents and customer lists

Question 19

inventories

Answer 19

stocks, such as raw materials and finished goods held by a business

Question 20

liabilities

Answer 20

money owed by the business to banks and suppliers, for example

Question 21

liquidity

Answer 21

the ease with which assets can be converted intocash

Question 22

net assets

Answer 22

total assets take away total liabilities

Question 23

non-current assets

Answer 23

long-term resources that will be used by the business repeatedly over a period of time

Question 24

non-current liabilities

Answer 24

money owed bu the business for more than one year, sometimes called long-term liabilities

Question 25

shareholders’ equity

Answer 25

the amount of money owe by the business to the shareholders

Question 26

statement of financial position (balance sheet)

Answer 26

a summary at a particular point in time of the value of a firm’s assets, liabilities and capital

Question 27

trade and other payables

Answer 27

money owed by the business to suppliers and utilities, for example

Question 28

trade and other receivables

Answer 28

money owed to the business by customers and any prepayments made by the business

Question 29

working capital

Answer 29

the funds left over to meet day-to-day expenses after current debts have been paid, it is calculated by subtracting current liabilities from current assets

Question 30

administration

Answer 30

a failing business appoints a specialist to rescue the business or wind it up

Question 31

external factors

Answer 31

factors beyond the control of businesses cause it to collapse

Question 32

internal factors

Answer 32

factors that businesses are able to control cause it to collapse

Question 33

overtrading

Answer 33

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