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Business Studies Theme 2 (A-Level) > 2.3 managing finance > Flashcards

2.3 managing finance Flashcards

1
Q

Define profit

A

The difference between the revenue and costs generated by a business over a period of time

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2
Q

What is the formula for gross profit

A

Total revenue - Cost of sales

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3
Q

What is the formula for operating profit

A

Gross profit - fixed overheads

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4
Q

Define fixed overheads

A

Costs which have to be paid no matter how well the business is performing

E.g. Salaries and rent

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5
Q

What is the formula for net profit

A

Operating profit - (net financing costs and corporation tax)

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6
Q

What are net financing costs

A

The income from interest minus the interest charged on loans and overdrafts

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7
Q

What are the ways to improve profit

A

Increase revenue
Reduce costs

There is often a trade off between the two

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8
Q

What is a statement of comprehensive income

A

A document produced by a PLC to show a break down of revenue, cost and profit for a year

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9
Q

Define profitability

A

States profit as a percentage of sales revenue

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10
Q

What is the formula for gross profit margin

A

Gross profit / sales revenue X 100 %

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11
Q

What is the formula for operating profit margin

A

Operating profit / sales revenue x 100 %

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12
Q

What is the formula for Net profit margin

A

Net profit / sales revenue x 100%

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13
Q

What do profit margins mean

A

The higher the profit margin the better it is for the business

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14
Q

What are ways to improve profitability

A

Increase selling price

Cut costs

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15
Q

Why is profit no the same as net cash flow

A

Sales revenue does not equal cash inflows

Costs do not equal cash outflows

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16
Q

Define Liquidity

A

The ability for a business to find the cash it needs to pay its bills

17
Q

What is a balance sheet

A

A document describing the financial position of a business , comparing what it owns (assets) and what it owes (liabilities)

18
Q

What is a current asset

A

Are assets which are cash or can be easily turned into cash

19
Q

What is a current liability

A

Are debts owed by a business that are to be paid in one year

20
Q

What is the formula for the current ratio

A

Current assets / Current liabilities

21
Q

What is the formula for the acid test ratio

A

(Total current assets - Inventories) / current liabilities

22
Q

What are ways of improving liquidity

A

Selling under used fixed assets (equipment or machinery)
Raising more share capital
Increasing long term borrowing through loans
Postponing planned investments

23
Q

Define fixed assets

A

Items used by a business which is used to generate profits

24
Q

Define profitability

A

The profit as a percentage of sales revenue

25
Q

What is working capital

Why is it essential

A

The money available for the day to day running of the business

Is it needed to make sure a business can operate and pay for materials, labour, capital

26
Q

What is an income statement

A

A financial document from a business of the gross profit, operating profit and net profit

27
Q

What is business failure

A

Where a company fails due to its inability to make profits or cover its expenses

28
Q

What are the internal causes of market

Give examples

A

Marketing failure (poor decisions in the marketing mix)

Financial failure ( cash flow crisis)

Operations failure (physical systems break down)

Poor leadership (bad decisions)

29
Q

What are the external causes of business failure

Give examples

A

Change in technology (competitors have new tech to produce faster)

New competitor (could operate more effectively)

Economic change (economy may fall, decreased demand)

Behaviour of banks (can charge higher interest rates)

30
Q

What is the acid test ratio

A

It is used as an indicator as to whether a firm has sufficient current assets to cover its current liabilities

Business Studies Theme 2 (A-Level) (5 decks)

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