2.3 - Summary Flashcards
What is the profit for the year?
Profit for the year is the actual profit the business has made after taking into account interest
Why are financial ratios important?
They are a good measure of how effectively the business performed over the financial year
What does a statement of comprehensive income show?
Revenue generated by a business and then its profit at various levels following a series of expenses and incomes
What is the difference between gross profit and operating profit?
Gross profit - profit after direct costs have been deducted
Operating profit - profit left after other indirect operating costs (overheads) have been deducted
What are other operating expenses?
Administration / rent / salaries
Identify three costs a business could reduce in order to improve profit
Variable costs
Production costs
Overheads
Why is price an important factor in a business’ profitability?
The price will affect demand which means it will affect the business’s number of sales and therefore its profitability
What does a balance sheet show?
Assets and liabilities of the business
Value and financial strength of the business
What is a current asset?
Assets that the business expects to sell or use within a year
What are the net assets?
The value of the business (current assets - current liabilities)
What is liquidity?
The ability of a business to pay all its debts and liabilities in cash when they fall due
What does a current ratio of 0.8 : 1 suggest about a business?
The business has 80p of current assets for every £1 of current liabilities which means they might struggle to pay their short term debts
What deficit in skills might lead to business failure?
Poor marketing techniques
Bad market research
Explain how ineffective marketing might lead to the failure of a business
Demonstrates a lack of understanding of the market
Products will fail due to a failure to fulfil target customer needs
