2.4 Making financial decisions Flashcards
What is Gross profit?
A measure of the profit a business makes excluding fixed costs
sr-vc=gp
What is the formula for a gross profit margin
gp/sr x 100
What is Net Profit?
sr-total costs(vc+fc)=np
How do you calculate ARR?
(Average annual profit ÷ Initial capital outlay) x 100
Firstly, to find the average annual profit, add up all profits given and divide by the number of profits given. [You may be given yearly revenue instead of profit, in which case you would need to take away the initial capital outlay]
Initial capital outlay is the money spent on the investment and is usually given in the question
ARR is a percentage
What is quantitative data?
Quantitative data is data about numbers
Quantitative data is displayed in charts, graphs, as statistics and percentages
What is market data?
Market data refers to the electronic streaming of prices, volumes and related information used for the trading of shares on the stock markets around the world
PLCs will be interested to see how their share price is doing, and if their competitors shares are going up or down
What is financial data?
A business which is a ltd or plc must produce an annual financial report each year.
The financial data is important to anyone who is considering investing money in the business
Financial data can be compared year-on-year to see how the business is doing
What are the uses of financial data when understanding business performance?
A Ltd or plc will have to prepare two types of financial statement at the end of the financial year.
Balance sheet – this is a snapshot in time of what the business owes and what it owns
Income statement – this shows if the business has made a profit or a loss during the year
What are the uses of financial information when making business desicions?
Banks - The bank would use the financial information of a business to see if they will lend more money in the future
Government - HMRC would look at the financial information to see if the correct amount of tax has been paid
What are the limitations of financial data?
May only show a snapshot of a short period of time
Can quickly become out of date
May have been inaccurately gathered
Can be interpreted in different ways
