2.4- Making Financial Descisions

Question 1

What are the 2 ways a business can increase it’s profits?

Answer 1

• Increasing revenue

- Lowering costs

Question 2

What is gross profit?

Answer 2

The profit a business makes after deducting the costs associated with making and selling it’s products, or the costs associated with providing its services

Question 3

What is the cost of sales?

Answer 3

The direct costs of purchasing raw materials and manufacturing finished products

Question 4

Why might a business calculate gross profit?

Answer 4

It gives the business a good indication of how well it generates profit from it’s trading activities

Question 5

What is net profit?

Answer 5

The differences between sales revenue and total costs. It’s the actual profit generated by the business. Used to identify if a business is succeeding

Question 6

What is the net profit margin?

Answer 6

It helps the business to measure its net profit as a percentage of it’s sales

Question 7

What is the average rate of return?

Answer 7

The average annual income generated over the life of an investment

Question 8

Limitations of average rate of return

Answer 8

• Does not account for the time value of money (Inflation)

- Cash flow changes with time

Question 9

Advantages of average rate of return

Answer 9

Business can identify that it would be more profitable to invest in extending

Question 10

What is an inforgraphic?

Answer 10

A graphic representation of information to make it interesting and easy to understand

Question 11

What is demographic information?

Answer 11

Relating to the structure of the population

Question 12

What is market data?

Answer 12

Data relating to the characteristics of the market in which a business operates

Question 13

How is time delay a limitation of financial data?

Answer 13

• Can only be used and interpreted after it has happened, when it’s already out of date
• Gives info on how a business performed in the past, but doesn’t:t tell what will happen in the future

Question 14

How does financial data limit the help in decision making?

Answer 14

• It’s the past so can only give business small amount of help at the present moment
• You need a lot of data to compare it against

Question 15

How does non-financial aims and objectives limit financial data?

Answer 15

• Financial data on,y shows the financial position of the business
• Not an indicator of success

Question 16

What types of data is financial data + why is this a disadvantage?

Answer 16

• It’s a quantitative data + doesn’t show qualitative side

Question 17

What is financial data?

Answer 17

• Includes business sales revenue, costs and profits

- Directly influences a business performance + decision