2.8 Managing finance Flashcards
What is profit?
Profit is the businesses revenue after they have payed all their costs.
Why are there different types of profit?
It allows businesses to see where their issues are.
How do you work out Gross Profit?
Revenue- cost of sales = Gross profit
How do you work out operating profit?
Gross profit- fixed costs = Gross profit
How do you work out net profit?
Operating profit- variable costs = Net profit
What are three ways to increase profit?
Increase revenue
Reduce costs
Do both of these
What is the relationship between revenue and costs?
When revenue increases it is often due to an increase in costs on things such as advertisment.
What does every public limited company have to produce every year?
A statement of comprehensive income
How do you work out the Gross profit margin?
Gross profit / Sales revenue x 100
How do you work out the operating profit margin?
Operating profit / sales revenue x 100
How do you work out Net profit margins?
Net profit / sales revenue x 100
What are some ways a business can increase profitability?
Increase selling price if the good is price inelastic.
Cut costs
What is the difference between cash and profit?
Cash is the money the business has on hold to spend instantly but profit is what the business gets to keep.
What do all limited company’s have to provide every year?
A statement of financial position.
How can you measure liquidity?
Using a balance sheet which will hold information such as the current assets and current liability’s.
What is the ideal current ratio?
1.5 : 1
How do you work out the current ratio?
Current assets / Current liability’s
What is the ideal acid test ratio?
1 : 1
how do you work out the acid test ratio?
(total current assets-stock) / current liabilities
What are some ways to improve liquidity?
Selling under used assets, Raise more share capital.
Why do some businesses fail?
Not understanding customers, Failure to differenciate and poor leadership
What are the internal reasons for business failure?
Marketing failure, Financial failure and systems and operating failure.
What are the external reasons for business failure?
Changes in technology, New competition, Economic change and bank behaviour.
