3.5 Flashcards
5 different financial objectives
Revenue
Cost
Profit
Cash Flow
Return on investments
Internal factors for finance
Overall objectives
Status of the business- reputation, size
Other department objectives
External factors for finance
Availability of finance
Competitors
Economy
Shareholders
Ethics
Gross profit
Operating profit
Profit for the year
Gp=sales rev-cost of sales
Op= Rev- cost of sales - operating expenses
Proft yr= op+other profit- interest charges and tax
Gp margin
Op margin
Gpm = Gp/Rev100
Opm= Op/rev100
Cash flow
calculated by cash in - cash out
How to improve cashflow
overdrafts
reduce stock- lean production methods
Debt factoring
credit time periods
sell and lease back
increase prices
reduce costs
advertise to increase brand awareness and demand
improve quality
create usp
Return on investment
RoI= return/cost*100
How to analyse performance
cashflow forecast
liquidity
working capital= current assets- current liabilities
creditors and debtors
2 types of budgeting
Historical- best for older firms
Zero-based- used for younger businesses + more flexible as you get approval for spending instead of being given a set amount to spend
Budget vs Actual
Favourable and adverse
doesnt necessarily mean good and bad eg why was spending in marketing so low, if spent more could sales have increased more ect
Breakeven graphs
BEP= fixed costs/contribution per unit
Contribution= selling price- variable cost
Total contribution= total rev- total variable* units sold
Margin of safety= actual output- BEP
Sources of finance
Internal- retained profit and share capital
Short term- overdrafts, debt factoring
Long term- long term bank loans, venture capital
